The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known Government critic has praised the Christie administration for so far living up to its Value-Added Tax (VAT) promises, and starting the process to “move the Bahamas away from the fiscal cliff”.

Dionisio D’Aguilar, Superwash’s president, called on the Government to continue the initial trend shown in its revised 2014-2015 Budget numbers of using VAT revenues to narrow the deficit and, ultimately, pay down the $6.2 billion national debt.

Acknowledging that he did not often praise the Government, Mr D’Aguilar said the numbers indicated that the Christie administration had begun the long process of steering the Bahamas away from “the precipice” of another downgrade to its sovereign creditworthiness.

However, he urged the Government to overcome its seeming resistance to implementing Fiscal Responsibility-type legislation.

The ex-Bahamas Chamber of Commerce president said the private sector would not tolerate, and needed assurances, that the Government would not “blow” the extra $400 million it was now sucking out of the economy annually on reckless spending.

“I’m very impressed with the Budget,” Mr D’Aguilar told Tribune Business. “It did demonstrate some fiscal restraint, and we have to give them credit for that.

“The whole reason why the business community and the population at large agreed to VAT was to reduce the deficit, and I’m glad to see that promise has been kept.”

Mr D’Aguilar cited the 59.4 per cent year-over-year cut in the GFS fiscal deficit, from $488 million to $198 million for the 2014-2015 fiscal year, as an improvement worthy of his praise.

Based on the $110 million in gross revenues that the Government has collected from VAT’s first three months, the Superwash chief said it was on target to earn roughly $220 million for the 2014-2015 fiscal year’s second half.

With the GFS deficit projected to have come down by $290 million from the 2013-2014 outcome, Mr D’Aguilar said the estimates showed a $70 million year-over-year fall if VAT’s impact was stripped out.

And he labelled the Government’s forecast of a further 28.8 per cent cut in the GFS deficit to $141 million in 2015-2016 as “a commendable goal”.

“I don’t often commend the Government,” Mr D’Aguilar conceded, “but they are to be commended.

“At least the money they’re sucking out of the economy is being used to reduce the deficit and ease the debt-to-GDP limits, and we will eventually move away from that cliff of another downgrade.

“If we have sustained deficits at our current level, there is no doubt we will suffer another downgrade, and the Government is the process of pulling us back from that precipice.”

The projected outturn for the 2014-2015 fiscal year appears designed to show the Government is living up to its pledges on how the VAT revenues will be used, as well as proving its fiscal prudence credentials.

The increase in debt principal redemptions, from $98 million to $165 million, appears intended to showcase it is achieving both these goals, even if recurrent spending is likely to finish $21 million above projections at $1.844 billion.

This indicates that the Government has deliberately altered spending priorities, shifting expenditure to debt principal repayments to not only lower the GFS deficit, but demonstrate to both Bahamian and international audiences (IMF and credit rating agencies) that it is delivering on the fiscal consolidation.

Mr D’Aguilar, acknowledging that the Bahamas has yet to solve its economic growth, crime, education and unemployment problems, backed the notion that improving the Government’s financial position feeds into all these objectives.

“Fundamental to your economic success is to make sure you are not irresponsible in managing the affairs of the country, and the Government has demonstrated through this Budget that it is being fiscally responsible,” he told Tribune Business.

“They’ve got a lot to do in that area, but you’ve got to commend them for introducing VAT and using the monies for what they said they were going to do: Reduce the deficit. They should be encouraged to continue that trend.”

But, while the Government appeared to have heard the cries for Fiscal Responsibility-type legislation and ‘fiscal rules’, it appeared reluctant to follow through in execution.

“They seem to be reluctant to implement it,” Mr D’Aguilar said, noting that Cabinet ministers instinctively responded by warning of the need for fiscal “flexibility” should a hurricane strike the Bahamas.

Brushing aside such concerns, Mr D’Aguilar argued that “it’s good governance” to implement Fiscal Responsibility-type legislation, especially since the Bahamas was trying to rebuild its fiscal “headroom” following the more than $2 billion in debt incurred since the 2008-2009 recession.

“There is a tremendous temptation at election time to spend that headroom, and we need to have proper controls in to ensure proper fiscal management,” Mr D’Aguilar told Tribune Business.

“We’re not sucking $300-$400 million out of the economy for them to go blow it and borrow more money.”