By NEIL HARTNELL
Tribune Business Editor
The Government is forecasting a more gradual reduction in its Budgetary financing gap as a result of the restructured Value-Added Tax (VAT), and will not eliminate its total GFS deficit by the 2015-2016 fiscal year as originally projected.
The Christie administration had projected last year that it would achieve a balanced GFS Budget (stripping out debt principal redemption) by June 2015, and run a surplus equivalent to $80 million or 0.9 per cent of GDP by the 2016-2017 fiscal year.
Those projections were based on a 15 per cent VAT, and the Government’s latest fiscal forecasts, employing the restructured 7.5 per cent levy, predict that it will still be running an overall GFS deficit - albeit a much reduced one - equivalent to 0.9 per cent of GDP come 2016-2017.
This is despite a more than-35 per cent increase in recurrent revenues over the 2013-2014 intake, with the Government’s income projected to grow from $1.465 billion to $1.98 billion over a three-year period.
Still, the Government’s projections show that VAT and other revenue enhancements will eliminate the recurrent deficit (meaning it will cover its fixed costs) by 2015-2016, running a recurrent surplus of $68 million that year after a $53 million deficit in the upcoming fiscal year.
Prime Minister Perry Christie yesterday told the House of Assembly that the Government’s primary (recurrent) deficit would be “virtually eliminated” come this fiscal year, with “sizeable surpluses” achieved moving forward and the debt-to-GDP ratio’s growth halted.
“The ongoing rise of the government debt burden will be arrested, and the ratio of debt-to-GDP will decline to 58.5 per cent by 2016-2017, down from the peak of 60.9 per cent in 2014-2015,” he added.
The Prime Minister said the total GFS deficit would experience “a significant decline” in the upcoming fiscal period, dropping from $$462 million or 5.4 per cent of GDP in the 2013-2014 year, to $286 million or 3.2 per cent this time around.
Tangible signs of progress are sorely needed, as the Bahamas’ total national debt, already equals 66 per cent of GDP - a figure close to the IMF’s so-called ‘danger threshold’ of 70 per cent.
In gross terms, this nation is indebted to the tune of $5.567 billion, and the Christie administration, like others before it, appears to be relying heavily on economic growth to keep the debt-to-GDP ratio in check.
And, with the Government set to borrow a further $343 million in 2014-1015, the Christie administration, adding to previous deficits of $512 million and $465 million, will have borrowed a collective $1.3 billion during its first three years in office.
Mr Christie yesterday said VAT and other measures were “expected to boost the yield of our revenue system by 2.7 per cent of GDP in 2014-2015”.
As a result, revenues are projected to increase by almost $300 million year-over-year - from $1.465 billion to $1.77 billion.
“That will take the yield to 19.8 per cent of GDP, up from 17.1 per cent this fiscal year. By 2016-2017, our revenue yield will be enhanced by roughly 3.4 per cent of GDP, to a level of 20.5 per cent of GDP. That will bring us significantly closer to the regional norm, though we will still be somewhat below it,” he added.
As for the Government’s recurrent or ‘fixed cost’ spending, Mr Christie said this would hit 19.6 per cent of GDP in 2016-2017, compared to 20 per cent this fiscal year, and 20.7 per cent in 2010/11.
“Recurrent expenditure in 2014-2015 is estimated at $1.823 billion, up some $103 million from the level in 2013-2014,” the Prime Minister said.
“This increase reflects a number of factors. For one thing, not unexpected, debt servicing requirements next year will be up by $40 million from this year, with public debt interest payments up by almost $30 million and debt redemption higher by $10 million.”
The Government’s debt servicing (interest) bill alone is projected at $260 million for the 2014-2015 Budget year, and represents the largest line item.
Mr Christie said the Government was bringing fiscal accountability by setting itself public targets, adding that his administration was bringing “discipline and planning” to its finances.
Emphasising that his actions would benefit future generations of Bahamians, the Prime Minister added: “We simply cannot continue, as governments in this nation have done over the last several years, to tolerate a situation where Government inexorably spends far more than it takes in, thereby increasing the burden of debt to potentially crippling levels, as a legacy that we will simply pass on to future generations.
“That must stop, and my Government is seeing to it that it does, visibly and concretely during this term in office. We will rid the nation of the fiscal albatross that hangs around its neck, sapping confidence and energy and initiative.
“By breaking the vicious cycle of deficits and debt build-up on a permanent and sustainable basis, we will reap a sizeable fiscal dividend.”
Mr Christie, meanwhile, blamed the “tepid growth rate” of the Bahamian economy, and weak import and consumer demand, for the Government missing its 2013-2014 revenue targets.
”We now expect an outturn for recurrent revenues in the area of $1.465 billion, some 2.5 per cent less than was budgeted, but an improvement of 6.2 per cent over what we collected in fiscal year 2012-2013,” Mr Christie said.
Recurrent spending is forecast to come in below estimates, at $1.72 billion versus $1.737 billion that was projected.