The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s increased $350 million deficit forecast for the 2016-2017 Budget year was yesterday challenged by its opponents, who argued: “It’s impossible to put the genie back in the bottle.”

Prime Minister Perry Christie, unveiling the mid-year Budget in the House of Assembly, blamed Hurricane Matthew for all the Government’s fiscal woes, including a deficit now expected to be 250 per cent larger than initial projections.

Mr Christie said the Category Three/Four storm had delivered a $300 million blow to the Government’s finances, with $200 million of that sum relating to lost revenues, implying that it would have beaten its $100 million full-year deficit target if not for Matthew.

“The GFS deficit exceeds the annual target, and this is solely because of the impact of Hurricane Matthew,” Mr Christie said.

“In total, the Ministry of Finance is now projecting a deficit of $350 million, which is $40 million more than the last fiscal period. This is primarily due to the $300 million fiscal impact of Hurricane Matthew, of which $200 million is revenue foregone.”

The figures revealed by Mr Christie thus show that the full-year deficit for the previous fiscal year, 2015-2016, was $310 million - a sum more than double the initially projected $141 million.

That performance casts considerable doubt on Mr Christie’s optimism that increased revenues flows during the second half of the 2016-2017 fiscal year, stemming from greater economic activity; one-off inflows from Business License fees and commercial vehicle licensing; and enforcement activities, will contain the full-year deficit to $350 million.

The Prime Minister confirmed that the deficit for the 2016-2017 first half was 75.2 per cent up year-over-year at $275 million, and acknowledged that the Government was unlikely to hit its $2.176 billion revenue target for the year to end-June.

He added that Matthew’s impact on economic activity, coupled with the tax exemptions granted in relation to aid storm recovery efforts, had caused a “precipitous” revenue fall-off in October and November 2016.

“Although the recovery in revenue evident for the month of December strengthened, with receipts for January and February running broadly in line with projections, we are still unlikely to achieve our recurrent revenue target for the 2016-2017 fiscal year,” Mr Christie said.

“However, we believe that the gap between actual and projected revenues will be considerably narrowed by the end of the fiscal year.”

The Prime Minister expressed hope that a $62 million revenue improvement during the first two months of 2017 marked the start of a continuing trend that will ensure second half revenues match the prior year’s, constituting “a remarkable achievement” by end-June 2017.

Past performance, though, suggests Mr Christie’s optimism may be misplaced. For he said something similar in the mid-year Budget statement for 2015-2016, after the Government’s half-year deficit of $157 million had also overshot the $141 million full-year projection.

“I am therefore confident that, as our revenue flows pick up in the second half as expected, we will indeed succeed in bringing in the deficit at a level close to the estimate in the Budget Communication,” Mr Christie said in February 2016.

Instead, as confirmed by his statement yesterday, the 2015-2016 deficit continued to expand during the then-fiscal year’s second half, growing by a further $153 million.

The figures were seized on yesterday by K P Turnquest, the FNM’s finance spokesman, who said the Government’s past fiscal performance suggested the Prime Minister was being “incredibly optimistic” on the revised full-year deficit and revenue projections.

“The fact of the matter is that it’s almost impossible to put the genie back into the bottle,” Mr Turnquest told Tribune Business on the 2016-2017 deficit.

“Revenue is down as a result of the hurricane, but they’ve not adjusted spending as a result, and it would be reasonable to assume the deficit will continue to grow.”

Turning to Mr Christie’s revised forecasts, Mr Turnquest added: “It defies logic.

“Having regard to taking Mr Christie at his numbers, he’s being incredibly optimistic that they will be able to pick up the revenue in the last half of the year, where the evidence suggests that is not the trend over the last couple of years.”

Mr Turnquest said that with Grand Bahama’s hotel and tourism product “dead”, and 1,100 workers having lost their jobs post-Matthew, the island’s economy would “be a significant drag” on the Government’s finances for some months to come.

And with the full impact of Baha Mar’s opening unlikely to be felt until winter 2017 at earliest, the FNM deputy leader added: “What exactly is he basing his statement on? The economics don’t make sense.”

Mr Christie’s, and the Government’s, 2016-2017 half-year deficit figure of $275 million is also $39 million below the number cited by the Central Bank, which was $314.2 million.

No explanation was provided for this discrepancy yesterday, with Mr Turnquest asking, tongue-in-cheek: “The first question is how did the Central Bank get it so wrong? Or did they get it wrong?”

And while the Prime Minister blamed the Government’s fiscal woes “solely” on Hurricane Matthew, the Central Bank’s explanation has differed in its monthly and quarterly economic reports, which suggest that some of the increased deficit is due to greater recurrent spending - especially on initiatives such as National Health Insurance (NHI).

“The reality is that the numbers are what the numbers are,” Mr Turnquest told Tribune Business. “We ought not to stick our heads in the sand and mislead the Bahamian people.

“To the extent an election’s coming, I know they [the Government] want to paint a pretty picture, but the facts defy the projections and statements they’re making. It’s unlikely that this will turn around by some stroke of genius.”

Mr Christie, though, stuck by his Hurricane Matthew explanation, and pledged that the fiscal consolidation plan initiated by his government would ultimately eliminate the deficit and start paying down the $7 billion-plus national debt.

“Hurricane Matthew has been a major disrupter of the Government’s fiscal plans, with the increase in the first half deficit above target being more an aberration than a deliberate deviation from the previously announced budgetary objectives,” the Prime Minister added.