The Tribune

By FAY SIMMONS

Tribune Business Reporter

jsimmons@tribunemedia.net

A governance reformer yesterday hailed the Government’s 2023-2024 Budget as correct for the times since The Bahamas would be facing “disaster” without a major cut to the annual fiscal deficit.

Hubert Edwards, the Organisation for Responsible Governance’s (ORG) economic development committee head, told the Rotary Club of West Nassau that while the Budget is “imperfect” it pledges to deliver an almost-75 percent year-over-year slash to the deficit.

The latter measures the difference between how much the Government spends and what it earns, in terms of taxes and other revenue income, with the gap having to be filled by borrowing that adds to the near-$11.5bn national deficit. For 2023-2024, the deficit is forecast to shrink to $131.1m compared to $520.6m that was projected for the just-closed 2022-2023 fiscal year.

Mr Edwards, noting that the Davis administration has set a trajectory where it is seeking to first reduce, then eliminate, the deficit and generate a Budget surplus, said: “The 2023-24 Budget is, in my view, an imperfect one. But, in macro terms, it’s the Budget which is needed for this particular time. I submit to you that any Budget presented in this time, which fails to deliver a significant downward trajectory of deficit, would be a disaster, plain and simple.

“When we think about the deficit, which is to be delivered this year, it’s a reduction from a 3.8 percent [of GDP] deficit. Next year, or the current fiscal that we’re in, 2023-2024, is expected to be at a 0.9 percent deficit. And then we roll into a surplus for the next three years, from 0.7 percent to 1.8 percent to 2.1 percent.

“All of this foreshadowing, growth and development, it is the Budget which was required at this point in time because there is significant messaging in that trajectory; moving down in the deficit, and then growing up into a surplus.”

Mr Edwards warned, though, that the Government might struggle to meet its deficit and other fiscal targets if the Bahamian economy fails to grow by the projected 4 percent in 2023. He said: “The truth is we don’t necessarily have to get to a 0.9% deficit. In my mind, a 1 percent deficit would work. Something a little bit larger would work as long as it’s not moving in a direction where it’s increasing significantly.

“It is my submission to you that the numbers are positive, but the increase in the [economic] growth rate which is underlying this Budget, the deficit moving into surplus, is kind of different from the historical growth rate that we have experienced.

“And the IMF and the governor of the Central Bank of the Bahamas said The Bahamas runs the risk of moving back to its historical levels of growth, which is kind of like 1.5 percent to 2 percent. When you look at the Budget, it is assuming a growth rate of about 3-4 percent. We have to get that. If that doesn’t materialise, then we could find some weaknesses.”

While the 2023-2024 Budget was billed as having no new or increased taxes, Mr Edwards said it creates a “cautionary circumstance” as all taxes must be sustainable and work. He added that The Bahamas has been warned that it must reduce spending and increase revenue to avoid a further credit rating downgrade.

Mr Edwards said: “The Bahamas, through this administration, has decided that there will be no new taxes and, as a result of no new taxes, it creates in my mind a cautionary circumstance. Because while taxes have increased in absolute terms, the fact that there were no new categories of taxes introduced, it says to us that those which we are working with today, as announced in the Budget they must be sustainable, and they must work.

“The response from this Budget, I think, goes directly to credit rating agencies, especially Moody’s and then S&P. Because in the last couple of months, when we were last downgraded as a country, there were some statements made. And one of those statements, which stands out very, very clearly, and very vividly, is the fact that The Bahamas, in order to avoid downgrades going forward, must demonstrate its ability to secure additional revenue and to become sustained in reducing its expenditure.”

Mr Edwards predicted that, unless a major or catastrophic event happens, the Budget “should be ‘good”. He added that the Budget shows The Bahamas is focused on increasing revenue and reducing spending. “This Budget sent a very, very clear signal to the world that The Bahamas appreciates, and knows, the problem that it has, and has set out to find greater revenue,” the ORG executive said.

“At the end of the day, right now as we speak, the biggest problem The Bahamas has is finding revenue to pay down its expenses. And, in order to do that, it has to make some adjustment. I believe we should be good for 2023-2024 unless something major and significant happens, like a big storm or a major downgrade.

“We must meet the targets which have been set this year - a $3.3bn budget in terms of revenue, $3bn in terms of expenditure. We can’t go much above that, and the deficit must become low, as projected. The tax measures must prove to be sustainable. So, no new taxes, we increase some fees. We must collect them. And they must work out based on projections plus or minus a few.”