The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank yesterday backed the Government’s assertion that it will ‘catch up’ to its fiscal targets during the 2016 first half, with the deficit for the first seven months of its current Budget year shrinking by 28.4 per cent to $210.1 million.

The regulator, in its monthly economic report for February, predicted that “a seasonal acceleration” in Value-Added Tax (VAT) and other revenue streams, due to increased economic activity and payment timing, would result “in a more marked consolidation” by the 2015-2016 fiscal year end.

“During the seven months of fiscal year 2015-2016, the overall deficit narrowed by $83.3 million (28.4 per cent) to $210.1 million, as revenue firmed by $212.3 million (25.6 per cent) to $1.042 billion, outpacing the $129 million (11.5 per cent) expansion in expenditure to $1.252 billion,” the Central Bank report said.

“A seasonal acceleration in VAT and Business License collections over the rest of the fiscal year - particularly during March and April - should produce a more marked consolidation in the overall fiscal year deficit.”

The Central Bank’s assessment supports that given by Michael Halkitis, minister of state for finance, who pointed out that the bulk of the Government’s revenues are traditionally earned during the second half of the fiscal year.

Besides coinciding with the peak winter tourism season, this period also includes the annual Business Licence fee deadline and commercial vehicle licensing at Road Traffic, and is when the majority of real property taxes are received.

Mr Halkitis accused the Opposition, private sector and the media of “doom and gloom” over the mid-year Budget statement, which revealed that the Government had by end-December 2015 exceeded its full-year fiscal deficit target of $141 million during the first six months.

Although the GFS deficit was then at $156 million, and has subsequently increased to $210 million (a $54 million rise within one month) by end-January, Mr Halkitis can now point to the Central Bank assessment to justify his optimism.

The regulator repeated its opinion in the February report, stating: “Expectations are that a more marked consolidation in the overall fiscal deficit should be experienced, due to the seasonal acceleration in VAT and Business License collections over the rest of the fiscal year— particularly during March and April.

“As a result, the corresponding deficit and debt indicators are projected to improve over the near-term.”

Still, fiscal hawks are likely to point to the continued $129 million increase in spending over the seven months to end-January 2016 as evidence that the Government will never be able to completely eliminate its fiscal deficit because it cannot resist/control spending.

However, the Central Bank revealed that gross VAT revenues stood at $379.1 million at end-January 2016, with the tax accounting for 40.5 per cent of total government revenues.

“Measures to streamline administration and broaden the base boosted tax revenue by $217.4 million (30.2 per cent) to $936.1 million through end-January 2016, with VAT receipts comprising 40.5 per cent of the total at $379.1 million,” its report added.

The elimination of hotel occupancy taxes, reclassifying of certain tax items and lowering of import duty rates to allow for VAT’s implementation means that the Government has foregone more than $100 million in year-over-year revenue.

“Reflecting the decline in several tariff rates to compensate for the new regime, taxes on international trade fell by $40.7 million (12.1 per cent) to $295.4 million, as both import duties and excise taxes decreased,” the Central Bank said.

“With most property transfer taxes replaced by VAT, other ‘miscellaneous’ taxes contracted by $57.1 million (19.6 per cent) to $234 million, while business and professional fees moved lower by $37.7 million (61.5 per cent) to $23.6 million, due largely to deferred collections.

“Further, selective taxes on services fell by two-thirds to $10.3 million, due to the elimination of the hotel occupancy tax category. In addition, non-tax receipts decreased by $2.2 million (2 per cent) to $105.9 million, owing mainly to a $3.3 million (4.3 per cent) reduction in fines, forfeits and administration fees.”

As for spending, the Government’s fixed-cost (recurrent) spending increased by $173.7 million or 17.9 per cent to hit $1.145 billion, driven by the reclassifying of subsidies and transfer payments to public corporations.

Their switch from capital spending, where they had been recorded previously, saw subsidies and transfers increase by $122.8 million or 41.8 per cent to $416.2 million.

“Interest payments rose by $12.7 million (8.6 per cent) to $161.6 million,” the Central Bank added. “Similarly, purchases of goods and services rose by $26.6 million (17.7 per cent) to $177 million.

“In addition, wages and salary outlays rose modestly by $11.6 million (3.1 per cent) to $389.7 million.”

The Bahamian commercial banking industry, meanwhile, enjoyed a boost after total private sector ‘bad loans’ contracted by $48.4 million or 4 per cent during February 2016.

However, this was not as significant as it appeared, given that the majority of the reduction was concentrated among loans 31-90 days past due. This indicates that borrowers who fell into default after their Christmas spending have now become current again.

And the ‘bad’ loan heap still stood at $1.168 billion at end-February, even though there was a 77 basis point reduction in the total arrears ratio to 19.5 per cent.

“Supported by the modest growth in the domestic economy and loan write-off activities, banks’ credit quality indicators improved during the review period,” the Central Bank said.

“In terms of the components, the 31-90 day past-due claims contracted by $41.8 million (14.1 per cent) to $254.6 million, reducing the associated ratio by 69 basis points to 4.3 per cent.

“Non-performing loans (NPLs), arrears in excess of 90 days and on which banks have ceased accruing interest, fell by $6.6 million (0.7 per cent) to $913.3 million, lowering the attendant ratio by 8 basis points to 15.2 per cent.”

The Central Bank added: “The reduction in arrears was led by the mortgage category, which declined by $37.1 million (5.3 per cent) to $666.2 million, as banks restructured a segment of their portfolios.

“In terms of the components, both the short-term and non-accrual mortgage delinquencies moved lower, by $31.7 million (17.6 per cent) and $5.4 million (1 per cent), respectively.”

On the tourism front, total air arrivals to the Bahamas increased by 3.6 per cent to 1.3 million in 2016, down from a 4.9 per cent growth rate the prior year.

“Overall, arrivals to the Bahamas declined by 3.3 per cent to 6.1 million, a turnaround from a 2.8 per cent advance in 2014, due to a fall in the larger sea component by 5.1 per cent to 4.7 million, vis-à-vis a 2.2 per cent expansion in the previous year,” the Central Bank said.