The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Some $75.8m in unplanned COVID-19 assistance and previous lockdowns have forced the Government to target $200m in extra spending cuts over the next six months, it was revealed yesterday.

Senator Kwasi Thompson, the newly-appointed minister of state for finance, told the Senate that the Minnis administration is aiming to slash $100m apiece from both its capital and recurrent (fixed cost) spending after 2020-2021 first quarter revenues came in $68m below projections while spending soared.

Explaining that the cuts were essential to keep the Government on track for a record $1.327bn deficit, as forecast in the May Budget, Mr Thompson pledged: "For the remainder of this fiscal year and over the immediate term, the Government will seek to maintain its current budget deficit target of no more than $1.3bn.

"To facilitate this against the expected decline in revenue, and to meet our fiscal targets without having to incur additional debt, the Government has tasked agencies to scale back recurrent expenditure by $100m and capital expenditure by $100m between now and June."

He did not detail the areas being targeted for spending cuts, which are deeper than those outlined in the 2020 Fiscal Strategy Report that was tabled in Parliament yesterday. The report's figures only showed a $104.3m spending cut, not the $200m outlined by Mr Thompson, with that reduction coming as a response to August revenues falling $51m below forecast due to COVID-19 lockdowns.

When challenged about the discrepancy by this newspaper, Marlon Johnson, the Ministry of Finance's acting financial secretary, explained that the Government had been forced to seek deeper cuts due to incurring unplanned spending on COVID-19 related food and unemployment assistance, plus almost $21m in extra taxpayer subsidies to save loss-making state-owned enterprises (SOEs) from collapse.

The Fiscal Strategy Report ultimately did acknowledge that the Ministry of Finance's initial estimates have been "adjusted to reflect the new spending requirements and further expenditure savings measures to lessen the impact on the overall budget".

It added: "Among the unbudgeted expenses are an additional $45m for the unemployment assistance programme though end-December 2020, increased funding of $10m to support the Rapid Food Distribution Task Force to end-December 2020, and increased support to the state-owned enterprises (SOEs) in the amount of $20.8m.

"To assist with the increasing pressures exerted by the lower-than-forecasted revenue performance, the Government has signalled its intention to pursue adjustments to both recurrent and capital expenditure with due consideration to ensuring the continuation of priority projects."

These priority projects were not identified, and the decision to subsequently extend the unemployment and food assistance to end-January means the Government faces additional unplanned COVID-19 assistance, hence Mr Thompson's announcement of a further $200m in spending cuts.

The Fiscal Strategy Report also revealed that the Government's revenues are on track to come in some $184.2m below their 2020-2021 full-year Budget target of $1.762bn if first quarter trends persist throughout the remainder of the year through to end-June.

The Ministry of Finance last night confirmed that revenues for the three months to end-September, a period marked by lockdowns, curfews and restrictions on normal commerce, had come in some $68m below the expectations laid out in May's Budget.

"Since the preparation of these forecasts, the Government’s imposition of more restrictive lockdown measures in the opening quarter of the fiscal year, in response to the sharp increase in the number of domestic COVID-19 cases, had a larger than anticipated impact on the revenue outturn," the Fiscal Strategy Report said.

"First quarter revenue loss was placed at nearly $184.2m relative to the baseline budget, with the contraction in the month of August deviating from the original projections by approximately $50.9m or 56.9 percent."

The Ministry subsequently clarified that the $184.2m figure related to how much revenues may be off for the full-year, not the first quarter, after Tribune Business again questioned the Government's figures.

Meanwhile, the revised November 2020 fiscal projections, as laid out in the Fiscal Strategy Report, show revenues down by some $114m at $1.658bn for the full 2020-2021 fiscal year. To keep the deficit at the original $1.327bn, capital spending was cut by $86m to $429.5m with recurrent spending dropping by a more modest $18m.

However, COVID-19's continued savaging of the Bahamian economy has forced the Government to seek deeper spending cuts amid the ongoing debt and deficit blow-outs. The latter is still projected to be a massive $954.6m in 2021-2022, and is now only projected to reach its 0.5 percent of GDP target - as set by the Fiscal Responsibility Act - in the 2024-2025 budget year.

And bringing the debt-to-GDP ratio back to the 50 percent targeted by the same Act is forecast to take a whole decade, exposing just how much the Government's finances and the wider economy have been set back by COVID-19.

"Consistent with the projected overall balance outcomes, the debt is expected to increase in 2020-2021 to approximately $9.5bn or 83 percent of GDP, and grow incrementally to an estimated 85 percent of GDP in 2021-2022," the Fiscal Strategy Report said.

"With the reduction in the overall deficit and the increasing primary surplus position in the outer years of the medium-term framework, it is envisaged that the debt would taper off to 73.7 percent of GDP by 2024-2025.

"Given the already aggressive and policy-weighted path to fiscal consolidation, it is unlikely that the Government would achieve the 50 percent debt target by 2028-2029 as projected in the 2019 fiscal adjustment plan," the report continued.

"The Government, therefore, envisages a more reasonable target date of 2030-2031 - a further extension of two years - for achieving the debt target. This is predicated on the assumption that the accumulation of primary surpluses in the intervening years would reduce the need for borrowing."

The Government's fiscal measures and priorities largely reflect what it has already announced, with a focus on compliance, enforcement and administration on the revenue side, and limiting growth in public sector employment except in areas such as health and specialist roles.

While there was no explicit mention of new and/or increased taxes, there can be little doubt they will be coming. "The forecast years assume that the tax-to-GDP ratio will rise from a low of 14.5 percent in 2020-2021 to a high of 20.5 percent in 2024-2025, which is necessary to support the overall fiscal and debt consolidation objectives under the recently revised medium-term fiscal framework, and the government’s corresponding economic and social priorities," the Fiscal Strategy Report said.

"Given the likelihood that this outcome will not be achieved by economic growth alone, the Government intends to pursue a combination of improved tax administration to increase the revenue yield and continued tax policy reforms, in addition to the expected unwinding of the existing incentive schemes necessitated by the two recent external shocks."

As for spending, the Fiscal Strategy Report added: "Early in fiscal year 2021/2022, the Government will undertake a comprehensive assessment of expenditures to ensure.. the effectiveness of budgetary spending controls and management of associated fiscal risks; the proper alignment of budget planning and execution with the Government’s priority objectives; efficiency in the delivery of services; and that the Government is receiving value for money."

To finance the increasing digitisation of government services, the report said: "Approximately $11.4m is budgeted for these activities in 2020-2021, an additional $13.5m in 2021-2022, and $10.8m in 2022-2023. By delivering enhanced operational efficiency and effectiveness, these activities will have a growing positive impact on the country’s competitiveness, innovation and Bahamians in general."