The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s increased spending is “giving little comfort” that the Bahamas can correct its fiscal imbalances, the Chamber of Commerce’s chairman warned yesterday.

Gowon Bowe told Tribune Business that while much of the recent fiscal debate had focused on how the Christie administration was using its Value-Added Tax (VAT) revenue ‘windfall’, those participating were asking “the wrong question”.

He instead argued that the real issue was how the Government could control its spending such that it maximised the benefits from VAT, ultimately eliminating the persistent fiscal deficits and paying down the $6.695 billion national debt.

“As a revenue number, that has enhanced our revenue line,” Mr Bowe said of the $852 million in VAT revenues generated during the tax’s first 18 months.

“However, if we want to spend at the same level, or increase expenditure commensurate with the increase in revenue, we are not correcting the problem.

“Unfortunately, there are many projects being spoken about, both on the recurrent and capital side, which don’t give comfort that the increased revenues are going to lead to a balanced Budget and surpluses to pay down the debt,” the Chamber chief added.

“How are we stopping spending so that the benefits of the VAT money are felt in the deficit and debt reduction.”

Mr Bowe was speaking after the Central Bank, in its report on October’s monthly economic developments, revealed that the fiscal deficit for the first three months of the 2016-2017 fiscal year had increased by almost 37 per cent compared to the same period the prior year,

The deficit expanded by $23 million to a total $86 million for the three months to end-September 2016. The latter figure is already more than 80 per cent of the $100 million worth of ‘red ink’ that the Government itself forecast it will incur for the 2016-2017 full year.

The Central Bank said: “This outturn reflected a $35.8 million (7.2 per cent) expansion in spending, which outstripped the modest $12.8 million (2.9 per cent) rise in revenue.”

Mr Bowe said the key fiscal issue now facing the Bahamas was “how do we place limits on spending?”

He argued that the Government needed to reach a position where it only borrowed to finance capital expenditure, which typically finances public sector ‘investment’ projects such as infrastructure upgrades.

The Chamber chairman added that it needed to completely cover its recurrent or ‘fixed’ costs, such as civil service salaries and rents, from its tax and fee income.

“If we are in a situation of borrowing for recurrent expenditure, all comments about tightening the belt are in vain until we make the hard decisions to rein it in, either stopping the growth or reversing the constant spending,” Mr Bowe told Tribune Business.

And he called on the current, and future, administrations to lift their sights from a short-term five-year election cycle focus to looking at where the Bahamas needed to be in 20-25 years.

“How do we place limits on spending such that we meet the needs of the populace but achieve the balance of fiscal success?” Mr Bowe asked.

“There are desires and wants of the population that we are not able to afford at this time. There has to be discipline which says we are making decisions in the best interest of the country - not for today, but for the next 20-25 years.”

With a national debt touching 75 per cent of GDP, in excess of the so-called 70 per cent ‘danger threshold’, Mr Bowe said the $600-$700 million in damage inflicted by Hurricane Matthew had shown why the Bahamas needed to urgently rebuild its ‘fiscal headroom’.

With its national debt and accompanying ratios so high, the Bahamas had little to nothing in reserve to finance reconstruction and rebuilding efforts when Matthew hit, forcing the Government to hurriedly borrow an unanticipated $150 million.

Mr Bowe said the Government now needed to “make hard decisions” to enable the Bahamas “to establish fiscal headroom to buffer against events that throw me off the normal course of the journey”.

While the Government had been able to absorb Hurricane Joaquin’s impact in its current and future “normal” Budget expenditure, Matthew had exposed “the absence of fiscal headroom”.

“We have to be concerned that we’re not one major catastrophic event away from fiscal crisis,” Mr Bowe told Tribune Business, pointing to the Bahamas’ vulnerability to hurricanes and natural disasters, and a volatile global economy.

The Central Bank revealed that an increase in capital spending on roadworks and “a coastal protection project” had driven much of the year-over-year expenditure growth during the 2016-2017 first quarter.

“Underpinning the expansion in expenditure, capital outlays climbed by $25.5 million (64.2 per cent) to $65.1 million, as a rise in spending for road works and a coastal protection project contributed to a $19.3 million (63.3 per cent) increase in capital formation,” the report said.

Recurrent spending increased by $10.3 million or 2.2 per cent to $471.2 million over the same period, due mainly to an $11.8 million (5 per cent) gain in transfer payments.