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Dorian To Drive National Debt To Near $9bn

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Marlon Johnson

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official last night said Hurricane Dorian had reinforced “why fiscal discipline is so important” even though it is set to drive the national debt to almost $9bn.

Marlon Johnson, the acting financial secretary, told Tribune Business that the Minnis administration’s fiscal consolidation strategy had created the necessary “headroom” to enable the government to fund post-storm recovery without pushing its finances beyond the point of no return.

Affirming that the government will not be distracted from its fiscal goals by a “short-term blip” such as Dorian, Mr Johnson added that “the strategy doesn’t change with the event” even though Dorian is currently projected to blow out the 2019-2020 fiscal deficit to $573.4m.

Based on an $8.263bn national debt as at end-June 2019, the category five storm’s impact seems likely to drive this to $8.836bn by the time the current fiscal year closes - a position just shy of $9bn.

Mr Johnson conceded that Tribune Business’s analysis was “probably correct, yes”, but voiced optimism that the government would eventually be able to return to the “very, very positive trajectory” its finances were on prior to Dorian’s arrival.

Its fiscal performance for the three months to end-September 2019 incorporates little of the hurricane’s impact, which will be felt in full during the 2019-2020 second quarter and subsequent periods, and therefore is not the best indicator of trends for the remainder of the fiscal year.

Still, the government managed to cut its fiscal deficit, which measures the amount by which its spending exceeds revenues, from $64.9m to $41.8m - a decline of 35.6 percent year-over-year.

“July and August would have been the significant drivers of performance in the first quarter, so it doesn’t materially reflect the Dorian fall-out,” Mr Johnson explained. “There was some fall-out in September from the exigency Order coming into play, but we managed to net out a better performance before we saw the effects of Dorian.

“It won’t be indicative of the rest of the year as the impact of Dorian works its way through. Going forward, the deficit position will be expected to widen considerably.”

Acknowledging the near-$9bn national debt that The Bahamas will likely face as a result, Mr Johnson said the Government would not be distracted from its long-term fiscal consolidation plan despite the scale of Dorian’s devastation.

“The Government is committed that any short-term blip will be just that,” he told Tribune Business. “Because of Dorian and the need to rebuild, and the collective impact of that on the economy, we will see some deviation from the fiscal targets.

“The strategy doesn’t change with the event, and the Government - as it has done - will exercise fiscal discipline to ensure it brings the deficit-to-GDP and debt-to-GDP ratios down.

“The other key point is the fact we have been on this fiscal consolidation trajectory gives us the headroom to go out and secure the funding to finance this deficit with relative ease,” Mr Johnson continued.

“The fact the Government has been on this fiscal consolidation path has enabled us to go to the markets and raise financing for what we need. It reinforces the message of why fiscal discipline is so important.”

The deficit narrowing during the 2019-2020 fiscal year’s first quarter was driven by a 7.6 percent year-over-year increase in total revenues, which jumped from $513.8m to $552.7m. Tax receipts, accounting for 90 percent of total income, rose by $26.8m or 5.7 percent to $498.6m due largely to higher VAT intakes.

The Government’s total spending also increased, but at a slower 2.7 percent pace, rising to $594.5m from $578.7m a year ago. “Capital transfers, at 34.3 percent of the budget, more than doubled to $17.6m, as developments were boosted by Hurricane Dorian-related outlays to commence the restoration of water ($6.1m) and electricity ($10m) supplies on Abaco and Grand Bahama,” its first quarter fiscal snapshot said.

“Recurrent expenditure - comprising 90.7 percent of total spending - was marginally lower by $0.9m (0.2 percent) at $539m, as the $13.3m (33 percent) hike in other payments, inclusive of transfers and insurance premiums, offset the $26.1m (19.7 percent) decline in payments for the use of goods and services.”

On the revenue side, gaming taxes for the 2019-2020 first quarter increased by $2.2m or 35.9 percent to $4.8m or 23.2 percent of the sum budgeted for the full year. This was partially attributed to “the new tax regime for gaming operators following the court settlement in February 2019”.

The Government’s “snapshot” added: “VAT receipts grew by $66.8m (33.5 percent) to $266.2m, representing 24.2 percent of the budget. This was due largely to the shift in the basis for assessment of taxes on several realty transactions to VAT from stamp duties.

“Correspondingly, revenue from stamp taxes on financial and realty transactions contracted by $43.8m (80.5 percent) to $10.6m, which equated to 10.4 percent of the budget.

“Taxes on international trade contracted by $3.6m (3.2 percent) to $110.3m, which represented 22.5 percent of the budget allocation,” it continued. “Key drivers of this development include the $15.1m (18.3 percent) decline in customs and other import duties in the context of the recent removal of duty on certain household items as announced in the 2019/20 Budget.

“A monthly analysis also revealed a steeper than usual fall-off in Customs revenue between August and September—largely attributed to the Exigency Order declared in the aftermath of Hurricane Dorian, which allowed for the importation of certain relief items duty and VAT free.”

Comments

proudloudandfnm 1 month, 1 week ago

Debt is now 8.2 billion and he's saying it'll get to near 9 billion after Dorian????

Huh? He thinks we'll only need 800 million? Something isn't right here....

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Well_mudda_take_sic 1 month, 1 week ago

What a failed Minnis-led FNM government we have.

Marlon Johnson was obviously given the task of floating the humongous $9 billion national debt figure which does not include debt parked off of the government's balance sheet in special purpose vehicles, not to mention at least another $3 billion plus in unfunded pension and other benefit entitlements of the public sector.

And soon Turnquest will be telling us Johnson got it all wrong and our country's real national debt will increase by more than $2 billion.

Shortly thereafter Minnis will of course then step in (with the international lending agencies at his back providing him with plenty of support in the run up to the next general election) to say...."No, no, no, my DPM got it all wrong.....the people suffering from the impact of Dorian need and deserve much much more and so our real national debt must be increased by no less than $3 billion." LMAO

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Socrates 1 month, 1 week ago

Make no mistake, the glory days are long gone. Hope for the best but realistically, given our size, its almost a forgone conclusion that we are getting closer to the point of no return..

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ted4bz 1 month, 1 week ago

I almost got through the first two sentences and realize one thing, they (both FNM &. PLP) haven’t gotten anything near close to being right. So I stopped because it was garbage from the start. In fact, they are always talking about something different than what they are telling us from the surface. So just add three times that amount to whatever it is they are talking about. And that’ll be only the start.

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bahamianson 1 month, 1 week ago

Mr. Marlon , that"s what our international partners said. Did you research this and spend endless nights studying this? They told us this weeks ago. You are just brilliant , go to the head of the class!!!!!

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Bahamianbychoice 1 month, 1 week ago

I believe the National Debt will be higher as I doubt this includes the hit to the GDP from the power insecurity caused by all the chaos at BPL. Millions of tax payer money mishandled....more in debt...and the RRB..if secured...will have such a high interest rate attached.

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John 1 month, 1 week ago

Do you realize that the national debt was still climbing before Dorian, even though government is charging two sets of taxes on all imports? As a part of tax reform, the government was supposed to replace stamp tax and customs duties with the VAT. But instead, they decided to not only keep both taxes, but also increase the VAT, so now Bahamians are paying 50% combined taxes on goods before they even leave the ports and the cost of living is through the roof. The economy is stagnant and with Dorian (or maybe even before, government was collecting fewer taxes. And since the national debt is climbing, they may seek to increase VAT again and kill the economy dead.

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sheeprunner12 1 month, 1 week ago

The dollar value of the Bahamian National Debt is not as critical as the dwindling FX reserves, shrinking consumer spending power and increasing cost of living ......... coupled with the untold leakage of Haitian remittances and unaccounted Government graft and kickbacks.

Not a rosy picture, for sure.

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BONEFISH 1 month, 1 week ago

A very conservative view.Not backed by any analysis.They missed all their revenue targets before hurricane Dorian hit.

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BONEFISH 1 month, 1 week ago

Going to have the same problem as the PLP government.The effects of hurricanes on the government's fiscal position.Ignored by the Pro-FNM media and websites during the election campaign.But the current prime minister made mention of it in his speech to the UN.

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