The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank has effectively placed a ‘health warning’ on the Government’s $285.3 million deficit for the period to end-May, saying this “understates the magnitude” of the full-year outturn.

The regulator, in its July economic development report, took the unusual and unprecedented step of warning readers not to make “crude projections for the full fiscal year” based on the data it had presented for the first 11 months.

In what appears to be an attempt to explain the vast, multi-million dollar difference between its figures and the Minnis administration’s $500 million deficit estimate for 2016-2017, the Central Bank explained that its data was still based on the Government’s antiquated cash-based accounting methods.

This method does not include spending commitments made by the Government for which money has yet to be released, and the Central Bank said this inevitably resulted in “a lag” before they were reflected in the Treasury’s figures.

Once this happened, the Central Bank said its numbers would “reconcile to the same deficit” figures as recorded by the Public Treasury and, by implication, the Minnis administration’s $500 million deficit projection which incorporates its predecessor’s pre-election spending commitments.

“The reader is cautioned against crude projections of the full fiscal year on the basis on the analysis presented,” the Central Bank said of the data contained in its July report. “As the Bahamas’ fiscal accounting is on a cash basis, the published data does not yet capture expenditure commitments (whether by approved purchase orders or invoices) that have not yet been settled.

“Such transactions will be reflected, with a lag, in the closing accounts for the fiscal year. As such, the Central Bank expects that the relative magnitude of the increase in the deficit for the full fiscal year is still understated from the 11-months’ data.

“Once final estimates are available, both the Central Bank and the Public Treasury’s estimates of the public debt will reconcile to the same figures and point to the same deficit, in accordance with the compilation methodology (GFS) prescribed by the IMF.”

The Central Bank report is likely to reignite the political row sparked when Moody’s revealed that the Government’s $500 million deficit estimate for the prior year stemmed from its switch an an accrual-based accounting method.

Unlike cash-based accounting, this records the Government’s future spending commitments when they were made - not at the point when money is released. As a result, the Christie administration’s pre-election spending splurge and some Hurricane Matthew expenditure was incurred when it was made - in 2016-2017.

The Deputy Prime Minister and minister of finance previously defended this accounting switch to Tribune Business, saying: “The best policy is to be up front and honest.”

K P Turnquest said Moody’s decision to leave the Bahamas’ with an investment grade credit rating was vindication of the Government’s decision, as it provided far greater transparency on this nation’s true deficit and fiscal position.

However, Moody’s report, and likely the Central Bank’s July data, will be used by the Opposition to defend the former Christie administration. They will argue that the latter’s figures confirm the previous government was on target to achieve the $350 million, cash-based deficit it had projected post-Matthew.

The Opposition, and websites that support it, have already hinted darkly that the Government is interfering with the Central Bank’s independence in relation to the fiscal figures, and they are likely to seize on the latter’s report ‘footnote’ as confirmation of their allegations.

Sir Franklyn Wilson, the Sunshine Holdings chairman, referred to this in a recent Tribune Business interview when he warned the Government: “A terribly important point is: Don’t undermine the Central Bank.

“It’s not in the interests of central government to cast doubt on the figures put out by the Central Bank.”

For the first 11 months of the Government’s 2016-2017 fiscal year, the Central Bank said the deficit had increased by 13 per cent or $32.9 million year-over-year, due largely to public spending outpacing revenues.

“Data on the Government’s budgetary operations for the eleven months of fiscal year 2016-2017 revealed a rise in the deficit by $32.9 million (13 per cent) to $285.3 million, due to a $98.2 million (4.9 per cent) expansion in total expenditure to $2.105 billion, which outpaced the $65.3 million (3.7 per cent) rise in aggregate revenue to $1.819 billion,” the Central Bank said.

“Nevertheless, given the cash basis of Government accounting, the recorded fiscal shortfall understates the expected final outcome that includes spending commitments that were still unpaid at the end of the review period.”

The Central Bank said the increased spending was driven by a $93.7 million, or 56.9 per cent, rise in capital expenditure related largely to Hurricane Matthew recovery, which boosted capital formation by $70.2 million.

Yet recurrent spending, which represents the Government’s fixed costs such as wages and rents, also grew by $42.1 million or 2.3 per cent. This came primarily from a $65.4 million, or 7.3 per cent, increase in consumption spending, as goods and services purchases and wages rose by $35.9 million and $29.5 million, respectively.

“Revenue gains were anchored by the $59.2 million (3.7 per cent) expansion in tax receipts,” the Central Bank said.

“Specifically, other ‘miscellaneous’ taxes strengthened by $33.3 million (9.7 per cent), owing largely to a $16.9 million (16.7 per cent) rise in property taxes and a $9 million (13.7 per cent) gain in Stamp taxes related to financial transactions.”

Value-Added Tax (VAT) receipts, though, decreased by $4.3 million or 0.7 per cent.