The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has quietly increased its total spending forecast for the 2015-2016 fiscal year by $62.636 million, raising fears that its deficit could exceed $200 million.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business that the projected expenditure rise warranted explanation from the Christie administration during the mid-year Budget debate.

Describing the situation as “an interesting one”, Mr Bowe told Tribune Business: “A lot of reference has been made to the $141 million, the projected deficit for the full year.

“In reality, with the recently revised estimates, there is already an increase in recurrent expenditure built into the actual calculation, a near $50 million increase.”

The increase beyond the May 2015 Budget forecasts, which was not referred to by the Prime Minister during his presentation last week, appears to be unaccompanied by any matching revenue rise.

The data accompanying the mid-year Budget presentation shows that recurrent spending, which covers the Government’s fixed costs, such as salaries and rents, is now forecast to exceed the May Budget estimates by $48.197 million.

And capital spending, which involves infrastructure and public works, is also forecast to overshoot original estimates by $14.438 million.

In total, the mid-year Budget data reveals over $62 million in spending that was not anticipated when the Christie administration presented the 2015-2016 Budget to Parliament.

The revised estimates take the Government’s total spending for 2015-2016 to $2.403 billion from $2.34 billion, a 2.7 per cent increase.

And, with total revenue estimates unchanged at $2.047 billion, it appears that the projected GFS deficit measure for the 2015-2016 fiscal year could exceed $200 million - a sum equivalent to around 2.5 per cent of GDP.

If that occurs, the 2015-2016 deficit would slightly exceed the $198 million incurred the prior year, representing a reversal - albeit minor, and potentially temporary - to the Government’s fiscal consolidation plan.

“The reality is that means the Budget deficit could be $204 million, not the original $141 million,” Mr Bowe told Tribune Business of the projected spending increase.

“They have already communicated additional recurrent and capital expenditure of $62 million in total, based on the financial numbers put out.

“There needs to be clarity in the mid-year Budget debate from the minister of state for finance, and in the wrap-up by the Prime Minister,” the Chamber chairman urged.

“There’s no reference to this additional Budget expenditure on the capital and recurrent side. If they’re going to end up spending it, it will put the deficit close to $200 million, not $141 million.”

Mr Bowe emphasised that “in the absence” of any positive, upward revision to revenues “there’s certainly going to be a higher deficit” than predicted.

The Government is already struggling to meet its full-year fiscal deficit projection, as the ‘red ink’ incurred during the 2015-2016 half-year - some $156 million - already exceeds the 12-month target.

Mr Christie and Michael Halkitis, minister of state for finance, last week stressed that they remained optimistic that the Government would achieve its 2015-20156 fiscal goals.

However, they based this solely on the traditional pick-up in the Government’s revenues during the fiscal year’s second half. This coincides with an increase in economic activity due to the peak winter tourism season, and is when Business Licence fees and the bulk of real property taxes and motor vehicle licensing fees are collected.

Mr Halkitis did not respond to a Tribune Business e-mail seeking comment before press deadline last night.

The revised full-year spending estimates will add support to demands for Fiscal Responsibility-type legislation to be enacted in the Bahamas.

Many in the private sector view this as a tool that could force Governments to be more transparent and accountable for their fiscal stewardship, as it would force them to return to Parliament to explain, and get approval for, any spending increases beyond approved Budget amounts.

The mid-year Budget data shows that two-thirds of the projected recurrent spending increase, some $32.239 million or 69 per cent, has come from increased allocations to the Ministry of Tourism.

The Ministry of Works is the next largest recipient, gaining an extra $10 million above May budget estimates, and accounting for more than 20 per cent of the revised spending increase.

The ‘line item’ breakdowns for both Ministries describe this cumulative $42.239 million increase as a rise in ‘grants, fixed charges and special transactions’.

These classifications, though, appear to be at odds with the ‘block’ breakdown of the Government’s spending. This shows just a $17.815 million increase in ‘grants, fixed charges and special transactions’ amid the revised spending estimates.

The ‘block’ breakdown instead shows the biggest revision to be an extra $23.504 million allocated for ‘personal emoluments’ - meaning salaries, pensions and gratuities paid to government employees.

With ‘allowances’ showing a $5.333 million increase, and ‘travel and subsistence’ generating another $573,532, more than $30 million - or over 60 per cent - of the revised recurrent spending increase relates to extra payments to public servants.

On the capital side, the bulk of the increase is going to the Ministry of Education for school repairs. It is receiving $11.528 million of the extra $14.438 million.

The increased spending forecasts also appear to justify the recent call by rating agency, Moody’s, for the Government to rein-in its spending during the 2015-2016 second half.

Mr Bowe, meanwhile, told Tribune Business that “there needs to be more discussion over four fundamental” factors related to the Bahamas’ fiscal and economic recovery.

He said that with the deficit possibly closer to $200 million, and GDP growth projections having also taken a hit, the Bahamas’ debt-to-GDP ratio may also be forced higher.

The Chamber chair added that the Bahamas’ balance of payments issues, particularly its consistent multi-billion dollar current account deficits, were also cause for concern.

“We need to have greater dialogue because of the impact that has on the fiscal numbers,” Mr Bowe said. “If we don’t get balance on the current account, we will definitely have challenges on the fiscal side.

“It requires us to be very diligent in ensuring that if we have deficits on the current balance, we have to make it up from foreign direct investment inflows or borrowing.... We are beholden every year on FDI or foreign currency borrowing coming in.”

The Bahamas has traditionally relied upon strong FDI inflows, and a capital account surplus, to cover currency outflows on the current account side.

But, if FDI flows are inadequate, the Bahamas is then forced into foreign currency borrowings to boost the external reserves and maintain the US dollar currency peg. Those borrowings, in turn, add to the pressure on the $6.5 billion national debt.

Mr Bowe added that despite the $6 billion worth of ‘pipeline’ projects referred to by the Prime Minister, the Bahamas needed to “push innovation, creativity and avenues” that would achieve the higher growth rates essential to lowering a 14.8 per cent unemployment rate.

“We speak about reforms in tourism, financial services and elsewhere, but those reforms are being done to keep us with the status quo” he told Tribune Business.

‘We need reform initiatives to position us as a ‘tiger economy’, and to put us ahead of global competitors.”

Mr Bowe backed the Government’s focus on the National Development Plan, and added: “Hopefully, that will be the impetus for us doing things in the right manner.

“It’s absolutely astonishing to me how we’ve been able to survive as country without a planning unit. We need to bite the bullet, create it, staff it with appropriate labour, and hold it accountable for examining all aspects of fiscal policy.”

And the Chamber chief warned that despite the VAT-induced reduction in the fiscal deficit, the $6.5 billion national debt was continuing to increase.

The Government is pinning its hopes for a significant near-term debt reduction on its Bahamas Electricity Corporation (BEC) reforms. As part of PowerSecure’s management takeover at BEC’s new operating subsidiary, Bahamas Power & Light (BPL), the former’s legacy debt and other liabilities are due to be refinanced by a rate reduction bond.

That bond’s successful placement would remove an existing $200 million-plus guarantee that the Government provided to underwrite BEC’s previous financings, a development that will reduce its contingent liabilities and the national debt.

Mr Bowe, though, warned the Christie administration not to ‘count its chickens before they are hatched’ and assume that the guarantee would be removed.

“You have to be very careful about speaking of an imminent reduction,” he said.

He explained that much remained to be done on the rate reduction bond, particularly the attainment of an ‘investment grade’ rating for the security. That, in turn, was dependent on a viable business plan for BPL and investor acceptance that the utility would not require government support going forward.