By NEIL HARTNELL
Tribune Business Editor
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.”