By NEIL HARTNELL
Tribune Business Editor
The Ministry of Finance’s top official yesterday voiced optimism that the government will not squander the “$108m headroom” created by the fiscal third quarter’s $40m budget surplus.
Marlon Johnson, acting financial secretary, conceded to Tribune Business that “a substantial portion” of the difference between the $129m nine-month fiscal deficit and $237m full-year target was likely to be used up because the final three months will not be as “buoyant” as the previous quarter.
Speaking as the government unveiled its nine-month fiscal “snapshot” and budgetary report, Mr Johnson and K P Turnquest, deputy prime minister, both expressed confidence that the “revenue rich” January-March period had left it well-placed to achieve a full-year deficit target equivalent to 1.8 percent of gross domestic product (GDP).
In particular, the government achieved budget surpluses - meaning its income, or revenue, exceeded its spending - of $19.3m and $40.1m for February and March, respectively. This more than offset the $19.4m deficit incurred in January, while also helping to cut the $169m worth of “red ink” run up during the first six months of the 2018-2019 fiscal year.
The quarter’s performance thus brought the government’s fiscal position back into line with its targets, after it used up almost three-quarters of the full-year deficit during the first half. Year-over-year, the $129.2m deficit for the first nine months was said to represent a 51 percent reduction on the $261.5m incurred over the same period in 2017-2018.
However, Mr Johnson cautioned that the final three months of the 2018-2019 fiscal year will prove more challenging than the previous quarter due to an expected ramp-up in capital spending and the government’s drive to settle all bills before the June 30 year-end.
“It sets the deficit back, and we’ve got about $108m in headroom as far as the deficit is concerned,” he told Tribune Business of the fiscal third quarter performance. “We’d like to see the fourth quarter be as buoyant, but we’re not projecting that as far as revenue is concerned.
“We’re likely to use up a substantial portion of that headroom, but we don’t expect to come in outside the approved budgetary allocation for the deficit.”
Pointing to potential spending pressures as well, Mr Johnson added: “We’’ll have some substantial expenditure on the capital side as contracts mature and get into full throttle.
“We also want to make sure that all bills are brought to account, and that we avoid any carry over into the new fiscal year. We have been making a concerted effort. Our budget analysts and the team are staying in close contact with the ministries and agencies so that they follow good accounting practices and no unexpected spending commitments are incurred.
“That will avoid the massive build-up of arrears that would have accumulated in the past.” That build-up was pegged at $360m by the Minnis administration, which it is aiming to pay off over the next three years with the extra revenues generated by the VAT rate increase to 12 percent.
The deficit declines, both quarter-over-quarter and year-over-year, come after the Government announced in the mid-year Budget that it was cutting recurrent spending by 5 percent or $130m against 2018-2019 projections to compensate for a $185m revenue underperformance and stay on its deficit target.
The Government has begun to generate budget surpluses during the January-March period more consistently, especially since the introduction of VAT, because it coincides with a winter tourism season that represents the peak activity in the Bahamian economic cycle.
Business Licence fees are due at this time, which also includes commercial vehicle licensing month and the bulk of real property tax payments. They combine with the extra tourism and economic activity to give the Public Treasury its seasonal revenue buoyancy.
However, Mr Turnquest said the $40m surplus achieved during the 2018-2019 fiscal third quarter represented a reversal of the $7m deficit position incurred the year before. He added: “We successfully reduced the deficit by over $130m in the first nine-months compared to the same fiscal period last year. That’s a 51 percent improvement.”
The deputy prime minsiter told Tribune Business that the results achieved to-date showed the Government was “on the right track to get The Bahamas’ fiscal house in order” through its three-year consolidation plan that is ultimately designed to eliminate the deficit gap.
Matching Mr Johnson’s optimism that the $237m fiscal deficit target will be met or beaten, he told Tribune Business of the year’s final quarter: “This is a risky period, if I may use that word, where we have to make sure we do not make spending commitments not included in the Budget and remain true to our fiscal discipline.
“As it stands now, I feel pretty good we will meet our targets, and we are monitoring very carefully our expenditure. I’m going to remain conservative and say we will come in around our target. we beat it, fine, but I want to stay on the side of conservatism rather than be overly optimistic.
“It’s not easy, but I believe we remain on the right track in getting this entire fiscal house on target and are moving in the right direction.”
Mr Turnquest added that the Government was “still aiming” to hit its 2019-2020 target of a fiscal deficit equivalent to just 1 percent of Bahamian gross domestic product (GDP). This would be equal to about $110m, and the deputy prime minister confirmed it was targeting a small budget surplus - the first in Bahamian history - the following fiscal year.
Both goals are enshrined in statute law via the Fiscal Responsibility Act, and Mr Turnquest said revenue-raising measures in the 2019-2020 budget will be focused on compliance and administrative issues as opposed to new or increased taxes.
Having repeatedly ruled out such moves, he told Tribune Business: “We don’t expect any significant revenue changes this year except for a tightening up on various matters where we believe we can drive higher productivity through compliance with existing laws, and monitor expenditure such that we don’t lose the momentum gained this year.
“The numbers are following the positive trend expected, certainly as far as we can see into the future, and that bodes well not only for this year but the remainder of the fiscal consolidation plan we’ve put forward to the Bahamian people.
“It gives us the encouragement to continue on the path we’ve been on in introducing and implementing this fiscal measures, and all the legislation we’ve put in place around it. It gives us the encouragement to carry forward with the remaining legislation and procedures to complement our policy of increasing transparency and accountability controls,” Mr Turnquest continued.
“We’re moving in the right direction. The results show positive trends along these lines, and if we continue to remain faithful to the plan we will end up with the result we anticipate of a surplus in the third year.”
Mr Johnson, echoing the deputy prime minister, added: “I think the Ministry is pleased with the performance, and its ability to manage the revenue and expenditure side to keep on target with the overall deficit projections.
“We feel we’re in a good place. The underpinning of all this will be the continued growth and strengthening of the Bahamian economy and, provided that continues, we feel we have the fiscal headroom to stay on target with the mid-term forecasts.
“We have to keep in mind the need to tighten expenditure controls in line with the Government’s policy priorities and minimise unnecessary expenditure. That remains our challenge even as the situation improves and we see some stabilisation of the fiscal position.”