The Government yesterday forecast a more modest pace for fiscal consolidation, projecting a higher $100 million GFS deficit for the upcoming 2016-2017 Budget year compared to its estimates a year ago.
The Christie administration’s projected deficit, equivalent to 1.1 per cent of Bahamian gross domestic product (GDP), is higher than the $70 million or 0.7 per cent that it forecast when delivering the 2015-2016 Budget communication last May.
It is thus projecting a fiscal deficit that is $30 million, or 42.9 per cent, higher than year-before estimates, although Prime Minister Perry Christie asserted that it remained on course to eliminate the GFS deficit during the 2018-2019 fiscal year.
Pointing out that the Government was anticipating a $172 million surplus on its primary balance for 2016-2017, the second consecutive year that it will achieve such an outcome, Mr Christie emphasised: “On the current fiscal track, the GFS deficit will be eliminated in 2018-2019 and a small surplus will be posted.
“The ongoing rise of the Government debt burden will be arrested, and the ratio of debt-to-GDP will decline to 64.1 per cent in 2016-2017, down from the peak of 64.6 per cent in 2015/16. It will fall steadily thereafter to stand in the area of 59 per cent in 2018-2019.”
The GFS deficit measurement strips out debt principal repayments, only measuring new debt, and Mr Christie sought to demonstrate the Government remained committed to fiscal prudence and consolidation, notwithstanding that a general election is fast approaching.
Besides containing the 2015-2016 fiscal deficit at a projected $150 million, Mr Christie said the Government was seeking to control recurrent (fixed cost) spending and shrink its size relative to the economy.
“We are moving forward with the reforms and measures that are targeted at restraining the growth of spending, and to make that spending more efficient and effective such that, through the medium-term, recurrent expenditure shows a decline relative to the size of the economy,” the Prime Minister told the House of Assembly yesterday.
“Going forward, and in line with the commitments contained in our medium-term fiscal consolidation plan, we are asserting that recurrent expenditure will be further constrained and projecting that it will decline as a percentage of GDP, beyond the coming fiscal year, by 1 percentage point or more per year.”
The Government’s spending is forecast to increase by $166 million to $2.321 billion in 2016-2017, but the Prime Minister said that since this was largely due to a $102 million rise in debt principal redemption, it would not impact the GFS deficit measurement.
Budget data analysed by Tribune Business shows that the Government is set to spend $558.7 million of Bahamian taxpayer money on debt redemption and servicing costs during the 2016-2017 fiscal year.
This is almost evenly split between $271.735 million going on interest payments, and $287.081 million heading towards debt principal redemption, comfortably making the two the largest item in the Budget.
As for total revenues, the Government is forecasting that they will grow by 6.3 per cent in 2016-2017, rising from $2.047 billion the prior fiscal year to $2.176 billion.
Mr Christie yesterday attributed the bulk of the projected improvement to Value-Added Tax (VAT), which is forecast to grow in gross terms by almost $108 million year-over-year, hitting $652.563 million.
“From a low of 16.3 per cent of GDP the year that we took office, the revenue yield has risen to 22.5 per cent of GDP this fiscal year,” the Prime Minister said.
“The improved revenue yield of our tax system that we have achieved during this mandate has brought it into the range of such yields among countries in the region, but I would stress that it still remains at the lower end of that range.
“With the ongoing revenue reforms that are in process, and the further maturation of our VAT system, I expect the yield of our revenue system to improve again somewhat in the 2016-2017 fiscal year to a level of 23.7 per cent of GDP.”
Based on the $150 million figure supplied by Mr Christie, it appears that the Government will run a $7 million ‘surplus’ for the second half of the 2015-2016 fiscal year.
The mid-year Budget showed a deficit that stood at $157 million, some $16 million above the full-year’s $141 million estimate, so the figures released yesterday indicate that the Government’s anticipated ‘revenue bounce’ has come through.
The fiscal year’s second half is when the Government collects its Business Licence fees and commercial motor vehicle inspection fees, and the bulk of real property taxes, with the period also coinciding with the peak winter tourism season.
Mr Christie attributed the $9 million ‘overshoot’ to the unbudgeted $13 million payout to CLICO (Bahamas) policyholders, who had been “in total despair, never believing they would receive the benefits of their policies”.
As at April 29,Mr Christie said CLICO clients had claimed 3,078 cheques worth a collective $10.2 million, with some 1,649 cheques worth $2.1 million not picked up.
Mr Christie added that recurrent spending in 2015-2016 was likely to be $37 million ahead of forecast, due to higher debt and interest payments of $33 million and $35 million, respectively.
The Ministry of Tourism also required an extra $32 million to make concession payments under agreements with the major cruise lines, while the Water & Sewerage Corporation received an additional $13 million subsidy.
The Prime Minister said revenues were also likely to come in $37 million below forecast, but this and the fixed cost overshoot had been offset to some extent by capital expenditure, which is set to come in $52 million below forecast.
“The Government confronted various fiscal pressures during the current fiscal year, primarily in respect of recurrent expenditure,” Mr Christie said.
“But we were successful in managing these pressures and containing the increase in total recurrent expenditure, net of debt redemption, such that the rise in the GFS deficit above the projected level was minimised to the extent possible.”
As for the 2014-2015 fiscal year, Mr Christie said the GFS deficit was $95 million higher than the original $286 million projection, reaching $381 million.
He blamed this on a $100 million overshoot on recurrent spending, largely driven by $84 million on extra debt principal redemption, while lower-than-expected GDP growth saw revenues come in $42 million below forecast.
Still, touting his administration’s achievements, Mr Christie said: “Since the first year of our mandate, and by the end of the 2016-2017 fiscal year, we will have reduced the deficit by $439 million or by over 80 per cent.
“While the burden of public debt remains unacceptably high, I am pleased to note that, through our fiscal plan, we will have arrested the rise in that burden in the 2016-17 fiscal year with its first reduction in many years. Thereafter, the ratio of debt-to-GDP will decline steadily.”