By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Government is “certainly going to miss” its projected $286 million deficit target for the 2014-2015 fiscal year, a leading private sector executive said yesterday, with its spending outpacing revenue intake.
Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, said that while the private sector remained hopeful the Government would hit its fiscal goals, its full-year projections were “a little bit aggressive” given the first half performance.
Warning the Christie administration “not to rush expenditure before we get everything back on an even keel”, Mr Bowe told Tribune Business that the Government’s next goal should be to prove to a sceptical public that it will be prudent in how it uses the new Value-Added Tax (VAT) revenues.
He suggested that the Government was “guilty before proven innocent” in the eyes of many Bahamians over how it will employ its revenue windfall, amid hopes it will reduce the $6 billion national debt and persistent $500 million annual deficits.
Tribune Business revealed yesterday how Moody’s, the international credit rating agency, is forecasting that the 2014-2015 fiscal deficit will come in at $393.008 million - a sum equivalent to 4.4 per cent of Bahamian gross domestic product (GDP).
This is more than $107 million higher than the Government’s own full-year forecast of $286 million or 3.2 per cent of GDP, with Moody’s suggesting the Christie administration harboured over-optimistic expectations for how quickly VAT revenues will ‘ramp up’ and deliver.
While essentially agreeing with Moody’s assessment, Mr Bowe yesterday pointed out that a fiscal deficit close to 4 per cent of GDP still represented a major improvement on the 5-6 per cent gaps the Bahamas has had to contend with in recent years.
He added that a reduced deficit would lend some credibility for the Bahamas’ fiscal reform plans, and decision to implement VAT, and provide “some breathing space” with the likes of Moody’s who are anxiously awaiting this nation’s progress.
Suggesting that “the first couple” of VAT returns would likely show which set of fiscal forecasts was correct, Mr Bowe hinted that the outcome was likely to be closer to Moody’s than the Government’s.
This is especially because the half-year fiscal deficit, of $273 million or 3.1 per cent of GDP, was just $13 million below that projected for the full 12 months. To hit its $286 million goal, the Government will have to run a near-balanced Budget for the six months until end-June - something successive administrations have found virtually impossible.
“I don’t think anyone in the general community is comfortable we will see such a tremendous return,” Mr Bowe told Tribune Business.
“Everyone is hopeful, and encouraging the Government to make that target, but unfortunately expenditure is consistent with the prior year and increasing steadily, and revenues take time to come in.
“I would say we are certainly going to be outside where the Government has projected,” he added.
“Everyone felt it was a bit aggressive - that the six months to June would give them sufficient time to make a major dent in the rate of the GFS deficit.”
The Government has forecast it will earn $150 million from VAT in the six months to end-June 2015, and $300-$350 million net from its new tax in the full 2015-2016 fiscal year.
Michael Halkitis, minister of state for finance, indicated that based on January’s VAT returns (see other article on Page 1B), the Government was on track - indeed possible ahead of projections - to hit those targets.
Mr Bowe, meanwhile, said that even if the Government missed its projected 2014-2015 deficit target, containing the ‘red ink’ to somewhere around 4 per cent of GDP would still represent progress.
“Three to 4 per cent is lower than the 5 per cents we’ve had in the past,” he told Tribune Business. “It’s in the right direction, and the closer we can get to 3 per cent, the better.
“If it’s 4 per cent, people will see merit and credit in the VAT strategy, and persons will give us the benefit of the doubt.”
Positive momentum on deficit reduction, Mr Bowe explained, would go down well with both the agencies that assess the Bahamas’ creditworthiness and the International Monetary Fund (IMF), whose team is currently in this nation for the annual Article IV consultation.
“If we’re able to achieve the revenue targets faster than projected, which the Ministry of Finance seems confident that it can do, it’s good as we will get a bit of a honeymoon period,” he explained. “It’s always good to get some breathing space.”
However, Mr Bowe was quick to warn that the initial positive signs for the Government’s revenues, based on January’s VAT returns, should not breed complacency in either the Government or private sector.
“We have to be careful not to rush expenditure before we get everything back on an even keel,” he said.
“Everyone was supportive of tax reform, but has their doubts about how these are spent. Whether the Government likes scrutiny from the public or not, they’re going to have to prove to the man on the street how they’re going to spend it.
“It’s one of those situations where they are guilty before they are proven innocent,” he added. “Persons are going to be looking for them to be using it to reduce the deficit and the debt.”
Comments
asiseeit 9 years ago
This government is spending like a whore with a clients credit card. Fiscal responsibility is as foreign to them as believing in Bahamians. I am at the point where I wish the IMF would just do what they are going to do anyway. Put the country into default and take over, cheaper now than in a couple years!
John 9 years ago
There are sure signs that the local market is dwindling despite an upswing in tourism. Just hope this is a temporary market adjustment to vat.
John 9 years ago
On the other hand government seems to be warming up its election machinery. This can lead to hundreds of millions in reckless spending over the next two years.
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