The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s deputy leader has “very little faith” the Government will hit its projected $150 million deficit target for 2015-2016, following the $184 million ‘revision’ to the prior fiscal year.

K P Turnquest said Prime Minister Perry Christie had performed “a 180 degree turn” on the GFS deficit outcome for the 2014-2015 fiscal year in his recent Budget speech.

He was speaking after Tribune Business’s assessment of the last two Budget speeches exposed a major, negative revision that resulted in the 2014-2015 fiscal deficit coming in much higher than the Government’s original projections.

Mr Christie, in his May 2015 Budget communication, told Parliament: “I now turn to fiscal performance in the 2014-2015 fiscal year which, I am pleased to report, is now projected to be better than we had expected at the time of the last Budget Communication.

“As a result, the GFS deficit this fiscal year is now estimated at a level of $197 million, down $89 million from the $286 million forecast.

“As such, the deficit is now expected to amount to 2.3 per cent of GDP, as opposed to the forecasted level of 3.2 per cent.”

Mr Christie then touted the projected 2014-2015 fiscal performance as the best for seven years, since the 2007-2008 Budget that pre-dated the global recession.

But, fast forward to May 2016, and Mr Christie’s Budget presentation disclosed a negative $184 million ‘swing’ from the 2014-2015 outcome projection he had given 12 months earlier.

Rather than beating the forecast $286 million deficit for that year, he said the Government now believed it had missed its target by almost $100 million to create ‘red ink’ equivalent to 4.4 per cent of Bahamian GDP.

“The fiscal outturn in the 2014-2015 fiscal year featured a somewhat more elevated GFS deficit than had originally been projected in the Budget communication for that year,” Mr Christie admitted this May.

“ The deficit, at $381 million, was some $95 million higher than the forecast of $286 million.”

The Prime Minister, in his May 25 address, blamed this on revenue coming in some $42 million below projections. And capital spending exceeded forecasts by $41 million due to an “acceleration” in the Royal Bahamas Defence Force’s (RBDF) re-equipping.

However, the extent to which the Government has had to revise its 2014-2015 fiscal performance does little to inspire confidence it will hit its $150 million GFS deficit estimate for 2015-2016.

And another who believes the Christie administration is unlikely to hit its short-term fiscal targets is the International Monetary Fund (IMF), which is forecasting higher deficits than the Government for both the 2015-2016 and 2016-2017 fiscal years.

The Fund, in its latest assessment on the Bahamas, is projecting that the GFS deficits for those years will be equivalent to 3 per cent and 2.7 per cent of GDP, respectively.

Those percentages are equivalent to roughly $240 million and $216 million, respectively. Yet the Government is forecasting that the GFS deficit for 2015-2016 will come in at $150 million, a sum that is less than 2 per cent of GDP

And for the upcoming 2016-2017 fiscal year, the Government is projecting a GFS deficit of $100 million or 1.1 per cent of GDP - less than 50 per cent of what the IMF is forecasting.

While the Fund agrees that the Bahamas will achieve a primary surplus this fiscal year, it also suggests that the Government’s direct debt-to-GDP ratio will continue growing to hit 67 per cent.

This contrasts sharply with the Government’s own estimate, which is for the debt-to-GDP ratio to decline to 64.1 per cent in 2016-2017, down from its 64.6 per cent peak this fiscal year.

The IMF’s estimates, though, again suggest that the Government may be too optimistic and aggressive with its fiscal consolidation targets and timelines, even though it has managed to narrow the GFS deficit and arrest the national debt’s growth rate.

“I think that falls right in line with what we’ve been saying; the numbers are out, and very smudgy,” Mr Turnquest told Tribune Business of the Government’s 2014-2015 revision, and the IMF estimates. “The Prime Minister did a 180 degree turn on his own words.

“They have not met their deficit targets, and the projections they have been putting forward ever since they started in 2012. If you look at the numbers, they just don’t track.”

As a result, Mr Turnquest said he had “very little faith” that the Government would hit its new $150 million deficit for the current fiscal year, which ends in just under three weeks time.

He expressed scepticism that the Christie administration would “come up with the miracle” necessary to achieve that projection, especially since economic growth projections had been cut by a full percentage point.

“We see already, from the mid-year Budget, an increase in the GFS deficit up to March this year,” the FNM deputy leader said.

“They had not made up the deficit between the 2015 calendar year-end and March, so why do we believe they’re able to come up with a miracle over the last quarter [of the fiscal year].”

The Government’s fiscal deficit for the six months to end-December 2015 was pegged at $157 million, a sum some $16 million in excess of the $141 million GFS deficit projected for the 2015-2016 full year.

And the Central Bank’s monthly economic report for February showed that the deficit for the first eight months of the 2015-2016 fiscal had risen to near-$243 million, more than $100 million above target.

Michael Halkitis, minister of state for finance, countered by saying the Government planned to ‘make up’ the gap via major revenue inflows that traditionally come in during the fiscal year’s latter half.

Apart from the $100 million-plus in Business Licence fees that flow in during March/April, Mr Halkitis also pointed to commercial vehicle licence fees and real property taxes as revenue streams that typically peak during the period.

The March/April period also coincides with the peak winter tourism season, a time when Bahamian economic activity is at its highest.

Mr Turnquest, though, remained unconvinced, given that the Christie administration will have to run a near-$100 million ‘surplus’ over the final four months of the 2015-2016 fiscal year to meet its deficit targets.

“I have very little faith that the numbers they are projecting are going to hold,” Mr Turnquest said. “Nothing they’ve done has cut costs, and revenue has not jumped so significantly that they’re able to make up that shortfall.

“That is logical, because from the Prime Minister’s own statement construction activity is down, and broader economic activity is down, so revenue from imports and other taxes is also going to be down.”

Government revenues are directly tied to GDP growth levels, and forecasts regarding the latter have proven optimistic in recent years, with the result that revenues have often under-performed expectations.

Mr Turnquest suggested that, as a result, the Government frequently found itself “living beyond its means”.

Arguing that “fiscal conservatism is the order of the day”, he said the Government was continuing to invest monies in programmes such as Junkanoo Carnival that had yet to deliver returns for the taxpayer.

Pointing to the Bahamian economy’s 1.7 per cent contraction in 2015, and projected GDP growth of just 0.5 per cent and 1 per cent in 2016 and 2017, respectively, Mr Turnquest said: “That’s tied directly to what we can expect to collect.

“If you look at the last 10 years, the average rate of economic growth has been 1 per cent. Every now and then we get 1.2, 1.3 per cent, but not much more than that. That’s our reality.

“If we’re tying our expenditure to that, then obviously we’re going to continue to run deficits, so something has to be adjusted.”

He added: “The IMF and all the rating agencies have indicated we need to grow at 5 per cent just to keep up; not to grow or absorb all those job seekers coming out of school, but to keep what we have.

“If we are growing at 0.5 per cent, 1 per cent, we have a problem. It’s an indication we may be living above our means.

“The fact of the matter is that we are faced with serious realities at the moment, and I don’t see anything in this Budget or on the horizon to change that anytime soon.”

Urging the Government to restrain its spending, the Opposition’s deputy leader told Tribune Business: “Fiscal conservatism is the order of the day.

“We see the Government investing in programmes that are not generating any kind of return, such as this Carnival thing and some of these tourism ventures that don’t make sense because you cannot track the returns.”