• Governance chief says ‘no silver bullet’
• Urges ‘unwavering’ structural reform resolve
• ‘Shore up’ gaps to maximise COVID rebound
By NEIL HARTNELL
Tribune Business Editor
The $141m increase in the Government’s forecast 2021-2022 fiscal deficit “is a tremendous warning” that The Bahamas’ must urgently address long-standing structural woes to maximise COVID recovery.
Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, yesterday told Tribune Business that this nation must be “unwavering in shoring up” workforce skills gaps and other deficiencies that have restricted GDP output for decades.
He added that the Government’s mid-year Budget, unveiled in the House of Assembly yesterday, had reinforced the reform drive given that it indicated COVID-19’s economic and fiscal devastation is much deeper - and will last longer - than originally anticipated.
For the Ministry of Finance is now forecasting that the fiscal deficit for the 2021-2022 budget year, which begins in just over four months on July 1, will increase from the $813.4m projected last May to some $954.6m - a 17.4 percent rise.
Marlon Johnson, the Ministry of Finance’s acting financial secretary, told this newspaper that the $141.2m increase in the upcoming fiscal year’s projected deficit was directly tied to “the rebound from COVID-19 taking longer than anticipated”.
Tourism, which drives more than 50 percent of economic output and 60 percent of Bahamian employment, is predicted to recover only gradually during 2021 as the vaccine roll-out in key visitor source markets helps to rebuild traveller confidence. While the sector’s rebound has been weaker, and slower, than expected, Mr Johnson said the revised deficit was consistent with the Fiscal Strategy Report.
Mr Aubry, though, said yesterday’s fiscal data - which shows the Government could take on over $3bn in gross new debt over a three-year period - further highlights that there is “no silver bullet” for curing the economic and fiscal ills created by COVID-19.
With vaccine distribution proving a challenge in many of The Bahamas’ key source markets, Mr Aubry said that “recognising it’s going to be an even more difficult time” rebounding from the pandemic than first thought” sounds reasonable.
With the Government’s fiscal forecasts matching prior recovery predictions given by the Central Bank and International Monetary Fund (IMNF), he told Tribune Business: “I would love that there is a silver bullet, but I don’t think there is one.”
The ORG chief, though, argued that the Government needed to maximise income from its existing revenue source prior to entertaining new and/or increased taxes to fill the fiscal holes and $10bn-plus national debt blow-out created by COVID-19.
“It’s spending the money in the most efficient way, and cleaning up areas where revenues have not been maximised; those outstanding payments and taxes on the books,” Mr Aubry said, referring to the $600m in unpaid real property tax recently referenced by the Auditor General.
“There needs to be much more effort to draw those in. This discussion on other types of revenue needs to be had, but we need assurances that what is being done with monies owed is a priority.”
Improving the ease of doing business, increased economic diversification, enhancing the workforce’s depth and closing skills gaps, and facilitating the growth and development of Bahamian businesses were all key to “helping us be better prepared for when things start up”.
“The ‘wait and see’ model is a tough one, and we’re challenged by that because we don’t have full control of our destiny. But keeping ourselves sharp and doing what we can to address long-standing skills gaps can be very beneficial,” Mr Aubry said.
“What are we doing now to prepare them to be a viable workforce? We know 2021 and 2022 will be the start of the uptick in tourism and other spaces. These are all to make sure we come out of this as prepared as possible. Many businesses and families are struggling to get by, but if we’re going to shore up these long-standing issues this is the time to do it.”
Suggesting that the Government’s increased short-term deficit forecast represented another alert for The Bahamas and its economy, Mr Aubry told Tribune Business: “This is the time to act. This is the time to move forward, and not to waver in that direction. This confirms that change really needs to happen for sustainability.
“That the Budget has been revised creates a warning that things are going to be harder than anticipated. It’s a tremendous warning that we need to be unwavering in addressing these long-standing issues. We must make sure everything is flush so that we don’t see wastage or a missed opportunity.”
The Prime Minister, in unveiling the mid-year Budget, said the Government will cut spending to match missed revenue projections with its overriding objective being to hit the record $1.327bn deficit target set for the 2020-2021 fiscal year.
“While we are indeed facing unprecedented times and incredible challenges, we are remaining true to our pledge of fiscal probity,” Dr Minnis told the House of Assembly yesterday.
“While times are indeed tough, we have sought to manage the country’s finances in a responsible manner to ensure that where there are revenue shortfalls we have made - and will continue to make -reductions in expenditures. The goal is to ensure we maintain the originally budgeted deficit position of $1.3bn throughout the fiscal year.”
With revenue now forecast to be $104.3m off the original 2020-2021 Budget forecast, at $1.656bn, the Government has trimmed its recurrent or fixed cost spending by $18.3m to $2.556bn according to the projections unveiled yesterday. Capital spending has suffered a deeper $86m cut to compensate for the remaining revenue under-performance, having been slashed to $429.5m.
The $736.1m fiscal deficit for the six months to end-December represented 55.5 percent of the full-year estimate, although the size of the ‘red ink’ was worsened by the lockdowns and other restrictive measures implemented early in the 2020-2021 fiscal year to curb COVID-19’s so-called “second wave”.
Total revenues, though, contracted by $415.3m from the prior fiscal half-year’s $1.089bn, falling to $673.4m as the lack of economic and tourism activity continued to bite. The latter figure amounted to 38.1 percent of the full-year forecast, although the three months to end-March are traditionally the richest for the Government due to tourism’s winter peak, Business Licence fee payments, real property tax and commercial vehicle licensing month.
Rick Lowe, an executive with the Nassau Institute think-tank, yesterday said the Government’s bare fiscal cupboard is “creating a real dilemma”. He told Tribune Business: “We should all be concerned because taxes are going to have to go up to pay for it one way or another.
“Sooner or later the taxes are going to have to rise, and that’s the unfortunate part. How much can we bear? The Government is in a catch-22. They have no revenue and are still paying all those employees. They haven’t cut back like certain people in the private sector. With few tourists coming in the economy has ground to a halt.
“It’s amazing how fast it adds up. Without an economic turnaround it’s certainly doom and gloom. It’s not a spot we should be happy to see, but what do we expect? We can’t anticipate anything other than what’s going on.”