The Tribune

• ‘Don’t get too high or low’ on 27.5% revenue fall-off

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition's finance spokesman yesterday charged that the Government would have missed its 2021-2022 deficit target but for the repayment of an aborted $86.2m Public Hospitals Authority (PHA) loan.

Kwasi Thompson, former minister of state for finance in the Minnis administration, told Tribune Business that the deficit for the past fiscal year would have exceeded the final $758.6m goal if the low-cost loan guaranteed by a World Bank affiliate - and which was intended to finance hospital redevelopment - was not unwound and returned.

"My question, and I saw the point Simon [Wilson, the financial secretary] made about not wanting to have a 'victory lap', and where the deficit was $70m better than expected, but does that take into account the $80m-plus returned from the PHA? If that is included then they are actually above their projections," Mr Thompson argued.

Other sources also pointed out that the return of the PHA loan would have "inflated the revenue numbers" as it does not represent tax income earned by the Government. All indications are that it is included in the numbers shown in the Ministry of Finance's monthly report for June 2022 and the full 2021-2022 period, as it appears in the "other" revenue column for April, which shows $87.2m earned that month.

The ministry's April 2022 report confirmed that the month's $46.2m fiscal surplus was “largely owing to the return of a $86.2m PHA (Public Hospitals Authority) capital subvention”. Mr Wilson, in an earlier interview with Tribune Business, confirmed that related to the cancellation of a loan from Banco Santander, underwritten or guaranteed by the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

This was taken out by the former Minnis administration to finance redevelopment of both the Princess Margaret Hospital (PMH) and Freeport's Rand Memorial Hospital. Despite the low 3.23 percent interest rate attached, the Davis administration elected not to proceed with the loan, and without its one-off cancellation a deficit of some $40m would have been recorded for April 2022.

Mr Thompson, meanwhile, yesterday said he "didn't remember" fiscal deficit projections for the 2021-2022 fiscal year going as high as the $1.11bn signalled in the Ministry of Finance's June 2022 report. The former Minnis administration projected this at $951.8m, with the Davis administration subsequently lowering it to $858.6m after revenues for the 2021-2022 first quarter beat expectations by $92.3m.

Netting off $251.4m in supplementary borrowing unveiled with the Budget for 2022-2023, and a $351.4 reduction in the deficit due to an improved fiscal outlook, resulted in a $100m cut that took the final deficit forecast to $758.6m. The June 2022 report shows the final outturn at $689.5m, indicating the Government beat its deficit target by almost $70m, but stripping out the PHA loan's return would leave it exceeding this by over $16m.

The $1.11bn deficit figure appears to have been derived from taking the Minnis administration's original $951.8m forecast, subtracting the $92.3m revenue outperformance from this, and then adding in the $251.4m in supplementary borrowing. However, the forecast $351.4m reduction via an improved economic and fiscal outlook is not factored in, thus giving the impression that the Government performed far better against the deficit target than it actually did.

Meanwhile, Mr Thompson urged the Government to provide a full explanation as to why June 2022's revenues were down by $84m or 27.5 percent against the prior year's comparatives. "Our obvious concern is how could that be?" he asked. "The Government owes the public a very clear explanation how it could be 27.5 percent below revenues for last June, as it is a time when the economy is doing far better and is more open.

"We are also spending more than last year. We were still last year spending on COVID support and COVID relief. We are no longer spending on that. It is concerning, in a month when revenues are 27.5 percent less, that we are spending more." However, total government spending barely increased year-over-year, rising by just 0.6 percent or $3.4m to $540.1m, thus producing a $318.7m monthly deficit that was $87.4m or 37.8 percent higher than in 2021.

The Ministry of Finance sought to explain the revenue decline in a release that accompanied the June 2022 report, saying: "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."

Mr Wilson also told this newspaper that the near-$14m reduction in VAT collected on property transactions resulted from buyers and their attorneys holding off bringing conveyances forward for stamping, and the payment of due taxes, until July so they could take advantage of lower VAT rates for deals worth $1m or less that were introduced to coincide with the new Budget year.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, yesterday advised against reading too much into one month-over-month or year-over-year comparison as this did not represent a trend. "We should never get to high or too low over inconsistent trends or what we perceive to be trends," he told Tribune Business. "One month does not make a trend, and one year-over-year comparison does not make a trend."

Pointing out that it has "taken us years to get where we are in the debt situation, so it will take years to reverse it", Mr Bowe said "looking month-over-month, quarter-over-quarter, year-over-year is ultimately only a marginal portion of the story".

The situation, he added, again exposed the need for accrual-based accounting to be implemented government-wide so that revenue and spending can be properly recorded in the periods when they occur and The Bahamas' true financial position determined.

Mr Thompson, meanwhile, accused the Government of being "consistently late" with its fiscal and financial reporting to the Bahamian people, which he described as "very worrisome" and a violation of the obligations mandated by the Fiscal Responsibility Act. He warned that this "has an impact on our credibility" with the financial markets, including creditors and potential lenders as well as the credit rating agencies.

Tribune Business understands both the quarterly report for the three months to-end June 2022, the final period for the 2021-2022 fiscal year, as well as the July monthly report are both supposed to be published by end-August according to the Act. However, Clint Watson, the Prime Minister's spokesman, indicated a fortnight ago that these reports may be released later this week.

Hubert Edwards, head of the Organisation for Responsible Governance's (ORG) economic development committee, also voiced concern that the Government appears to be "lagging" with the publication of its reports.

Mr Wilson, though, previously told this newspaper that the Ministry of Finance's existing systems, some of which are decades' old, make it almost impossible to meet the reporting deadlines while at the same time providing accurate information.