The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will miss its original goal of eliminating the GFS fiscal deficit by the upcoming 2015-2016 Budget year, amid warnings that its near-$2 billion recurrent spending “doesn’t bode well” for hitting its revised targets.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, said the projected $100 million or 5.4 per cent increase in year-over-year fixed-cost spending would only “put pressure” on the Government’s revenues to meet Budget.

While the Treasury is now projected to earn an increased $344 million in Value-Added Tax (VAT) revenues for 2015-2016, Mr Bowe said this sum - and the VAT collected by Customs - will effectively all be consumed by the Government’s $400 million-plus debt servicing costs.

“I think the Prime Minister’s communication was very upbeat and did paint a very rosy picture,” Mr Bowe told Tribune Business, acknowledging that the Government had beaten its 2014-2015 deficit targets.

“But in reality, the numbers will bear out a tremendous amount of expenditure they expect to incur.... When you look at the numbers, it’s obvious there’s increasing expenditure, and that puts pressure on our ability to meet revenue targets.”

Revenue performance is “significantly correlated” with GDP growth rates, Mr Bowe added, and these are already under pressure in the short and medium-term.

Tribune Business revealed on Tuesday how Moody’s, the international credit rating agency, has cut its 2015 Bahamas growth forecast from 2 per cent to 1.7 per cent due to Baha Mar’s delayed opening.

Effectively backing that move, Mr Bowe told Tribune Business: “I stand by 2.3 per cent growth as a stretch target. I still believe it’s possible, but not probable.”

He agreed that the Bahamas’ 2015 economic growth would be determined by Baha Mar, the opening of resorts such as the Warwick on Paradise Island and former Nassau Palm on West Bay Street, and whether additional tourists and airlift arrived to fill their rooms.

As for the Budget, Mr Bowe reiterated that it was vital the Government’s consolidation strategy bore fruit in the numbers, with a reduced fiscal deficit and decline in the $6.2 billion national debt.

“The recurrent expenditure doesn’t bode well, as you’re talking about $100 million in extra spending and getting up to near $2 billion,” Mr Bowe told Tribune Business.

“What’s it saying? Are we cutting our suit to fit the cloth? We should see all the VAT surplus used to defray what the deficit was.

“Our end expectation was to hold the line on expenditure, reduce it where we can but not cause hardship in areas such as social security, and do it in a phased approach.”

The Government’s 2015-2016 Budget projections show recurrent (fixed cost) spending falling as a percentage of GDP from 22.8 per cent in the upcoming year to 22.2 per cent and 22 per cent in 2016-2017, and 2017-2018, respectively. In the latter year, it is supposed to be surpassed in terms of GDP share by revenues at 22.3 per cent.

Yet, in gross terms, the Government’s recurrent spending is projected to increase over successive Budget periods. It will jump by $100 million in 2015-2016 to $1.944 billion (on a like-for-like basis), as $60 million is allocated for National Health Insurance (NHI) and $20 million towards addressing youth unemployment.

Recurrent spending is then forecast to grow to $2.127 billion in 2016-2017, and $2.171 billion in 2017-2018.

Mr Bowe yesterday suggested that the Bahamas follow the strategy employed by the Turks & Caicos Islands, which generated a $75 million budget surplus due to a focus on tax compliance and law enforcement combined with “holding the line” on expenditure and “cutting where they could”.

“We need to be very clear about what we can afford, and drive our citizens to understand we can only spend what we take in and can afford,” Mr Bowe told Tribune Business. “In layman’s terms, we’ve mortgaged our house twice already, and can’t afford to do it a third time.”

The Government’s fiscal projections dating back to the 2013-2014 Budget add to the impression it is failing to hold recurrent spending flat, and is, in fact, increasing these estimates every year.

While estimates are notoriously sensitive to change, the Government’s 2013-2014 projection for the upcoming year’s recurrent spending was $1.825 billion. That was increased the following year to $1.874 billion, and now to $1.944 billion.

The statistics also confirm that the Government’s initial goal of eliminating the GFS fiscal deficit in 2015-2016 will not be met, suggesting that the initial plan was too aggressive.

That bold prediction, contained in the Christie administration’s 2013-2014 Budget, was revised to a $129 million deficit last year. That estimate has been increased, again, in the current Budget to $141 million - a sum equivalent to 1.5 per cent of GDP.

And estimates of an $80 million GFS surplus in 2016-2017 were swiftly revised to an $84 million deficit in last year’s Budget, although that figure is now expected to improve slightly to $70 million of ‘red ink’.

Deficits, albeit much reduced, are now expected through 2017-2018, implying that the Government will be unable to cease borrowing for some years to come.