* Q1 deficit rises almost seven-fold to hit $336.3m
* DPM: 'We're working hard' to avoid more borrowing
* VAT revenues almost cut in half with $131m fall-off
By NEIL HARTNELL
Tribune Business Editor
The Government's first quarter fiscal outturn was "within the ball park" of projections, the deputy prime minister said last night, as $692m in net borrowing drove its direct debt to almost $8.9bn.
K Peter Turnquest told Tribune Business its financial performance for the three months to end-September had not deviated too far from the May Budget forecasts, although he conceded that revenue was "a little behind" and spending "a little ahead" of those predictions.
While he lacked access to the actual figures due to being in 14-day quarantine, Mr Turnquest said the Ministry of Finance was "very carefully" managing a government debt portfolio that will have been increased by a further $352m following the quarter's end due to the net proceeds from the recent $600m foreign currency bond issue.
He spoke out after the Government's "fiscal snapshot" for the 2020-2021 first quarter, released late yesterday, laid bare how COVID-19 is ravaging the public finances, as well as those of private companies and Bahamian households.
The report disclosed that the Government's direct debt had jumped by almost $1.3bn or 21 percentage points year-over-year, skyrocketing from $7.591bn to $8.883bn in just 12 months, as the pandemic slashed its tax income streams while simultaneously increasing social/business assistance spending demands.
As a percentage of gross domestic product (GDP), the Government's direct debt rose from 55.9 percent to 76.8 percent as at end-September 2020, placing it above the 70 percent benchmark considered a "danger threshold" by the International Monetary Fund (IMF). It believes a country that exceeds this mark faces the potential danger of a so-called debt spiral, where it has to borrow to service existing debt.
And the direct debt figures do not include the several hundred million dollars in borrowings the Government has guaranteed on behalf of public corporations, as well as the estimated $2bn in unfunded civil service pension liabilities, meaning the total national debt will now be well in excess of $9bn. No figures were provided for this.
The Minnis administration, though, reduced the debt it has guaranteed by $246m during the 2020-2021 fiscal first quarter by refinancing its Bahamas Power & Light (BPL) exposure via a bridging loan that the state-owned utility is now responsible for servicing (see other article on Page 1B).
"We are within our risk portfolio so far," Mr Turnquest said of the Government's debt situation. "However, of course every dollar we add creates an additional bit. We're managing that very carefully. We've established a debt management unit that will be looking in more detail at possible options. The key is to get back on the fiscal consolidation path as quickly as possible."
Meanwhile the fiscal deficit, which measures by how much the Government's spending exceeds its revenue, increased almost seven-fold year-over-year to $336.3m for the 2020-2021 first quarter. This represented a $287.5m increase on the prior year's $48.8m worth of first quarter 'red ink', again highlighting the depth of COVID-19's economic and fiscal impact.
Total revenues for the three months to end-September 2020 fell by 45.5 percent, or $251.4m, compared to the same period in the 2019-2020 fiscal year. VAT, the Government's main taxation source, slumped by 49.4 percent to $134.7m - a reduction of $131.5m compared to one year ago - as consumption activities dried up due to the tourism shutdown and job losses/reduced incomes.
Despite the seemingly dire position, Mr Turnquest argued that the Government's finances "are doing OK given the circumstances we have". He reiterated that the 2020-2021 first quarter projections were thrown off by the Government's move to reimpose lockdowns and other restrictions to halt COVID-19's spread on New Providence and Grand Bahama, as well as the delayed tourism restart.
"They're more or less were we thought they'd be," the deputy prime minister told Tribune Business of the Government's revenues and spending, "a little behind on revenue, and a little bit ahead on the expenditure side, but we're within the ball parks."
The Government's total spending was somewhat contained at $637.2m, having increased by 6 percent or $36.1m compared to the same quarter in 2019-2020. Mr Turnquest said this signalled that expenditure restraints were working, including the instruction to all ministries, agencies and departments to cut discretionary spending by 20 percent.
"We see the results," he added. "Overall our expenditure was only up by 6 percent. When you consider all the additional costs as a result of COVID-19, we're doing OK on that side."
Mr Turnquest said the Government's annual Fiscal Strategy Report, which it will table in the House of Assembly in November, will "give some indication" as to whether - and by how much - it may have to adjust its economic and fiscal projections given that the world will still be dealing with COVIID-19 well into 2021.
Any changes, he added, will be announced with the mid-year Budget in February, saying: "The hampered reopening of the tourism economy, and the extended curfews in October, will no doubt put further pressure on our fiscal position and may cause some deviations from our budget projections for the second quarter.
"The safe reopening of our economy remains one of the most urgent priorities, and we must work together to follow public health protocols and adapt our businesses to better contain the spread of the virus.
"We're still anticipating we will have a rebound in tourism. All in all, we believe there will be a slow recovery, but we do anticipate we'll see some growth in the New Year." He also pointed to ongoing foreign direct investment (FDI) projects such as The Pointe, Gold Wynn and Hurricane Hole as cause for some optimism.
Mr Turnquest said the Ministry of Finance was "working hard to avoid" any need for the Government to require more borrowing than the $1.334bn net financing envelope approved by the House of Assembly in June. While no increase was expected "at this point", he conceded that "it all depends" on what happens with COVID-19 and its impact on tourism and the wider economy.
"As we look out into the future we have every reason to believe we'll see the recovery and growth we project for 2021 and 2022, and we continue to work towards bringing in new revenue sources as well as enhancing existing ones," Mr Turnquest said, identifying aircraft overflight and yachting fees as two such possibilities.
As for increasing tax yields through the Government's revenue enhancement and compliance unit, he added: "I wouldn't say they are where I would want them to be, but they have made a contribution."
Summing up the position at end-September 2020, the "fiscal snapshot" said: "The impact of the second wave of the COVID-19 pandemic in July 2020. and the subsequent reinstatement of curfews and lockdowns for the entire month of August, exerted significant pressure on the fiscal position during the first quarter of the fiscal year 2020/21, elevating the overall deficit above earlier projections.
"Amid the higher than expected contraction in revenues and increased COVID-19 related spending, preliminary estimates show a stronger deterioration in the overall deficit to $336.3m from $48.3m in the comparable 2019-2020 period.
"Total revenue contracted by $251.4m (45.5 percent) to $300.9m, as compared to the first quarter of fiscal year 2019-2020. Reflecting the adverse impact of COVID-19 on economic activity and travel, tax receipts—which represented approximately 90 percent of aggregate revenue - declined by $229.3m (46 percent) to $269.5m, largely due to a slump in revenue from VAT, import duties and departure taxes."