The Tribune

By FARRAH JOHNSON

Tribune Staff Reporter

fjohnson@tribunemedia.net

THE COVID-19 pandemic has contributed to a 55.2 percent contraction in receipts across taxed industries, according to the Ministry of Finance’s budgetary performance report for the fourth quarter of the 2019/2020 fiscal year.

The document noted the government’s budgetary operations were impacted by Hurricane Dorian and COVID-19. It also revealed that the pandemic’s impact on the country’s revenue performance was particularly evident in the final quarter of the fiscal year compared to this same period a year prior.

VAT receipts fell by some 55 percent while customs/import duties contracted by more than 63 percent, the ministry said.

“Consistent with the pervasive impact of the pandemic on economic activity, this weakness was broadly based, with significant contractions in VAT

receipts ($169.2m or 55.0 percent), customs and import duties ($54.2m or 63.6 percent), departure taxes ($27.6m or 63.7 percent), license to conduct specific business activity ($37.6m or 75.1 percent), and gaming taxes ($8.2m or 47.2 percent), “ the report revealed.

The budgetary performance also noted how the government exercised “extreme containment measures” to deter the spread of the virus in the country, which resulted in the closure of businesses, the halt of the tourism industry as well as the introduction of lockdowns and curfews, which all evidently produced a “material impact on macroeconomic activity”.

In a press release issued along with the budgetary performance, Finance Minister Peter Turnquest said “prolonged shutdowns increase fiscal risks” for all countries. He also stated the government is currently monitoring the situation in the country closely.

“The coronavirus is not going away, so our highest priority is adapting so that business and commerce can occur safely despite COVID-19,” he stated.

“The domestic economy is going to lead the way with a well-considered and balanced reopening strategy; this is not only important to restore the livelihoods of Bahamians, it is important for the country’s fiscal health. We are actively working on new models and testing our assumptions to determine if, when and where adjustments may be necessary.”

According to the report: “The fiscal costs were evident in a marked reduction in revenue receipts, alongside additional expenditures to support the unemployed, small business continuation and the Ministry of Health’s COVID19 preparedness and response plan.

“Given these developments, preliminary data for the FY2019/20 outcome indicate an estimated threefold hike in the fiscal deficit, to $788.1m, from $219.3m, in FY2018/19 — when the government achieved the lowest fiscal deficit in over a decade.”

The document revealed that total revenue decreased, “year over year”, by $337.1m to $2,089.1m, which represented 87.2 percent of the revised budget. It noted that these results show the combined impact of “slower economic activity” in Abaco and Grand Bahama due to Hurricane Dorian, as well as the reduction of business activity amid the COVID-19 crisis.

The report notes that taxes on goods and services declined by $249.9m. It also revealed that revenue from government property expanded by $5.3m to $19.5m, exceeding the revised estimate by nearly $5m. Receipts from the sale of goods and services also decreased by $46.8m to $149.2m.

“Fines, penalties and forfeits contracted by $2m (29.7 percent) to $4.7m , or 76.6 percent of the revised budget estimate. Miscellaneous and unidentified revenue expanded from $2.4m to $15.4m, buoyed by the $12.8m in proceeds from the Caribbean Catastrophic Risk Insurance Facility (CCRIF), following Hurricane Dorian.”

As it relates to expenditure developments, recurrent expenditure advanced by $86.3m when compared to FY2018/19. Compensation of employees also expanded by $47.6m to $759.9m and wages and salaries increased by $34.6m to $656.6m. A figure that was was “buoyed” by the $22.8m union negotiated lump sum payment to civil servants in December 2019.

“Spending on goods and services decreased by $40.3m (6.8 percent) to $550.9m (83.6 percent of the revised estimate). A key factor was the reduction in tourism-related outlays, by $52.2m (88.3 percent), as several marketing subventions for properties on Abaco and Grand Bahama were suspended in the aftermath of Hurricane Dorian, and payments of a similar nature were stalled for properties on other islands.

“Public debt interest payments grew by $10.6m (3.2 percent) to $339.1m in FY2019/20, as compared to the previous fiscal year, and represented nearly 90.0 percent of the revised budget. Approximately $199.2m or 58.7 percent was directed to domestic creditors, and the balance to foreign lenders.”

According to the report, the government’s “operational requirements” for FY2019/20 were facilitated through a net increase in liabilities of $714.4m.

It said that to finance the deficit, which was significantly impacted by heightened spending and revenue losses associated with Hurricane Dorian and the COVID-19 pandemic, the government’s gross borrowings totaled $1.5bn through a combination of “short and long term facilities.”

“Debt repayment totaled $826.9m for FY2019/20, of which 94.7 percent was facilitated in Bahamian dollars. As a result, the government’s net borrowings stood at $714.4m for FY2019/20, which resulted in the Direct Charge (exclusive of exchange rate adjustments) growing from $7.5bn at end-June 2019 to $8.2bn at end-June 2020. This corresponded to a hike in the debt to GDP ratio, to an estimated 68.4 percent from 60.0 percent a year earlier.”

In his statement, Minister Turnquest said “despite the strain on government finances,” officials will continue to “meet their obligations while playing an important role to sustain domestic economic activity”.

“The Bahamas continues to feel the impact of the worst global economic crisis in modern history, and the government is actively responding consistent with the budget plan for fiscal year 2020/21,” he said.

“The focus remains on funding critical government services, public health and social safety needs in particular, as well as the prudent management of the government’s fiscal resources.

“Consistent with our budgeted plans, we are disbursing millions in unemployment assistance, maintaining public service salaries, and engaging in targeted capital expenditures to support the COVID-19 response and the broader effort to restore the economy,” he assured.