The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A near-50 percent slash to the government's capital works budget saw its fiscal deficit for the ten months to end-April drop by $141.5m year-over-year, the Central Bank has revealed.

The regulator, in its monthly economic report for May, said a winding down of post-Hurricane Matthew infrastructure repairs drove the government's "red ink" for the period down to just below $161m.

"Data on the government's budgetary operations for the first ten months of fiscal year 2017-2018 revealed a $141.5m (46.8 per cent) reduction in the deficit to $160.6m, when compared to a year earlier, amid a $119m (6.1 percent) contraction in expenditure to $1.837bn and a $22.5m (1.4 percent) increase in revenue to $1.676bn," the Central Bank said.

"The contraction in total government expenditure was due primarily to a halving in capital outlays by $130.2m (49.5 percent) to $132.7m, as the winding-down of hurricane rebuilding work led to a $92.6m (45.6 percent) reduction in infrastructure spending.

"In addition, asset acquisitions declined by $37.5m (63 percent), owing mainly to a $25m (74.8 percent) decrease in the purchase of other 'miscellaneous' assets."

KP Turnquest, deputy prime minister, revealed in his late May budget presentation that the fiscal deficit for the 2017-2018 full-year was now projected to come in at around $310m. With just two months left of the fiscal year, this implies that the government ran a deficit of around $150m during the last two months.

The Central Bank data is likely based on the government's existing cash-based accounting system, which the Minnis administration wants to transform into an accrual-based accounting system by 2022 on the basis that this will give a much truer, accurate position on its finances by reflecting future spending commitments and assets/liabilities on its balance sheet.

However, the $150m gulf between the ten-month position shown by the Central Bank and Mr Turnquest's year-end deficit estimate is likely to raise renewed Opposition charges that the government is switching between cash-based and accrual accounting methods to suit its own interests.

Meanwhile, the Central Bank revealed that the government's fixed-cost spending was up $11.4m to $1.704bn for the ten months to end-April, "driven by a $22.5m" or 3.9 percent increase in personal emoluments - meaning the civil service wage bill and associated payments.

"Revenue gains were underpinned by a $28.5m (1.9 percent) increase in tax inflows," the Central Bank added. "Specifically, value added tax (VAT) receipts firmed by $12.1 million (2.2 percent), while departure taxes and motor vehicle collections grew by $8.5 million (8.2 percent) and $6.8 million (32.8 percent), respectively.

"Several of the other categories recorded increases, as evidenced by the over ten-fold ($44 million) rise in the 'unclassified' taxes category, while selective taxes on services firmed by $5.8 million (26.3 percent).

"In contrast, international trade tax receipts decreased by $17.9 million (4 percent), owing mainly to a $19 million (8.1 percent) decline in import taxes. Similarly, business and professional fees recorded a reduction of $16.5 million (12.4 percent). Non-tax revenue also contracted by $6.1 million (3.7 percent) to $157.5 million, due to a timing-associated decline in income by $15.3 million (37.1 percent), which overshadowed the $8.3 million (6.8 percent) increase in receipts from fines, forfeits and administrative fees."

While acknowledging that the Government's fiscal consolidation plans should result in cuts to the fiscal deficit and near $8 billion national debt, the Central Bank said major hurricanes represented a major near-term risk that could blow its targets off-course.

Yet it is holding to its "modest economic growth projection", even though the VAT rate hike is projected to suck an additional $400 million out of the economy and consumer spending.

"Expectations are that the domestic economy will continue to grow moderately over the near-term, as the increase in high-end room capacity and the opening of new markets support the improvement in tourism sector activity, while foreign direct investment is likely to remain the predominant driver of construction output," the Central Bank said. "In this environment, labour market conditions are poised to continue to gradually improve."