The Tribune

It is beyond doubt that the reported performance of the country for the last fiscal, 2022-23, has been noteworthy. Following two years of deep decline, due to the COVID-19 pandemic, and an intervening “bounce back” year, 2023 has seen positive economic performance for the country but unfortunately lacking in sufficient potency to seriously start to change our fortunes.

Policy makers in their projections recognise that this would be a longer term process. The question which looms large therefore is whether fiscal 2023-24 can continue to deliver the requisite levels of stabilising effect. I would expect the economic performance, especially in tourism, to continue well into 2024, however, the performance of and overall improvement of the fiscal state of the country will demand other intentional actions. Reforms no matter how unattractive is needed for help accelerate and sustain growth.

Based on budget performance, the deficit was anticipated at $575m for 2022-23. The actual result was notably lower at $533m, a difference of $42m. Contextually therefore, while the reported first quarter deficit of $58m for of 2023-24 has raised some alarm, both periods taken together, in absolute terms, ought not to be seen as a fiscal crisis. Such a conclusion would require deeper assessment and analysis. In the grand scheme of things a deficit of $50m should be able to attract reasonable explanations. I am therefore hesitant to simply make a year over year comparison. Explainable and would rather wait on the release of post quarter information.

Of importance revenue, which carried a significant level of uncertainty at the start of the 2022-23 fiscal year, came in almost on budget. Actual revenue was $2,855.8m compared to a budgeted target of $2,857.3m, less than $2m difference. The argument then was whether revenue could be garnered without new taxes. In the end it was an argument which largely turned on description, fees versus taxes. Regardless of one’s prefer descriptor, the administration proved that it was able to raise the revenue it desired. The question now is whether the increases achieved remain sustainable and if sustainable sufficient to support any expansion being experienced in expenditure.

All things being equal, at this stage, there should be no great cause for alarm. Such a position must however be tempered by the fact that the $58m first quarter deficit represents 51 percent of the total amount budgeted for the entire fiscal. Having regard for late reporting this carries with it a level of uncertainty. Context however is critical. The budget was set to deliver a deficit of .9 percent. I have argued from the outset that this target may have been much too aggressive. I have always maintain the view that subject to the preservation of a continued downward trajectory a reasonable target of 1 to 1.5 percent would have been adequate.

The landscape has however been changed dramatically with the intervention of the IMF and its pronouncement of a 2.6 percent or $379m deficit. From a fiscal perspective this development looms large over the expected performance of the country for the remaining six month of fiscal 2023-24 and the rest of the 2024 calendar year and holds serious implications for the country’s debt and creditworthiness, one of the paramount targets of government policy through to year 2027. There is a concern relative to the cadence at which the fiscal reporting is being released. It conveys a messaging which is open to interpretation and is likely to feed into existing negative credit sentiments. Maintaining tis cadence creates the risk that every adverse outcome will become magnified. It must be anticipated that the MOF will rectify this important matter.

Overall the reconsolidation of the economy in 2023 has performed beyond expectation which plays very positively to the benefit of the country. The performance of Tourism has been record breaking in a number of regards and provides reasonable grounds for optimism going forward. Objective assessment would conclude that the fiscal affairs of the country has been generally held stable without the emergence of any significant domestic issues of any major concern.

On balance, this is the circumstance needed to start the journey towards addressing the very crucial underlying challenging being imposed by the debt realities of the country. The pronouncements by the IMF therefore takes on serious implications when contemplated against the back drop of superlative performance in the country’s leading industry. Are we at a point where cash flow is waning?

Progress has been made in stabilizing the economy post pandemic but we are not yet out of the woods. It is my view that early adjustments may be required to keep the country on the path initially laid out the current administration’s first “official” budget. It is my view that there must be greater urgency in addressing the areas which are well known and overdue for reforms. The performance of Tourism suggests that unless there is a massive growth spurt over a reasonably sustained period, the current circumstances will not change easily without reform intervention, fiscal and otherwise. Tourism is expected to continue to do well but need the support of other productive sectors. The recently released numbers shows that 45 percent of expenditure is consumes by emoluments and cost of debt. The room for maneuvering is indeed limited given that these and other costs are very inflexible. Reforms therefore will require current action for mid to longer term payback.

Based in the forgoing, should the pronounced shift in the deficit hold, the government’s biggest concern in 2024 will be its ability to effectively marshal and avoid a cash flow crunch. Consequently all efforts which improves or speak positively to the improvement of the country’s credit worthiness should be up for discussion and squarely in the table. This starts with low hanging fruits of timely reporting and extends to the more difficult task, if necessary of employing austere measures to contain expenditure. This we readily recognize may become moot if the IMF is totally wrong. 2024 represent a midpoint of the administration current term and it is to be anticipated that there will be pressures brought to bear on the delivery of programs and initiatives promised.

This holds implications for spending and why it is advisable to adopt the IDB’s recommendation of taking early look at the fiscal targets and making requite adjustments. As it stands success for fiscal outcomes, from a newsworthy point of view, would be any number which is significantly lower than the $379m stated by the IMF, from an objective perspective a maintenance of the downward trend of the deficit would be reasonable. This position will become more easily appreciated with where there is early discussion and narrative around such a possibility allowing for early credit market adjustments and strategic shifts in the private sector and broad appreciation of the realities by the country at large.

Until there is more available information it is risky to land on any one definitive position as to fiscal performance. I believe though that while developments may not progress as speedily as we desire and while there are important challenges to be addressed the country is in a reasonable position to address same. While there are broad areas which have perennially escaped the attention needed there is sufficient stability to make a concerted attempt at changing this reality in 2024. As the year in which the fiscal shift into surpluses is expected to be launched, policy makers should treat it’s the messaging value its performance carries in shaping or adjusting policy positions with a view of securing the best possible outcomes, maintaining the integrity of the path to remediating the existing debt circumstances and set the country on a clear path for increased fiscal prosperity and economic growth.

• Hubert Edwards is the principal of Next Level Solutions Limited (NLS), a management consultancy firm. He is currently a student at the Eugene Dupuch Law School. He can be reached at info@nlsolustionsbahamas.com. Hubert specialises in governance, risk and compliance (GRC), Accounting and Finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning. He also chairs the Organization for Responsible Governance’s (ORG) Economic Development Committee. This and other articles are available at www.nlsolutionsbahamas.com