By NEIL HARTNELL
Tribune Business Editor
The government’s “tremendous” economic and fiscal progress will soon be “touched, seen and felt” by many Bahamians, the deputy prime minister promised yesterday.
KP Turnquest, speaking after the International Monetary Fund (IMF) released a relatively positive assessment of the Minnis administration’s policies and their execution, told Tribune Business that The Bahamas was “moving into a period of economic growth” following the “significant work” completed during its first two years in office.
He cited the government’s reduced fiscal deficit, end to successive, multiple sovereign credit rating downgrades and avoidance of the European Union’s (EU) blacklist as some of the accomplishments he believes have created a platform for Bahamian gross domestic product (GDP) to expand amid renewed investor and business confidence.
While the IMF warned that the persistent “double digit” unemployment rate, currently at 10.7 percent, will “decline only gradually”, Mr Turnquest yesterday voiced optimism that the jobless numbers would ultimately “catch up” with improved economic growth - especially if the Carnival and ITM/Royal Caribbean projects planned for Freeport came to fruition.
The deputy prime minister was equally upbeat on the Government’s prospects of hitting its 2018-2019 deficit target despite the IMF projecting that the “red ink”, or difference between its spending and income (revenues), will come in at a sum equivalent to 2.1 percent of GDP as opposed to 1.8 percent.
Based on current GDP figures, the 0.3 percentage point difference is equivalent to about $30m, but Mr Turnquest said the gap between the Fund’s and government’s projections was “not material” in the context of a $2.7bn budget.
“We are continuing to watch the numbers, and we still expect to come within our budget numbers,” he added. “Barring any unforeseen circumstances, and anything can happen, we expect to come in around our numbers.”
Mr Turnquest, in his mid-year Budget presentation at the end of February, had projected that the 2018-2019 full-year deficit would come in between $5m-$10m lower than the $237.6m initially projected. This would bring it in at around $230m despite a projected revenue shortfall of around $185m or seven percent of the total $2.649bn income target.
The revenue underperformance, though, was to be counter-balanced by some $130m in spending cuts, and Mr Turnquest told this newspaper yesterday that the Government’s income shortfall had “tightened” or narrowed during the traditionally revenue-rich first quarter of the calendar year.
The IMF, in a release on its 11-day visit to Nassau for the annual Article IV consultations in early April, yesterday called on the Government to “maintain the momentum on fiscal reforms” through full implementation of the Fiscal Responsibility Act and passage of other laws to strengthen fiscal management systems and processes.
It also urged the Government to “further rein in current expenditures” to ensure it met the 2018-2019 fiscal targets, including a deficit equivalent to 1.8 percent of GDP, which were set out in the Fiscal Responsibility Act.
“In the near term there is need for expenditure restraint to deliver the fiscal year 2018-2019 target,” the IMF said yesterday, referring to the revenue slippage that occurred as a result of the legal battle with web shops and delayed introduction of the 12 percent VAT rate in industries such as hotels and construction.
“Available data point to weaker-than-expected revenue performance, partly due to grace periods granted for the implementation of revenue measures and legal disputes. The fiscal deficit is therefore projected to narrow to 2.1 percent of GDP, bringing the outturn close to the 1.8 percent target. This consolidation is broadly in line with the transition path towards the Fiscal Responsibility legislation targets established in the budget.
“To demonstrate steadfast commitment to the new policy framework and safeguard public investment, the Government should further rein in current expenditures. Over the medium term, decisive measures are needed to reduce debt, including in the areas of public pensions and health, while carefully balancing priorities for inclusive growth and disaster preparedness.”
Still, the Fund acknowledged that the Fiscal Responsibility Act - and its medium to long-term goal of reducing The Bahamas’ debt-to-GDP ratio to 50 percent - had provided a key anchor to “bolster policy credibility and ensure durable gains from fiscal consolidation”.
Giving the Government credit for narrowing the fiscal deficit and stabilising the public finances, the IMF nevertheless said the $360m in unfunded arrears that are being eliminated over the next three years had exposed the need for “stronger public financial management (PFM) systems to address weaknesses in expenditure control and budget preparation”.
It added: “Enacting the Public Financial Management, Public Debt Management and Public Procurement Acts, and operationalising the Fiscal Council, should be prioritised to ensure permanent advances in budgeting, transparency and accountability.”
Mr Turnquest, in response, said all the IMF’s fiscal-related concerns were in the process of being addressed either before, or during, the upcoming 2019-2020 Budget that is due to be presented to Parliament by end-May.
“Nothing that they said takes us be surprise,” he said. “Most of the issues are already in train, and will either be addressed prior to the Budget or during the Budget. We believe we are on track and consistent with the mandate the IMF is putting forward. Nothing they’ve said we have any significant issue with.”
The deputy prime minister added that the legislation cited by the IMF would be released for public consultation this year, while the five bodies that will each supply a member of the Fiscal Council - the Bar Association, Bahamas Institute of Chartered Accountants, Chamber of Commerce, Certified Financial Analysts’ Society and University of The Bahamas - had already been asked by the House of Assembly speaker to provide their nominees.
However, the IMF warned that jobless numbers are likely to remain in the double digits despite affirming that the Bahamian economy is projected to expand by 2.1 percent in 2019 due to continued tourism sector growth.
“Despite positive jobs growth, the unemployment rate remains high and is projected to decline only gradually,” the Fund predicted, although Mr Turnquest gave a more upbeat assessment.
“We’re optimistic those numbers will start to show some catch up in the next period and throughout next year because of the time lags between jobs and growth,” he told Tribune Business.
Mr Turnquest then voiced optimism that the Bahamian economy was poised to reap the benefits of reform measures enacted by the Minnis administration since it took office some two years ago, even though some have involved austerity and pain.
“I think we’re making significant progress,” he told this newspaper. “It’s been two years, and we’ve made tremendous progress in achieving stability, both from a rating and fiscal standpoint, and a blacklisting standpoint.
“We’re moving into a period of growth that should help with the unemployment numbers. We’ve done some significant work in the last two years, and are starting to build it up to the point where people can touch, see and feel it.
“It’s been a difficult road, and we have had to stay focused and disciplined,” Mr Turnquest continued. “There’s no doubt there’s pent-up investment needs in terms of infrastructure, and a need for additional social and health-related expenditure, but we continue to do what we have to do to ensure we take care of the urgent and critical needs of our citizens.....
“The neglect did not happen overnight. It will take a little time for it to work its way out for us to determine what we need to do. There’s no lack of commitment in that regard.”
When asked whether he was suggesting infrastructure, and social and health-related projects, may be placed on hold, Mr Turnquest said the Government was distinguishing between needs and wants.
“We have to pay attention to critical areas and priority needs,” he told Tribune Business. “Those items that are more want than need, we have to chip away at them over the next several years, so that we get our house in order and strong and, going forward, we don’t have these kind of issues that we face today.”