The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Standard & Poor’s (S&P) believes weak economic growth and revenue performance will cause the Government to overshoot its 2013-2014 fiscal deficit targets by a sum equivalent to 1 per cent of gross domestic product (GDP).

The Wall Street credit rating agency, in an assessment published after it reaffirmed this nation’s sovereign credit rating and ‘negative’ outlook last week, said the projected deficit for this fiscal year was likely to be “closer to 6 per cent”.

The Government’s 2013-2014 Budget projections pegged the GFS deficit (a measurement that strips out debt principal redemption) at 5.1 per cent of GDP, or $443 million.

With 1 per cent of GDP equivalent to $86.86 million, the deficit expansion projected by S&P takes the GFS ‘red ink’ for the 2013-2014 fiscal year to $521.176 million.

“The 2013-2014 Budget tabled at the end of May aims to reduce the deficit from more than 6 per cent of GDP in fiscal 2012-2013 (final data have not been released) to about 5 per cent of GDP via a combination of expenditure restraint and increased revenue (from property tax, Customs, Excise taxes, and increased efficiency of a newly established Central Revenue Agency),” S&P said.

“Persistent weak revenue performance and signs of continued low growth this year, potentially below official projections, underpin our projections for a higher-than-budgeted deficit (closer to 6 per cent of GDP) in 2013-2014. Hence, we forecast net general government debt continuing to rise.”

Acknowledging that the Government was projecting it would slash the fiscal deficit in half come 2014-2015, and achieve a balanced Budget on the recurrent side come 2015-2016, S&P said these forecasts “rely heavily on contained spending and implementation of a VAT”.

The Wall Street credit rating agency again indicated that the private sector and consumers will have little time to review the proposed Value-Added Tax (VAT) legislation and regulations, stating that the Christie administration wanted Parliament to pass it before year-end.

Given that we are now in the second week of November, that effectively gives a maximum four-five weeks for persons to analyse the details prior to the Christmas holidays, if that is the Government’s intention.

“The Government has yet to send its VAT proposal to Parliament but expects to do so in order to pass the legislation by year-end 2013,” S&P said.

“Growth in the Bahamas continues to be lacklustre, and the Government’s fiscal position remains weak. This prompted the Government to plan stronger fiscal measures that include introducing VAT on goods and services in mid-2014, and stricter control on expenditures.”

Projecting economic growth of around 2 per cent in 2014, and 2.5 per cent in 2015, S&P said this would be an improvement in this year’s 1.8 per cent GDP expansion.

“Low growth continues to weigh on the labour market,” S&P added, emphasising that much relied on the success of the $2.6 billion Baha Mar project when it became fully operational in 2015.

“Tourism has been weak through June, with total visitors up only 1.4 per cent over the same period versus 2012, while stopovers contracted 6.2 per cent,” the Wall Street credit rating agency added.

“Construction at Baha Mar has reduced room inventory, group business is down, and increased competition from lower-cost destinations and reduced airlift capacity are also factors. Hopes for higher GDP growth remain pinned on the scheduled soft opening of Baha Mar at the end of 2014 and early 2015.”