The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Minister of Finance said yesterday’s Budget will drive home to Bahamians that “the days of largesse are over”, with the Government having to borrow a collective $722 million to cover two years’ worth of fiscal deficits.

K P Turnquest told Tribune Business that he hoped the public will now realise “there’s no free lunch to be had” given the gravity of the Bahamas’ fiscal situation, with the 2016-2017 deficit having soared five-fold above the initial $100 million projection to around $500 million.

When asked why yesterday’s deficit estimates were so different from the former Christie government, Mr Turnquest suggested it was a combination of the latter’s over-optimism and the Minnis administration’s more realistic approach to the Budget.

The Government’s $323 million deficit projection for the upcoming 2017-2018 fiscal year is almost $300 million more than the estimate provided by the Christie administration 12 months before, with Mr Turnquest emphasising that it planned to perform better than what he admitted were “conservative” fiscal forecasts.

“The reality is that we want to be real with the Bahamian public in terms of where we’re headed, so they understand there’s no free lunch to be had; that there’s no free party,” Mr Turnquest told Tribune Business. “We have to be serious and committed to bringing this back under control.

“The days of largesse are over. We are, at this stage, continuing to provide a conservative Budget and conservative forecast. Hopefully, we will do better. We have to do better.”

The Government used yesterday’s Budget to reinforce its election campaign message of fiscal discipline and prudence, coupled with enhanced transparency and accountability, which are intended to provide a combined solution for deficit elimination and improved governance.

The Opposition yesterday slammed the Budget presentation for failing to provide Bahamians with hope, especially the poor, but Mr Turnquest said a sober communication was critical to tempering public expectations of what the new government can deliver.

“We wanted to make sure we presented a picture of stability while we try to work on the back end to scrub the accounts, for want of a better expression,” he added, “while we ensure the expenditures we do incur are necessary and provide benefits.”

The 2017-2018 Budget unveiled by Mr Turnquest yesterday sought to avoid creating any economic shocks, avoiding new or increased taxes, while “holding the line” on spending and fulfilling the commitments entered into by the Government’s predecessor administration.

The Minister of Finance disclosed that the GFS deficit for the 2016-2017 fiscal year, which ends on June 30, is now projected to come in some $150 million higher than the Christie administration’s last estimate at $500 million.

While agreeing that Hurricane Matthew had caused a significant part of the overshoot, Mr Turnquest noted that recurrent spending on fixed costs such as wages and salaries was set to come in some $137 million above projections.

This was now estimated to total $2.458 billion, as opposed to the original $2.321 billion projection, with increases in debt servicing (Interest) and debt principal redemption costs of $27 million and $21 million, respectively, driving the increase.

Mr Turnquest said this, combined with Matthew’s impact and unfunded spending commitments by the previous government, had contributed to a $320 million backlog of payment commitments that the new administration now needed to cover with $400 million in “emergency funding”.

‘The combination of revenue shortfalls and accelerated spending has contributed to a greater than usual backlog of payments and commitments as we approach the end of the fiscal year,” he explained.

“The latest information has this backlog in excess of $300 million, and it is possible that this number could increase before the end of the year as we get a greater understanding of the many deals of the former administration.

“We don’t have the final number. Every day we are discovering new commitments and new bills. This high level of outstanding payables is directly responsible for the Government seeking emergency funding to meet the obligations of the 2016-2017 Budget, as vendors are clamouring for payments.”

Mr Turnquest promised that the Government would meet the payments backlog in the current fiscal year, in a bid to “minimise, to the greatest extent possible, any carryovers into the 2017-2018 fiscal year”.

When asked by Tribune Business to break down the ‘blank cheques’ left behind by the Christie administration, Mr Turnquest said: “There’s a number of areas. Most of it is just out there with commitments made that have not been funded.

“The previous government engaged in any number of contracts, hirings and other spending that were not part of the Budget. These things are just coming home to roost.”

Tribune Business has repeatedly been informed by private sector sources that the Government has been experiencing cash flow problems, with payments delayed and seemingly awaiting the receipt of VAT monies before they are issued.

The “backlog” identified by Mr Turnquest appears to confirm this, and he told this newspaper yesterday: “All I would say is that we have to borrow $400 million. You wouldn’t borrow $400 million just because.”

As for delays in the Government providing salary deductions for civil service loan payments, he added: “We anticipate that problem will be resolved.”

Mr Turnquest identified several areas of wastage and questionable spending in his Budget presentation, including $30 million spent on roadside clean-up contracts through the Public Parks and Beaches Authority in the 2016-2017 fiscal year.

The Minister of Finance said this sum represented a 10-fold increase on the original $3 million allocation, and he also flagged the $10 million in consultants’ fees paid for the “incomplete” National Health Insurance (NHI) programme.

Among the unfunded spending commitments that did “come over” into 2017-2018 are numerous increases for the Ministry of Public Service and National Insurance. These include $35 million for medical insurance premiums; $16 million for pensions; $6 million for gratuities; and $10.6 million for government office rents.

Mr Turnquest also revealed a $27 million increase to the Government’s wages bill for 2017-2018 as a result of people hired by the Christie administration over the past fiscal year, together with an extra $8 million in increments and $7.5 million to meet commitments contained in new industrial agreements with the public sector unions.

When asked by Tribune Business whether this provided evidence that the former government had been engaged on a pre-election hiring and spending spree to shore up its support, Mr Turnquest replied: “Absolutely. It’s clear. The facts speak for themselves.”

He had earlier told the House of Assembly: “Let me be quite blunt: The fiscal situation in the current fiscal year is far bleaker than we could ever have imagined. Our predecessors have literally left us with a cupboard that is bare.

“The very grave condition of our country’s public finances mandates that we give the utmost priority to getting our fiscal house in order. That is critical to any success that we hope to achieve on the growth and jobs front. Ignoring the state of our finances would have deleterious consequences for the viability of our agenda and future prospects for the Bahamian society and economy.”

Together with $40 million to finance the National Health Insurance (NHI) Authority, Mr Turnquest said the recurrent spending increases for 2017-2018 - aside from a $125 million rise in debt principal redemption - amounted to $155 million.

“It may be seen that, in reality, we have held the line on expenditure and are accommodating only the highest priority obligations,” Mr Turnquest said.

With recurrent spending projected at $2.6786 billion for 2017-2018, Mr Turnquest said revenues were set to return to trend post-Matthew and benefit from the projected pick-up in GDP growth.

“Recurrent revenue is forecast at $2.15 billion in the coming fiscal year, up $190 million from the previous, depressed year,” he added.

“On the basis of these projected fiscal developments, the GFS deficit in 2017-2018 is targeted at $323 million, or 3.5 per cent of GDP. While that is a marked improvement from the estimated $500 million deficit recorded this year, it is still higher than the $310 million deficit posted in 2015-2016.”