The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday said he “won’t claim that victory yet” despite the prior fiscal year’s $689.5m deficit coming in almost $70m below the final projection outlined in May’s Budget.

Simon Wilson, the financial secretary, told Tribune Business it was too early to “celebrate” after the full-year 2021-2022 deficit finished 9.1 percent lower than the $758.6m forecast despite increasing by some $318.7m in the month of June alone.

That latter increase was driven by a combination of $251.4m in extra borrowing, which was unveiled with the Budget, and the traditional year-end rush of ministries, departments and agencies presenting unpaid bills for payment before the fiscal period close.

The monthly June deficit, which represents by how much the Government’s spending exceeded its revenue income, represented an $87.4m or 37.8 percent year-over-year increase as the Davis administration sought to pay off debts owed by the Water & Sewerage Corporation to its reverse osmosis suppliers; cover COVID-19 and other related outlays at the Public Hospitals Authority (PHA); insurance costs for civil servants; and other sums outstanding.

Despite the year-over-year hike, Mr Wilson said the Ministry of Finance had “contained” the impact from the extra borrowing and spending. “The key thing for us was the deficit target,” he added, pointing out that the full-year figure had come in almost $70m below the final $758.6m prediction given in May’s Budget. It was also 27.6 per cent, or $262.3m, below the original $951.8m deficit estimate given by the former Minnis administration in May 2021.

However, with the Public Treasury still doing its closing statements and final entries ahead of the regular audit, Mr Wilson warned against premature celebration over the Government beating its deficit target. “I think it was a good achievement, but we can’t celebrate,” he told Tribune Business.

“We still haven’t closed the end of the fiscal year. We have to look and see if there are any adjustments and so forth. I won’t claim that victory yet. The Treasury is doing their final numbers and we’ll see.”

Describing the global economic environment as “murky”, and making it difficult for the Ministry of Finance to plan with certainty, Mr Wilson also hinted at concerns that interest rate hikes by the US Federal Reserve and other major central banks could slow the foreign direct investment (FDI) flows that The Bahamas is relying on to rebuild its economy post-COVID.

“Every day is something new,” he added. “The external economic environment is murky. The interest rate rises in major economies may impact foreign direct investment. We are looking for ways to be consistent with our fiscal plans.” The rate hikes will inevitably raise the cost of capital for developers relying on some form of debt financing, which most do, as well as real estate buyers requiring mortgages to close their purchases.

The Government beating its 2021-2022 deficit target is, in the context of a national debt that is $12bn-plus and rising, a modest bit of good news especially since the $689.5m of ‘red ink’ incurred will increase the deficit by that amount. Mr Wilson acknowledged this, saying “there’s more work to be done” on revenue compliance and enforcement as well as the wider fiscal position.

VAT revenues finished the 12 months to end-June 2022 at $1.136bn, some $209.8m or 22.7 percent ahead of the revised $925.988m forecast, which is giving the Ministry of Finance confidence it will hit the $1.412bn projected for the current 2022-2023 fiscal year.

“We don’t see any reason why we won’t achieve it,” Mr Wilson told this newspaper. “We haven’t seen anything to lead us to believe that our estimate is wrong. We think that once we get through the first quarter we will have a fair idea of what we will get, but we have seen nothing to make us think our estimates are wrong.”

The Ministry of Finance’s report for June 2022, released yesterday, showed full year revenues coming in at $2.609bn or 11.5 percent ahead of the $2.339bn projected after the supplementary Budget unveiled in December 2021. Tax revenues were pegged at $2.162bn, or 7.1 percent up on the revised $2.019bn Budget estimate, while non-tax revenue was some 40.1 percent or $127.7m up on forecasts at $446m.

The June report appears to have largely used the supplementary Budget estimates of December 2021 and May 2022, the latter which incorporated its $251.4m in supplementary borrowing/spending, as the comparative figures while not including the “outlook adjustments” that reflected an improving fiscal performance based on a reviving Bahamian economy. This, as a result, gives the impression of a far greater fiscal improvement.

Excise taxes collected stood at just $46.5m, some 19.7 percent of their $236.5m full year projection, with Mr Wilson explaining that the difference was caused by much of those revenues being reclassified as international trade taxes. The latter jumped by almost $100m or 22.8 percent compared to the Budget forecast, rising to $511.8m from $416.8m.

The financial secretary added that the Bahamas Telecommunications Company’s (BTC) payment of a $24m dividend in late 2021, as well as “in and out” transactions where the Government transferred funds to Water & Sewerage and other state-owned enterprises (SOEs) to help repay outstanding bills, helped more than double “other revenues” beyond projections. They increased by 174.1 percent from $80.8m to $221.4m.

The Ministry of Finance’s June report showed that major recurrent spending items, together with capital expenditure, were largely contained within the targets set by the Budget although debt servicing (interest) payments exceeded the initial target of $482.5m by 14.4 percent at $551.8m.

During June, the Government’s debt expanded by a net $414.3m largely due to the $385m international bond issue that was underwritten by a government guarantee to enable it to be placed at more competitive interest rates.

“Proceeds of borrowings during the period totalled $637.3m, primarily sourced by $202m in Bahamas Registered Stock, $30m in Central Bank advances and $385m in bond placements,” the Ministry of Finance said. “Repayments totalled $223m, primarily driven by $173m in Treasury Bill placements.”

It added in a statement: “During the month of June 2022, revenues increased by 6.8 percent ($14m) to $221.3m compared to the prior month. This improved performance was largely attributed to an increase in revenue collection from international trade and transaction taxes ($13.1m).

“However, June 2022 revenues decreased by 27.5 percent ($84m) compared to the prior fiscal year, driven by decreased collections of $61.1m in excise tax owing to timing delays related to tax payment; $13.7m in VAT largely related to VAT on property [transactions]; $9.7m in the sale of goods and services; and $19.4m in other non-tax revenues.

“Owing to the posting of supplementary expenditures to settle outstanding arrears, total outlays increased by 87.4 percent ($251.9m) to $540.1m relative to the prior month, primarily driven by increased outlays for the use of goods and services ($70.1m), subsidies ($83.4m), public debt interest payments ($34.2m), and the acquisition of non-financial capital assets ($57.8m),” the Ministry of Finance continued. 

“Compared to the same period of the prior year, expenditures rose by 0.6 percent ($3.4m). This was largely due to additional disbursements of $51.1m for public debt interest payments, and $40.3m in other recurrent transfers. With reductions in COVID-19 related social assistance ($38.1m), use of goods and services ($23.6m) and the acquisition of non-financial capital assets ($35.5m).”