The Tribune

• February revenues beat spending by $16.2m

• Second successive surplus behind January

• Encouraging, but 'can't base Budget' on it

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government cannot interpret two consecutive monthly Budget surpluses "as a sign we are out of the woods", its top finance official warned last night.

Simon Wilson, the Ministry of Finance's financial secretary, told Tribune Business that officials were "very encouraged" after February 2023 produced a second $16.2m surplus to follow the smaller $3.1m generated in January. However, while branding it "a good sign" of progress, he added that the Davis administration is "not reading too much into it" when it comes to the remainder of the fiscal year or preparations for the 2023-2024 Budget that will be unveiled at end-May.

Pointing out that the calendar year's first quarter, which includes January and February, is typically the most revenue-rich period of the Government's financial year, as it coincides with peak winter tourism activity, Business Licence fee payments and the bulk of real property taxes, Mr Wilson said April's VAT filings - with the deadline just two days away - will be critical in determining whether full-year 2022-2023 revenue goals will be hit.

April's VAT returns are typically the highest given that they coincide with peak winter tourism activity and also include filings by quarterly as well as monthly tax-remitting businesses. As for expenditure, Mr Wilson said the Government has spent less of the 2022-2023 Budget in percentage terms than it did for the same period in the prior fiscal year, with 70 percent exhausted during the first three quarters.

A Budget surplus means the Government's revenue (tax and non-tax) income has exceeded its spending, and the Davis administration has achieved such a result - albeit involving modest sums worth a combined $19.3m - for two successive months. Nevertheless, it provides further evidence of the economy's continued post-COVID rebound and gives hope that The Bahamas is in the earliest stages of righting its fiscal position following decades of heavy deficit spending.

"We're very encouraged, but we know this is the strong part of the fiscal year in terms of revenue," Mr Wilson told this newspaper of the consecutive monthly surpluses. "We expect to see a couple of strong months. We'll be optimistic but cautious.

"March went very well. I think March is a very, very strong month. For us, it's usually the strongest, and it did not disappoint in terms of revenue. We have to see how the expenditure numbers shape up, but it looks OK for March. April is going to be a good month. April is a quarterly VAT month, so we have to see how that outturn is.

"April is our strongest month for VAT filings because it includes the first quarter. Once we get these particular numbers, we will know if our revenue goals for the first year will be achievable. Right now we are OK. We have just got to see what is going to happen this month. It's always telling."

The two consecutive monthly Budget surpluses dropped the fiscal deficit for the first eight months of 2022-2023, or two-thirds of the fiscal year, to $256.7m - a sum equivalent to 44.6 percent, or less than half, of the revised full-year $575.4m target.

However, while the Government looks to have significant headroom and be poised to comfortably beat this target, it often runs major monthly deficits in June when multiple ministries, agencies and departments present bills for paying before fiscal year-end that the Ministry of Finance knows nothing about. This happened in June 2022, when the Government incurred a $318.7m monthly deficit that was equivalent to 46.2 percent of the full year's $689.5m in 'red ink'.

Still, year-over-year, the Government's fiscal deficit for the first eight months of 2022-2023 is some $69.8m or 21.4 percent less than the $326.5m incurred during the same period in 2021-2022 when The Bahamas was still afflicted by numerous COVID restrictions.

"We have to be cautious. We cannot rest on our laurels and cannot use this as a sign we are out of the woods yet," Mr Wilson told Tribune Business of the Government's fiscal performance to-date. "It's a good sign, but we don't want to read too much into it. You cannot base a Budget on two months. We cannot say we are over the hump yet. This is an interesting period for us. We are poised and will see how we go."

The financial secretary, noting that the Government is "largely on track" in containing expenditure, confirmed that officials are watching carefully for any year-end spike in spending demands. "I think for us our expenditure levels are slightly below, on a percentage basis, where we were last year at this time," he said. "We have to be cautious because we can always catch ourselves at the end of the fiscal year. We still have to be prepared for the end of the year.

"We're ahead of where we were last year in dollar terms because the Budget is larger, but as a percentage we're behind on expenditure. We are, right now, we have used up approximately 70 percent of the Budget. We are probably 75 percent of the fiscal year gone, and have used 70 percent of the Budget. We're trending below our expenditure targets."

For the eight months to end-February 2023, yesterday's fiscal release revealed that for the first eight months or two-thirds of the fiscal year some 59.2 percent of Budget expenditure had been deployed. This equalled some $2.031bn out of combined capital and recurrent spending worth $3.433bn. Some 60.7 percent of the recurrent budget had been used, amounting to $1.867bn out of $3.074bn.

On the capital spending side, some $164.2m of $359.1m in approved expenditure - equivalent to 45.7 percent of the total - had been deployed. The only spending categories close to using up two-thirds of their allocations were subsidies, where 65.6 percent or $283.7m out of $432.4m had been deployed; personal emoluments, where 63.8 percent or $528m out of $827.9m had been used; and public debt interest payments at $358.8m or 64.1 percent of the total allocation.

Some $144.1m, or 62.1 percent, of the $232.1m provided for social assistance and pensions had also been used by end-February. The Government, in unveiling February 2023's performance, said: "During the month, revenue receipts firmed by $51.7m (26.2 percent) to $249.2m when compared to the prior year.

"This improved performance was primarily driven by increased collections of $26.3m in international trade and transaction taxes, $12.5m in VAT, $7.7m in other taxes on goods and services, and $2.7m in property taxes. On a month-over-month basis taxes on other goods and services grew by $14.2m (28.1 percent) and property tax receipts improved by $2.5m (14.4 percent) owing to enhanced collection efforts.

"On the expenditure front, total expenditure rose $2.5m (1.1 percent) to $232.9m relative to the prior year. Outlays primarily increased for the acquisition of goods and services ($11.8m) and public debt interest payments ($6.3m). Month-over-month, spending was contained by $30.9m (11.7 percent) mainly due to a reduced interest payments ($23.5m)," it continued.

"The net debt position increased by $100m to pre-fund future debt amortisations and payments on behalf of state-owned enterprises (SOEs)."