The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday said the government remains “very, very confident” it will meet this fiscal year’s $1.327bn deficit target after running up $878m in “red ink” year-to-date.

Marlon Johnson, the acting financial secretary, told Tribune Business revenues were trending “very much in that trajectory” with value-added tax (VAT) collections up 20.9 percent quarter-over-quarter for the three months to end-March 2021 as the economy continued its post-COVID re-opening.

“If you extrapolate out, and assuming we are able to keep the same measure of commercial activity going on, we feel very, very confident we will stay within the predicted deficit,” he said. “We’re trending very much in that trajectory. Barring the unforeseen, we feel very, very confident that we’ll meet that target.”

The Ministry of Finance focused on rebounding VAT revenues, which are directly tied to transactions and purchases in the economy, as a sign that the economy - and especially tourism - are continuing a slow but steady revival that began late last year following a summer and fall plagued by COVID-19 restrictions and lockdowns.

“Consistent with the signs of recovery in economic activity, VAT receipts, budgeted at a dominant 44 percent of tax revenue, strengthened to $183.4m in the third quarter from $151.7m in the second quarter and $134.7m in the opening quarter of fiscal year 2020-2021,” the ministry added.

However, the fiscal year’s third quarter - the first three months of the calendar year - has traditionally been the Government’s strongest generator. Although it did not capture the normal ‘peak’ winter tourism season, it was still a period that would have been boosted by Business Licence fee payments, the bulk of real property tax collections and commercial vehicle licensing months.

When this was pointed out to Mr Johnson, he argued that the Ministry of Finance had focused on VAT because it was more sensitive to changes in economic activity and was constantly being collected rather than being an annual one-off payment.

“You’ll see some of the other flows coming in, which is consistent with what we’re seeing in the economy. The first quarter of the year was slow because we had some lockdown measures, in the second quarter the tourism product had not come back in any sizeable way, and in the third quarter we saw a boost in the export economy and we were able to keep the domestic economy open,” he said.

The Government’s $878.2m deficit for the nine months to-end March 2021, which measures how much its spending exceeds its income, is equivalent to 66.2 percent, or two-thirds of the full-year’s projected $1.327bn.

Total revenues, at $1.23bn, are 69.8 percent of the forecast $1.763bn full-year income, which - given that three-quarters of the fiscal year has passed - indicates that the Government may come in slightly short of the 12-month projection.

However, total expenditure at the same point was $2.108bn or 68.2 percent of the full-year forecast, indicating that the deficit target remains in reach if the Government is able to continue containing its outlays.

Still, the deficit is more than triple, or 249.5 percent greater, than the prior year comparative’s $251.2m, which was incurred in a period that was largely COVID-19 free while still featuring the impact from Hurricane Dorian.

“Compared with the same period in fiscal year 2019-2020, total revenue declined by an estimated $527.4m (30 percent) to $1.23bn, equal to 70 percent of last year’s collection, and representing 69.8 percent of budget,” the Ministry of Finance’s “fiscal snapshot” said. 

“Consistent with the sharp downturn in economic activity, decreased collections were recorded for VAT (down 36.4 percent), excise taxes (down 38.3 percent), license to conduct special business activity, mainly business license and communication levies (down 15.5 percent), customs & other import duties (down 31 percent) and immigration fees (down 7 percent).

“However, the yield from property taxes increased by $11.6m (up 13.6 percent),” it added. “Aggregate expenditure firmed by $99.5m (5 percent) to $2.108bn, boosted by substantial increases in social assistance benefits ($145m), finance charges ($43.5m), public debt interest ($21.8m,) and subsidies ($19.2m).

“Yet, the increase in overall expenditure was offset in part by reductions in outlays for compensation of employees ($61m), supplies & materials ($11.5m) and services ($10m).”

However, the Ministry of Finance sought to focus attention on the quarter-over-quarter revenue improvements. “Government tax revenue collection improved in line with the reopening of the Bahamian economy as the tourism sector began to open in earnest and pandemic related restrictions were eased,” it said.

“Of the $1.035bn in tax receipts, approximately 26.1 percent was collected in the opening quarter of the fiscal year, with the proportion improving to 29 percent in the second quarter and peaking at 44.9 percent in the third quarter.

“This trend was primarily explained by a third quarter boost in collections of real property taxes, increasing year-on-year by $11m for the quarter due to the real property tax forgiveness programme. The third quarter of the fiscal year has also seen a steady recovery in VAT and business licence receipts in the context of broadening gains in economic activity.”

Kwasi Thompson, minister of state for finance, said in a statement: “Although we have not achieved pre-pandemic levels, the third quarter results clearly indicate the situation is improving and we have successfully prevented any worst case economic scenarios from materialising.

“Outside of the necessary increases in social welfare spending to maintain unemployment benefits and to provide food to those in need, we have managed to contain other discretionary expenses to offset these increases. This is what we set out to do as part of our fiscal adjustment plan: Curtail non-essential capital expenditure by $100m. So far, we have had notable success and we feel confident we will meet our fiscal target.”

He added: “We are seeing moderate signs of economic recovery as we are able to stabilise the public health crisis. The third quarter fiscal results provide optimism for the future. We are pleased to see economic activity return as the domestic economy and export sector open up more and more.

“It is important for us to stay disciplined and vigilant, and for the vaccine roll-out to continue in earnest to allow for the ongoing relaxation of restrictions. It would be clear to all objective observers that the government’s Resilient Bahamas plan has proven effective in providing real and tangible assistance to Bahamians, while supporting stable macroeconomic conditions.

“Further, consistent with the Government’s strategy, the plan has ensured that the country has been able to weather this economic storm while still keeping its foreign currency reserves at high levels, allowing the Bahamian dollar to remain as strong and secure as it has ever been.”