The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s fiscal deficit for the first four months of 2016-2017 increased by 75.3 per cent to $157.5 million, blowing past the full-year target of $100 million with two-thirds of the Budget period still to go.

The Central Bank’s report on December’s monthly economic developments, released last night, disclosed that the fiscal deficit was up $67.7 million year-over-year due to a combination of reduced revenues and spending increases.

It added that Value-Added Tax (VAT) revenues for the four months to end-October 2016 were off 6.7 per cent, or $15.4 million, at $214.1 million due to tough prior year comparatives, which had been boosted by “ significant early payments”.

“Data on the Government’s budgetary operations for the first four months of fiscal year 2016-2017, showed an increase in the deficit by $67.7 million (75.3 per cent) to $157.5 million, relative to the same period last year,” the Central Bank said.

“This outcome reflected a $38.4 million (6.4 per cent) contraction in revenue, and a $29.3 million (4.3 per cent) increase in spending.”

Part of the widened deficit will have resulted from Hurricane Matthew’s impact in early October. With the Bahamian economy ‘shut down’ for several days following the Category Four storm, and economic activity subdued (apart from rebuilding), the Government will have lost substantial revenues flows.

However, with the extra spending sparked by Matthew unlikely to be shown in the October figures, the concern is that the hurricane’s full impact on the Government’s finances - and the extent to which they have been blown off course - has yet to emerge.

And the $157.5 million worth of ‘red ink’ incurred during just one-third of the Government’s Budget year already exceeds the full-year forecast of $100 million by more than 50 per cent, a development that may catch the eye of international credit rating agencies.

The Central Bank acknowledged that the Bahamas’ sovereign credit rating had “fallen markedly” since the ‘A-’ and ‘A3’ ratings it enjoyed from Standard & Poor’s (S&P) and Moody’s prior to the 2008 financial crisis, the former having dropped this nation to so-called ‘junk’ investment status within the space of eight years.

However, the Central Bank consoled itself by saying the Bahamas’ sovereign creditworthiness remained “among the highest in the Caribbean region” when compared to the likes of Jamaica, Belize and Barbados.

Yet it acknowledged that the Government’s fiscal consolidation plan had been swept away in the short-term by the damage inflicted upon public infrastructure and government buildings by Matthew, together with the impact on poor and uninsured Bahamians.

“The impact of post-hurricane outlays will slow the near-term rate of fiscal consolidation,” the Central Bank said. “The potential for improvement in Government’s budget operations will depend heavily on the success of measures to enhance revenue administration and restrain growth in spending.”

Breaking down the Government’s revenue and spending performance for the first four months of 2016-2017, the Central Bank said: “The fall-off in revenue was led by a $30.1 million (5.7 per cent) decline in tax receipts to $501.2 million, reflecting broad-based reductions in several revenue categories.

“Specifically, VAT collections fell by $15.4 million (6.7 per cent) to $214.1 million, as revenues stabilised after a period of significant early payments in the prior fiscal year.”

Elsewhere, international trade taxes declined by $9.5 million or 5.6 per cent year-over-year to $162.5 million, as Excise and import duties dropped by $6.7 million and $4.3 million, respectively. Export taxes rose by $1.4 million.

“A timing-related fall-off in gaming taxes resulted in selective taxes on services contracting by $7 million to $3.2 million,” the Central Bank added.

“Similarly, ‘other’ miscellaneous taxes narrowed by $4.2 million (3.6 per cent) to $110.9 million, as a reduction in other ‘unclassified’ taxes by $8.5 million (41.6 per cent) eclipsed the increases in departure and ‘other’ financial Stamp taxes by $1.8 million and $8.7 million, respectively.

“In a slight offset, business and professional fees advanced by $2.8 million (35.8 per cent) to $10.6 million. Non-tax revenue decreased by $8.3 million (12.3 per cent), owing mainly to a fall in income from ‘other sources’ by $9 million (36.3 per cent), overshadowing gains in fines, forfeits and administrative fees by $1.1 million (2.6 per cent) to $41.7 million.”

Recurrent spending on the Government’s fixed costs, meanwhile, rose by 1 per cent or 6.2 per cent to $638.3 million for the four months to end-October 2016.

This was attributed to a $19.6 million, or 6.2 per cent, increase in transfer payments to $333.8 million, driven mainly by an $18.9 million or 79.3 per cent increase in funds sent to public corporations.

The Central Bank said this was “largely for the maintenance of parks and beaches”, while subsidies dropped $10 million or 8.2 per cent to $111.7 million despite a $10.9 million rise in outlays to National Health Insurance (NHI). The offset was “a sharp rise in tourism subsidies”.

“Capital outlays rose by $24 million (43.2 per cent) to $79.5 million, as increased spending on road development, along with outlays for costal protection, resulted in capital formation firming by $19.9 million (45.9 per cent) to $63.3 million,” the Central Bank said.

“In addition, the continued investments in ships for the Defence Force contributed to growth in asset acquisitions by $4.1 million (33.6 per cent) to $16.2 million.”