The Tribune

The Central Bank of the Bahamas yesterday delivered “an uppercut” to the Government’s fiscal projections, urging it to rein in spending amid a $266 million deficit for the first 10 months of the 2015-2016 fiscal year.

The regulator, in its report on May’s economic developments, revealed that the deficit to end-April 2016 had increased by almost $37 million or 16.1 per cent year-over-year, as spending outpaced the VAT-led revenue increase.

The Central Bank’s report said the $235.1 million, or 14.6 per cent, increase in total spending had exceeded the $198.2 million or 14.3 per cent rise in revenues, raising questions over whether the Government can control its expenditure.

The release of the Central Bank data could not have come at a worse time for the Christie administration and the Bahamas at large, given that Moody’s is assessing whether to further downgrade this nation’s creditworthiness - possibly to so-called ‘junk’ status.

The numbers indicate that the Government will again probably miss its projections and targets, something unlikely to create a positive impression with the rating agency, which has already warned that the weakening fiscal projections and rising debt are key factors that have prompted its latest review.

And the Central Bank, in ‘diplomatic speak’ that is consistent with the institution’s protocols, effectively called for the Government to restrain spending if it was to achieve true fiscal consolidation.

Using coded language, it said: “Fiscal sector developments will continue to be driven by VAT-led structural improvement in revenues.

“However, efforts to control expenditure growth will also remain central to consolidation prospects.”

The figures also directly challenge several Government projections, particularly Prime Minister Perry Christie’s pronouncement in the 2016-2017 Budget communication that the GFS deficit for the recently-ended 2015-2016 fiscal year will come in at $150 million.

The Central Bank numbers suggest the contrary - that the deficit is actually increasing, not narrowing as the Government is forecasting. They also imply that the deficit is moving further away from target, since at end-April it was $116.1 million away from the year-end forecast with just two months to go.

And the numbers also seem to contradict suggestions by Michael Halkitis, minister of state for finance, that the traditional surge in revenues during the fiscal year’s second half would produce a small surplus, enabling the Government to hit its full-year targets.

Responding to concerns expressed in February’s mid-year Budget debate, Mr Halkitis said revenues would receive a major one-time boost from the March/April payment of Business Licence fees, plus commercial motor vehicle licensing and real property taxes.

The fiscal year’s second half also coincides with the typical peak in Bahamian economic activity that results from the winter tourism season, and the Central Bank numbers show revenue collections did peak in March and April 2016.

However, the surge has not been enough to reverse the general deficit trend, even though the two months produced almost $400 million in revenues for the Government.

It was able to generate a $13 million surplus for April, as total revenues hit $197.9 million, a figure likely aided by Business Licence fees, which were due to be paid at March’s end. The month was also the period when all VAT filers - monthly and quarterly - were due to pay, too.

Yet March’s revenues, even though they were slightly higher at $199.8 million, were insufficient to offset $207.3 million in recurrent spending, the deficit for the month hitting $26.9 million.

The one area of ‘caution’ in assessing the Central Bank’s figures is that they do not specifically state whether they refer to the GFS deficit measurement, which would enable like-for-like comparisons with the Government’s figures.

John Rolle, the Central Bank’s governor, has not returned Tribune Business’s calls seeking clarification on the issue.

However, the Central Bank’s report makes no mention of debt principal repayments in its calculations. These are ‘stripped out’ from GFS deficit calculations, and their absence indicates the regulator is indeed referring to this measurement.

K P Turnquest, the Opposition’s finance spokesman, told Tribune Business that the Central Bank’s report showed the Government’s optimism of a second-half revenue surge “has not been realised”.

“This has got to be an uppercut to the Government’s plans,” he said. “I’m sure they had intended to roll out [a picture] that they were collecting revenues on the back end, and it’s just not happening.”

Mr Turnquest argued that based on the Central Bank’s numbers, it would be “almost impossible” for the Government to hit its $150 million full-year fiscal deficit projection.

He projected that the deficit figure for 2015-2016 would come in somewhere between $250-$300 million, which would still represent an improvement on the previous year’s $381 million worth of ‘red ink’.

While the Bahamas appears to be moving in the right direction to eliminate its deficit, progress has been painfully slow, and much less rapid than then Government has forecast.

A case in point was the 2014-2015 fiscal year, where the Government initially said it had beaten its $286 million target with a $198 million deficit, only for that to subsequently be revised upwards one year later to $381 million.

Mr Turnquest said the Central Bank’s data pointed to the Bahamian economy’s continued struggles, and added of the Government’s projections: “I wouldn’t say they were misleading, but they were very optimistic about collection efficiencies in the second half.”

Describing spending as “the other part of the equation” on fiscal expenditure, the FNM finance spokesman argued that there was still too much discretionary spending on projects that generated little to no return for the Bahamian people.

Turning to the Central Bank’s spending concerns, Mr Turnquest added that as the immediate past financial secretary, its governor, Mr Rolle, had “intimate knowledge” of what was required to alter the fiscal course.

He added that the Central Bank governor was likely “sending a message back that there needs to be a tightening up of things”.

Branville McCartney, the Democratic National Alliance’s (DNA) leader, told Tribune Business that the May report showed the Government and Central Bank “are not of one accord”.

“That’s cause for concern,” he told this newspaper. “Where are we as a country? My belief is that the Central Bank will have it more accurately than the Government, which over and repeatedly has not been transparent and truthful with the Bahamian people.”