• Key fiscal targets revised in just four months
• Upcoming year’s deficit rises $150m to $564m
• Pintard fears hit to Bahamas fiscal ‘credibility’
By NEIL HARTNELL
Tribune Business Editor
The Bahamian economy’s “exceptional” post-COVID rebound justifies revisions of more than $200m in key Budget projections, top officials asserted yesterday, despite Opposition fears of a “disconnect” that will undermine fiscal credibility.
Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business the tourism-led economic revival was occurring “a lot quicker than anyone thought” possible and enabling the Government’s revenue performance to recover from the pandemic at similar speed and magnitude
With VAT collections for the first nine months of the current 2021-2022 fiscal year standing at 90 percent of full-year estimates, he argued that such an outturn justified the Davis administration’s optimism that its main tax mechanism will generate $1.412bn in revenue during the upcoming 2022-2023 period. This would represent a 67 percent year-over-year increase compared to the Minnis administration’s original $845m forecast for 2021-2022.
But, despite the optimistic outlook, Mr Wilson acknowledged that “putting it on paper doesn’t make it happen” and the Government will “have to work very hard on it” to make its projections a reality and convert persistent annual fiscal deficits into a $278.8m surplus by 2024-2025.
That forecast, contained in yesterday’s Budget, represents a $200m upward revision from the $71.9m surplus projected for the same 2024-2025 Budget year in the Fiscal Strategy Report that was released by the Davis administration just four months ago at end-January 2022.
Several other key estimates have also been revised with the Government increasing the projected deficit for the upcoming 2022-2023 fiscal year by almost $150m, raising it from the Fiscal Strategy Report’s $415.2m to $564m in yesterday’s Budget presentation. And the Davis administration is still predicting that it will increase revenues by more than $1bn over the next three fiscal periods - the critical factor in turning the deficit into a surplus.
Prime Minister Philip Davis QC, unveiling the 2022-2023 Budget in the House of Assembly, left the door open to a lower 2022-2023 deficit than projected by saying the proceeds from asset sales - such as the pending $100m Grand Lucayan sale - have not been factored into the calculations. Mr Wilson yesterday told Tribune Business that including the resort’s sale would reduce the deficit by a sum equivalent to 1.5 percentage points of gross domestic product (GDP).
However, Michael Pintard, the Opposition’s leader, told this newspaper that the rapid revisions to the Government’s fiscal numbers threatens to create “a disconnect” between yesterday’s Budget and those contained in the Fiscal Strategy Report.
The latter is designed to lay out “the framework” for achieving the Government’s fiscal targets and policy objectives, and he warned that the magnitude of these changes, and the speed at which they have happened, could threaten The Bahamas’ credibility with the likes of the International Monetary Fund (IMF), credit rating agencies such as Moody’s and Standard & Poor’s (S&P), and lenders/investors who hold the country’s foreign currency bonds.
“The reality is that it lays out the Government’s plan of action in the fiscal space, and that’s what people are going to assess us on,” Mr Pintard told Tribune Business of the Fiscal Strategy Report. “It’s not wise or prudent to move away from it at Budget time, as how do you believe them in future?
“The Fiscal Strategy Report is supposed to set the framework and tone for what you are going to do when governing. I think we will have a credibility problem.” This, the Opposition leader added, would result both locally and internationally with investors, creditors and multilateral agencies unsure whether they could rely on the Government’s figures. “It really sends the wrong message,” Mr Pintard added.
Mr Wilson, though, said the adjustments were justified by the improving economy. “The key thing is that the economy has rebounded a lot quicker than anybody thought notwithstanding the COVID variants,” he told Tribune Business. “Tourism has been performing exceptionally well, and because tourism has been performing exceptionally well, revenue has been performing exceptionally well.
“We believe the economy will return to pre-pandemic levels and is coming back a lot quicker than anticipated initially. If you look at this year’s Budget, even though the Government announced the sale of the Grand Lucayan it has not placed those revenues in the Budget. If it had placed them in the Budget, the deficit would go down by 1.5 percent” of GDP.
Suggesting that the deficit will thus likely be lower than the forecast $564m due to “a very conservative approach” to revenue forecasts, Mr Wilson added that the near-$500m VAT increase projected for the upcoming 2022-2023 fiscal year was based on the fact this tax had generated 90 percent of full-year projection in just the first three quarters of 2021-2022.
“When you look at that in context, you realise the $1.411bn is very achievable, especially when you factor in any increase because of inflation,” the financial secretary said. The Prime Minister, in unveiling the Budget, said the Government’s revenues for the 12 months to end-June 2022 are forecast to come in some $208.6m ahead of the Minnis administration’s projections made in May last year.
The forecast $2.455bn total represents a 9.4 percent increase over initial Budget forecasts, with the increase driven by the post-COVID economic re-opening, the easing of pandemic-related restrictions and the boost that inflation creates in a consumption-based tax regime such as The Bahamas. With VAT and import tariffs levied on the price of goods, any increase in the latter inevitably drives a greater tax.
Mr Davis spent relatively little time during yesterday’s presentation on the 2022-2023 forecasts. “Total revenue is projected at $2.804bn, a 19.9 percent increase over the prior fiscal year when the economy was in the early stages of an economic rebound from the COVID-19 pandemic,” he said, adding that fee increases unveiled yesterday, together with stronger economic growth and improved enforcement/compliance, will drive improvement.
“Total expenditure is forecast at $3.368bn, with recurrent expenditure projected at $2.997bn, and capital expenditure estimated at $371.1m. As a result of these operations, which incorporate prudent fiscal management principles, the fiscal deficit under the current budget is estimated at $564.3m or 4.3 percent of GDP.”
The Government is again relying on increased economic output to keep the debt-to-GDP ratio low. However, Mr Pintard said the Budget unveiled no actions that would enable the Government within three years to achieve a $279m fiscal surplus. This means revenues would exceed spending for perhaps the first time in The Bahamas’ post-Independence history.
“There’s nothing they laid out on how they’re going to get there,” the Opposition leader argued, pointing to the absence of spending cuts or significant revenue enhancements. “They couldn’t get there in the Fiscal Strategy Report, and the certainly cannot get there in this Budget. It’s unwise that they have this elevated, exaggerated outlook when nothing suggests they are going to get this outcome.”
Another source, speaking on condition of anonymity, was more blunt about the revised targets. “That’s fantasy. That’s pure fantasy,” they said of the 2024-2025 revised surplus. “To fund their spending they have had to ramp up this year’s deficit. I think the most telling there is the divergence from the Fiscal Strategy Report. That’s going to put a lot of pressure against our credit rating. When they see divergence like this, the credit rating agencies will come knocking on the door.”