The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government will likely need around $300m in bank and other commercial financing to meet post-Dorian needs, as the deputy prime minister pledged: “We won’t break our VAT promise to the people.”

K Peter Turnquest told Tribune Business that the Minnis administration will not use the category five storm’s aftermath as an excuse to deviate from the three-year fiscal consolidation plan that commits it to paying off some $360m in unbudgeted arrears over that period.

Some $201.7m, or 56 percent, of this sum had been paid at end-September 2019, and Mr Turnquest said the government will not divert monies away from this to finance post-Dorian reconstruction as it would effectively betray the reason it gave for hiking VAT to 12 percent in the 2018-2019 budget.

He explained that a sizeable chunk of the expanded $573.4m deficit now projected for the 2019-2020 fiscal year will be filled with loans received from multilateral institutions such as the Inter-American Development Bank (IDB), along with $20m from the dormant bank accounts fund and the $12.9m payout from the Caribbean Catastrophe Risk Insurance Facility (CCRIF).

These funds, Mr Turnquest added, will significantly reduce the Government’s need to rely on more expensive commercial bank loans and other financing to cover the $436m “blow out” in the deficit produced by Dorian compared to the initial $137m full-year forecast.

The deputy prime minister also said the Government was “there”, and “very close”, to producing a balanced budget or surplus for the 2019-2020 first quarter if the “extraordinary items” that represented the start of post-Dorian rebuilding were taken out or eliminated.

“We do intend to continue dealing with that,” Mr Turnquest told Tribune Business when asked whether the Government would sacrifice paying off the unbudgeted arrears to claw back funds for Dorian restoration. “That’s part of our consolidation plan which doesn’t necessarily change.

“We are very much on target, and the fact of the matter is we made a promise to the Bahamian people with respect to the increase in VAT and why we had to increase it. Those fundamentals have not changed and we want to continue with this consolidation.”

The Government’s first quarter “fiscal snapshot”, which covers the three months to end-September 2019, revealed that the arrears were reduced by a further $17.1m during the period.

“As a part of the Government’s overall plan to eliminate approximately $360m in arrears payments over three years, beginning in fiscal year 201-2019, the Government paid $17.1m of the $100.9m allocated for fiscal year 2019-2020 during the quarter,” it said. “Since the start of the programme, the Government has paid a total of $201.7m in arrears payments.”

After $52.5m was paid during the first quarter of the 2018-2019 fiscal year, the Government had steadily reduced the backlog prior to Dorian’s arrival. Some $184.6m was repaid during the 2018-2019 fiscal full year, accounting for more than half the balance owed.

Mr Turnquest, meanwhile, added that he and the Ministry of Finance were now focused on getting their post-Dorian fiscal adjustment plan to Parliament and “getting back on track as soon as possible, continuing the level of discipline that got us here by controlling expenditure and increasing revenue without increasing taxes”.

He added that “everything is going according to plan” with the Government’s Dorian-related financial strategy, and that it was “not under any pressure at the moment” due to the multitude of funding options available to it.

The $100m contingent financing line from the Inter-American Development Bank (IDB) was “in play”, Mr Turnquest revealed, with the Government “very shortly” set to draw down on it again following the $25m accessed during the 2019-2020 first quarter.

“We’ve had discussions with financiers, our banks, with respect to the needs we have as they become quantifiable,” he told Tribune Business. “So far we’ve got favourable feedback so we anticipate we’ll be fine in terms of financing and the funds we can access.

“We anticipate we’ll be around a $570m-$600m deficit as a result of the hurricane. We had projected a deficit of $137m, so you’re looking at probably $400m-$450m that we have to go out for. We’re still studying what is the best mix of financing options.

“Nothing is off the table as we evaluate the options of financing and what will be best for us. Of that $450m, we’ve got $100m from the IDB, $50m from the Caribbean Development Bank, and have got the CCRIF money. In reality it’s probably $300m we’ll be going out for in addition to what we have, so we’ll see,” Mr Turnquest continued.

“We’re not under any pressure at the moment, and have an opportunity to look at the best financing options to see what is best for us. We have some maturing debt that we might want to roll into an offering so we will see what is best from a market perspective.”

Mr Turnquest argued that the Government’s fiscal austerity measures had “put us in a position where we have this headroom” to respond to the devastation Dorian has inflicted on Abaco and Grand Bahama.

“Events show we were on the right path, and that the options taken to this point have been the correct ones, so we have this flexibility,” he said, pointing to the fact that the 2019-2020 first quarter fiscal deficit had fallen from $64.9m to $41.8m - a decline of 35.6 percent year-over-year.

“We were very close. If we take out the extraordinary items we were there, but even with the extraordinary items we were still very close,” Mr Turnquest said of a period that was nearing a balanced budget or surplus.

“That’s where the trends were going. We were very confident in where we were trending, very comfortable in where we were trending. It’s unfortunate we’ve been thrown off by this event.”

The deputy prime minister said it was likely that Dorian had blown The Bahamas off its fiscal course by three to five years, and added that the debt-to-GDP ratio would be pushed into the high 70 percent range.