The Tribune

• Top official: Revised Budget won’t raise deficit

• $700m sovereign bond delayed on US turmoil

• Top official denies local conditions played part

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government beat its 2021-2022 first quarter revenue targets by $90m, a top official has revealed, while also disclosing that the Government’s revised Budget will not increase the deficit.

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that the Government’s lenders, creditors and the capital markets generally have all been informed that the supplemental Budget due to be presented to Parliament - possibly as early as this Wednesday - will not grow the deficit beyond the originally projected $951.8m.

And he also disclosed that the Government’s “underwriters” have advised it to delay placing the $700m foreign currency bond that the former Minnis administration had designed as the centrepiece of its gross $1.852bn borrowing plan for the current fiscal year.

No revised timeline for when it will be placed was given, but Mr Wilson said the advice to delay stemmed from international capital market uncertainties over US debt ceiling negotiations rather than any concerns peculiar to The Bahamas or its economic performance.

And, while the delay will cause the Government to reshuffle its borrowing plans, he added that there is no danger it will run short of funds as it will simply bring Bahamian dollar-denominated financing planned for year-end forward.

“We had a very good first quarter in terms of revenue, so that has reduced our borrowing needs. On a cash basis, we did $90m above target,” Mr Wilson revealed to this newspaper. As a result, borrowing for the 2021-2022 fiscal year will come down by “around a similar amount overall in the bigger scheme of things”.

The financial secretary did not mention whether the extra $90m will be used to reduce the projected $951.8m fiscal deficit, which measures by how much the Government’s spending exceeds revenue. Given The Bahamas’ track record, it may well be used to fund increased spending.

The Free National Movement (FNM), and members of the former Minnis government, will also likely seize on the $90m figure as further evidence that their post-COVID economic and fiscal recovery plans were starting to bear fruit, and that the newly-elected Davis administration will now reap the benefits of its efforts.

The Prime Minister has indicated that he plans to present a supplemental Budget to Parliament so that spending allocations better align with the new administration’s priorities, and to ensure there is sufficient funding for the healthcare system’s continued fight against COVID-19.

Mr Davis has also argued that the 2021-2022 Budget was designed with the general election in mind, and that there are revenue line items with both under-estimates and over-estimates, although these have not been quantified or any explanation provided as to what this means.

Mr Wilson, though, indicated that the supplemental Budget will involve spending reallocations within the framework set by the Minnis administration, meaning there will be no expansion of the deficit beyond the $951.8m approved by the last Parliament.

“We don’t expect it to alter,” he told Tribune Business. “That’s the message we’re telling investors: We will keep the deficit in line.  Our view is that we will be able to put in the Government’s priorities without impacting the deficit. We know we can do it.”

Despite exceeding Budget revenue targets by $90m for the three months to end-September 2021, Mr Wilson said the Ministry of Finance was maintaining a conservative approach to its forecasting due to the uncertainties associated with COVID-19 even though the economy’s re-opening was likely to boost the Public Treasury’s income above predictions.

“What we expect is that as the economy continues to re-open, revenues will rise above forecast all things being equal,” he added. “COVID-19 impacts, closures, those things impact revenue. All things being equal, once the virus is under control revenues will continue to perform.

“But we’ve not baked into our projections anything more than the first quarter. Our projections do not reflect any increase in revenue beyond the first quarter....... We’ve factored in the advanced bookings seen from the Ministry of Tourism’s information. We expect a significant uptick in economic activity.

“It’s not a one-on-one line between advanced bookings, actual bookings and revenue. There’s a positive correlation, but we don’t know what that positive impact is as it trickles down.”

Mr Wilson, meanwhile, denied that domestic factors had delayed the placement of The Bahamas’ planned $700m foreign currency bond until possibly the New Year. This newspaper had been told by well-placed sources that Goldman Sachs, the Government’s advisers, had suggested a delay until market sentiment towards The Bahamas improved.

They added that Christmas and New Year tourism data would also give potential investors a better read on the country’s post-COVID rebound, and state of the tourism industry and wider economy, thereby enabling The Bahamas to attract a lower interest rate (debt servicing costs) on the bond’s pricing.

Mr Wilson, though, said international factors were the primary drivers behind the advise received by the Government. He pointed, in particular, to ongoing US political uncertainties surrounding that country’s $29.8tr debt ceiling or government borrowing limit, with the risk of default set to loom again in December without agreement on Capitol Hill to raise it further.

Asserting that this was impacting bond prices for all countries, including The Bahamas, Mr Wilson said: “I think the best way to describe it is that the underwriters believe this is not the time to go to the market. That’s what they see in terms of the general trends.

“Their view is that if you don’t have to go to the market, don’t go. They believe things will settle down..... It’s not to do with the domestic economy. They believe it’s not the best time. If you can afford delaying going to the market now, do it.  We’re paying them big bucks, so we’ve got to listen to them. We’ve just got to wait until the wise men say it’s time.”

Mr Wilson added that preparations for the $700m raise have been completed, but the delay will not impact the Government’s financing plans or leave it short of funding. He said Bahamian dollar financing would be brought forward from year-end, with the Government having recently gone out for $75m in bonds and another $394m in Treasury Bills. A significant portion of the latter will be rollovers.