By YOURI KEMP
Tribune Business Reporter
The Government is “betting on our ability” to hit its fiscal targets, a Cabinet minister asserted yesterday, predicting that the Opposition and other critics will “be wrong again”.
Michael Halkitis, minister of economic affairs, sought to use the Prime Minister’s Office’s media briefing to change the narrative surrounding this week’s International Monetary Fund (IMF) Article IV statement, which predicted the current 2023-2024 fiscal year’s fiscal deficit will be near-triple the Government’s $131.1m forecast at around $379m.
Seeking to shift the focus to economic growth, he described the Government’s final discussions with the visiting IMF team as “the most positive closing meeting I’ve ever had” in relation to a final Article IV meeting as the Fund revealed it was revising its 2024 gross domestic product (GDP) expansion projections upwards from the original 1.8 percent to 2.3 percent.
Drawing further encouragement from data released by the Bahamas National Statistical Institute, which showed economic growth for the 2023 first half was some $295m or 4.5 percent ahead of 2019 pre-COVID comparisons, Mr Halkitis said the Government was confident in its forecasts that fiscal consolidation will occur far more rapidly than predicted by the IMF.
He argued that the Fund always took a far more conservative view of the revenue impact from enhanced enforcement, compliance and administration, believing such gains are effectively one-offs that are not recurring year after year, whereas the Davis administration’s view is more positive.
Mr Halkitis added that the administration “have met or exceeded all of our projections”, which contrasts with its recent June and 2023-2023 fiscal year-end report. While the $533m deficit came in lower than the original Budget projection, it was slightly higher than the revised $520m estimate unveiled with May’s Budget.
“When we had the concluding meeting with the IMF at the conclusion of their mission, that was the most positive concluding meeting I’ve ever had with the IMF, and I’ve been doing this on and off for 15 years,” the minister said.
With IMF officials raising The Bahamas’ 2024 growth prospects from 1.8 percent to 2.3 percent, he added: “That doesn’t happen every day. Normally when they come, they tell you they’re going to revise you downwards, so that was the most positive aspect.” That 0.5 percentage point jump is equivalent to a $70m-$75m hike in Bahamian GDP.
And, even if the IMF’s deficit forecast comes true, Mr Halkitis said it would represent a significant $150m-plus improvement on the $533m worth of ‘red ink’ accumulated in the 2022-2023 fiscal year.
He added: “We are also confident in our ability to collect (taxes) and our revenue enhancement initiatives that we have reintroduced that are bearing fruit. And so we have seen, for example, a deficit in 2019 of $839m; in 2020-2021, $1.3bn; in 2021-2022, $717m.
“Last year, 2022-2023, $533m, and we project next year $131m, which represents 0.9 percent of GDP. So we’ve seen it coming down steadily from those high levels during COVID and after, and we project that it will continue to decline.”
“The IMF, again, recognised that in our concluding meeting the debt [to-GDP ratio] is on a very positive downward trajectory. In June 2021, we had debt-to-GDP over 100 percent, and so now at the end of June 2023, debt-to-GDP is 84 percent. We project that by 2025-2026, debt-to-GDP will be at 72 percent,” Mr Halkitis continued.
“So, towards the end of this first term, we anticipate we would have reduced our debt-to-GDP ratio almost by more than a full 25 percent which, again, is very, very significant and identified by the IMF as a positive development.”
Mr Halkitis, talking up the Bahamian economy’s prospects in 2024, said: “We’re going to emerge from this COVID crisis through growth in the economy, growing the economy, aggressive pursuit of investment, ease of business, etc... And we have seen the fruits of that effort, verified by our Statistical Institute and the IMF in terms of growth in the economy.
“Proven revenue collection, we’ve seen the fruits of that with the increased revenue; containment of expenditure, again, expenditure largely contained within our targets; and new sources of revenue, which we continue to pursue and hopefully, we’ll have some good news as we get into 2024. And so those four elements comprise our strategy, and we think it’s working and we think it will continue to work.”
The reference to “good news” in 2024 is the Government’s efforts to develop blue carbon credits. Mr Halkitis, meanwhile, rejected assertions by Kwasi Thompson, the Opposition’s finance spokesman, that the Davis administration is engaging in unnecessary spending.
He argued that “in the next breath” Mr Thompson talks about the need for more spending and endorsed the IMF call for the Government to subsidise private insurance for individuals. “And so you have to have it one way or the other; either you want to control spending, or you want to open the floodgates,” Mr Halkitis added.
“So you can’t in one breath say government needs to control spending, then in the next breath you’re talking about how you endorse subsidised insurance. It might have some merit, but let’s be consistent here.”