The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government's struggles with its fixed costs resulted in a half-year deficit equivalent to 61 per cent of the full-year target, forcing it to cut capital outlays by 50 per cent to restrain spending.

K P Turnquest, deputy prime minister, in unveiling the 2017-2018 mid-year Budget blamed spending commitment "overhangs" from the Christie administration (see story HERE) for a slight year-over-year increase in recurrent outlays to $1.003 billion. This figure, which strips out debt principal repayments, was achieved despite the Government's 10 per cent 'across-the-board' spending cuts and public sector lay-offs/contract non-renewals, as it seeks to bring its wage bill under control.

Mr Turnquest said the Government's wage bill, consisting of salaries and benefits, actually increased by $15 million year-over-year to $373 million for the six months to end-December 2017 despite the downsizing.

He blamed this on a combination of an "industrial agreement-related lump sum payment" worth $7.7 million, and $6 million in outstanding overtime payments to police officers. Severance payments to laid-off public sector workers, though, are likely to have been a further contributing factor.

Mid-year Budget data, though, indicates that the Government expects savings from the recent downsizings to come through in the 2017-2018 second half. It is now projecting an $8.282 million reduction in its emoluments (wages and benefits) bill to $733.477 million for the full year, implying that a $23 million-plus savings will be realised in the six months to end-June 2017.

Mr Turnquest's address, which focused solely on 'the numbers' and contained no new policy initiatives, emphasised that while the Minnis administration was "on track" with its fiscal consolidation plan it would need to exercise constant "vigilance" and prudence to ensure targets are met.

He acknowledged that the Government's bid to "bring the country's financial house in order" could not starve much-needed infrastructure upgrades of investment capital, hinting that the Minnis administration may have to look towards more public-private partnership (PPP) arrangements to brink key assets in line with a "21st century Bahamas".

The Deputy Prime Minister conceded that the $92.3 million year-over-year reduction in the first-half GFS deficit to $198 million "largely reflected" the 50 per cent slash in capital spending.

This fell from $152.2 million in the same period in 2016-2017 to $75.8 million for the six months to end-December, representing a $76.4 million reduction. "This fiscal year, the Government has exercised extreme prudence in the commitments for capital expenditure, ensuring that only meaningful and critical public investments are approved," Mr Turnquest said.

"That said, we acknowledge that our public infrastructure plant, in too many cases, remains well below the standards for a 21st century Bahamas. The Government commits, over this term in office, to find creative and efficient ways to substantially increase productive investments in our hospitals, schools, clinics, airports and digital infrastructure, to allow for the sustained social and economic development of Bahamians throughout the full archipelago.

"These investments will be critical to underpin the much-needed improvements in productivity, boost the growth potential of the Bahamian economy and thereby contribute to enhanced job opportunities for our citizens." Mr Turnquest said Bahamian GDP was forecast to have expanded by 1.8 per cent in 2017.

Comparisons between the 2017-2018 first half and the prior year are difficult because the latter period contains the fall-out from Hurricane Matthew, which struck in October 2016. Repairs to public infrastructure would have driven capital spending to $152.2 million, while revenues would have been lost due to the disruption in economic activity. Emergency borrowing was also required.

Matthew's impact was not mentioned in yesterday's mid-year Budget address, but its prior year impact makes the 31.8 per cent deficit reduction from $290.3 million to $190 million - a fall of $92.3 million - seem slightly less impressive.

Mr Turnquest said total government spending was down from $1.146 billion to $1.078 billion year-over-year, with the $67.5 million reduction driven entirely by the cut in capital outlays. "This, coupled with an increase in revenue collection of $24.8 million, is what has led to the improvement in the deficit position by some $92.3 million," he added.

"That said, this year's GFS deficit at the mid-year does, however, represent some 61 percent of the $323 million full-year deficit that had been projected in last May's Budget Communication." Mr Turnquest blamed this on spending obligations inherited from the former Christie administration, some of which were still being uncovered.

He added that the fiscal deficit for 2016-2017, the last year of the previous government, was now pegged at $676 million - almost seven times' higher than the initial $100 million forecast. This has largely been blamed on pre-election spending.

As for discretionary recurrent spending, which excludes both $787.444 million in debt principal repayments and $141.729 million in interest costs, the Deputy Prime Minister said the 10 per cent spending cut had helped to bring this in at $861.1 million versus a "pro-rated" estimate of $975.3 million.

Confirming the tough task facing the Minnis administration in controlling its fixed costs, Mr Turnquest said: "Despite the 10 per cent cut being implemented across the board, the amount spent on personal emoluments - salaries and allowances - in the first half of this year totalled $373 million as compared to $358 million in the corresponding period of 2016-2017, a $15 million increase.

"Given the contribution of the salary bill to our overall recurrent expenditure, the Government will continue to manage this element of our budgetary spending, especially in light of pension obligations and the need still to recruit and retain professional talent into the public service."

Turning to the Government's revenues, Mr Turnquest said its income stood at $881 million, representing 41 per cent of the full-year forecast. "Tax revenue was up $18.7 million in the first half as compared to the previous year," he added.

"Within this category, VAT was up by $10 million; motor vehicle tax by $7 million; Gaming tax by $5 million; and Excise taxes by $3.8 million. Import duties, however, were down by $6 million. Non-tax revenue was higher by $6 million."

The Deputy Prime Minister added: "The overriding message that flows from the first-half fiscal results is that the Government is on track to bring the country's financial house in order, notwithstanding the dire fiscal situation that the administration met coming into office.

"Even though the situation has been compounded by the millions of dollars in past debt obligations that this administration continues to address, we remain on track to meet our budgetary deficit target at year-end.

"However, ongoing dedication and vigilance are warranted for the remainder of the fiscal year to enable the Government to achieve the desired level of fiscal consolidation. We shall have to maintain expenditure restraint. We shall have to maximise our revenue yield."

The Government's total spending in the 2017-2018 first-half totalled $1.79 billion, due to a $540 million spike in debt redemption as the Government used its $750 million foreign currency bond from late last year to accelerate the taking out of short-term debt. Debt redemption does not show up in the GFS deficit, which measures only new debt.