The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE rate of growth in government spending on civil service salaries almost quadrupled during the 2016-2017 fiscal year, an Inter-American Development Bank (IDB) report revealed yesterday.

The IDB’s latest Caribbean Quarterly Bulletin seemingly illustrates the hiring spree engaged in by the former Christie administration prior to the May 10 general election, as the rate of growth in public sector wages rose from 1.2 per cent in 2015-2016 to 4.7 per cent in the year to end-June 2017.

“The Government expenditure growth rates for compensation of employees and purchases of goods and services increased by 4.7 and 2.3 per cent, respectively, in fiscal year 2017, and by 1.2 and 0.5 per cent in fiscal year 2016,” the IDB report said. Many observers are likely to interpret this as further confirmation of the Christie administration’s fiscal profligacy, as it sought to address both national unemployment and its re-election problems by expanding the public service.

The IDB report also revealed that civil service compensation was expected to “stabilise” during the current fiscal year at almost one-third of the Government’s total spending, which implies that the public sector’s total salary bill is approaching $900 million given total recurrent spending of $2.7 billion for 2017-2018. “In fiscal year 2018, expenditures for compensation to employees are expected to stabilise at 31.6 per cent of total expenditure, with a weighted growth rate of 0.6 per cent,” the IDB report said. “It is estimated that the growth rate of total expenditure will marginally increase by 0.4 per cent in fiscal year 2018 from 9.5 per cent in fiscal year 2017, as the Government of the Bahamas improves efforts to strengthen fiscal operations and introduces legislation limiting fiscal aggregates.”

The IDB report’s findings show why the Government feels it has little choice in not renewing the expired contracts of temporary workers, and its implementation of a 10 per cent across-the-board spending cut, as it seeks to relieve the burden imposed on taxpayers and the private sector by a bloated bureaucracy.

Elsewhere, the IDB said the Bahamas’ primary deficit, which measures the difference between government revenues and recurrent spending while stripping out interest (debt servicing costs) from the latter, rose to 2.6 per cent last fiscal year from just 0.3 per cent the prior year.

“The primary deficit increased in fiscal year 2017 as government expenditures rose faster than revenues,” the report added. “Revenue and grants rose by 4 per cent in the current period versus 2 per cent in fiscal year 2016. Government expenditure accelerated by almost 7 per cent in fiscal year 2017 and 1 per cent in fiscal year 2016.

“It is estimated that the overall growth rate for taxes in fiscal year 2018 will be 9.3 per cent, with 9.8 and 7.4 per cent increases in the categories of trade and other taxes, respectively. “Heightened economic activity and the Government’s efforts to enhance revenue collection are expected to strengthen the fiscal position.”

The IDB warned that “fiscal pressures” remain in the rise in the Bahamas, and said the primary deficit and higher interest rates accounted for 90 per cent of the national debt’s growth in fiscal year 2016-2017.

“The debt increased by 4.5 per cent in fiscal year 2017 from 2.9 per cent the previous year, a figure that is above the period average (2013–2017) of 3.3 per cent,” the IDB said. “Debt service increased in line with higher debt, as interest payments grew to roughly 2.5 per cent of GDP in fiscal year 2017, slightly higher than the previous year (2.4 per cent) and the 1.9 per cent figure in fiscal year 2013. Interest payments are estimated at over 15 per cent of revenues in fiscal year 2017.”

Cheaper oil prices and reinsurance inflows associated with post-Hurricane Matthew claims and reconstruction helped lower the Bahamas’ current account deficit in 2016 to 10 per cent, but the IDB added: “The balance is projected to widen in 2017 to 17.8 per cent of GDP as efforts intensify to complete Baha Mar.

“With the expected completion of the mega resort by the second quarter of 2018, the current account deficit is projected to improve to 14 per cent, and to then improve to 7.1 per cent over the medium term. The deficit has mainly been financed by FDI and other private inflows.

“Private capital inflows have been the major component financing the current account (15 per cent in 2017), and contributed on average 13.2 per cent of GDP from 2013–2017. FDI inflows rose from marginal levels in 2016 (0.9 per cent) to 3.2 per cent in 2017 as a result of tourism-related private investment.”

The IDB said the Bahamas’ foreign currency reserves were expected to increase by $56 million to $960 million at end-2017, equivalent to 2.4 months of imports. This figure was boosted by the Government’s external borrowings and hurricane-related reinsurance inflows.