The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government believes it can “achieve a balanced Budget” within the next four years, its top finance official said yesterday, while warning this forecast could be undermined by unexpected events such as the $100 million in revenues lost to Hurricane Matthew.

Simon Wilson, the Ministry of Finance’s financial secretary, said the Government’s revenues as a percentage of gross domestic product (GDP) needed to increase by four to five percentage points if it was to hit “an overall surplus”.

He told the Chamber of Commerce’s State of the Economy 2017 forum that while tax revenues were currently equivalent to 22 per cent of GDP, this ratio needed to rise further to 26-27 per cent.

He added that the Government’s fiscal targets would be achieved through a combination of “aggressive” revenue compliance and spending controls, which were already starting to bear fruit.

“We believe that fiscal balance, subject to external shocks, is achievable in the next four years. We’re working hard towards it,” Mr Wilson said, acknowledging that this latest prediction would likely still attract criticism.

“You may say that’s a cop out,” he added, “but the reality is we’re in the hurricane zone.”

The Financial Secretary said Hurricane Matthew had cost the Government some $100 million, and possibly up to $120 million, in revenues due to its impact on the Bahamas’ main centres of economic activity.

Pointing out that it took almost 19 days, or three weeks, to restore power to all of New Providence, Mr Wilson said the Category Four storm’s impact was magnified because it coincided with a month in which all 6,000-plus VAT registrants - quarterly as well as monthly - were due to file.

“We quantified it as a near $100 million impact in revenue,” Mr Wilson said, adding that the Public Treasury received “almost zero VAT from Grand Bahama” - the island whose economy was hardest hit by Matthew - with the October filings.

“We’re in the process of trying to recover that,” he added. “We can’t come with a big stick approach. That’s my preference, but we can’t come with a big stick approach.”

Mr Wilson said the Government post-Matthew was having to finance the rebuilding of 92 homes in Grand Bahama, and 53 in Andros, something he described as “unavoidable” expenditures.

Acknowledging that some may question why the Government was getting involved in home rebuilding, he added: “When you see these people and the conditions they live in, and the right thing to do is move them away them from the vulnerable areas of the coast, that’s something you have to do.”

Mr Wilson admitted that the Christie administration had missed its deficit and debt reduction targets, but maintained that its fiscal consolidation strategy was making progress and would ultimately stabilise the Government’s finances.

“The deficit is going down; our fiscal position is improving,” he argued. “Yes, we’ve missed our deficit targets because of known events [hurricanes Matthew and Joaquin], but there’s no question that we’re doing a job in controlling expenditure and improving the revenue base.”

Mr Wilson’s estimate yesterday forecasts that the Government will achieve “fiscal balance”, meaning the elimination of persistent Budget deficits, by the end of the 2020-2021 fiscal year.

This is some five years later than its initial projections, the Christie administration having forecast in its 2013-2014 Budget that it would eliminate the GFS deficit by 2015-2016 - something that did not happen.

Most observers believe the Government’s fiscal projections have been wildly over-optimistic, and too aggressive, but progress has been made. The deficit has been reduced, and the rate of growth in the national debt has slowed, but both at a far slower pace that forecast.

Mr Wilson’s seeming attempt to blame Matthew and Joaquin for blowing the Government off-course are also likely to be met with suspicion, given that it was already missing its fiscal targets prior to the events.

For the fiscal year 2014-2015, which closed before Joaquin’s arrival, Prime Minister Perry Christie said the Government ultimately ran up a $381 million GFS deficit for the period - almost double the $196 million first projected.

Mr Wilson, meanwhile, said government revenues had increased from 17 per cent of GDP to their current 22 per cent, but added that more was needed if significant fiscal inroads are to be made.

Describing the five percentage point rise as “a significant increase”, Mr Wilson said the Bahamas remained “one of the lowest taxed countries in the Caribbean against peers; at the low end of taxes and taxes collected”.

“We probably need to be around 26-27 per cent to have an overall surplus,” he added.