The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

One out of every $5 spent by the Government on its recurrent costs during the upcoming 2023-2024 fiscal year will go towards paying the $612.726m interest bill on its outstanding $11bn-plus national debt.

Documents accompanying the 2023-2024 Budget reveal that 19.99 percent of recurrent, or fixed cost, spending is earmarked to cover debt servicing costs which remain the largest single line item in the Davis administration's expenditure Budget for the 12 months to end-June 2014.

And, with subsidies to loss-making state-owned enterprises (SOEs) consuming a further $408.098m, some $1.02bn of recurrent spending - equivalent to one-third of the total, or one out of every $3 spent by the Government - will go on this and interest payments alone.

The Budget forecasts reveal that central government debt, in absolute terms, is not forecast to peak until the upcoming fiscal year when it is forecast to hit $11.74bn. It is then projected to decline relatively slowly, and will still be above $11bn in the 2026-2027 fiscal year, with the Government relying on a growing economy to keep the debt-to-GDP ratio in check.

In the meantime, The Bahamas' elevated debt levels and interest bill (debt servicing costs) will continue to suck much-needed taxpayer dollars and funding away from essential Bahamian public services such as health, education, social services and national security.

Hubert Edwards, the Organisation for Responsible Governance's (ORG) economic development committee head, told Tribune Business it was a sign of "difficult current circumstances" when between 15-20 percent of a Budget's recurrent spending is going to pay for debt servicing alone.

"It has to be concerning from the point of view that monies are going increasingly to pay for debt which could have been spent differently," he added. "We have to analyse that payment. A portion of that payment remains locally on domestic debt. The concern we have is external debt keeps increasing. I think there has been an incremental increase in external debt, while domestic debt has been trending down."

The Davis administration sought to convey the message that its fiscal consolidation plan is on track, and there is no cause for the domestic or international business/financing community to panic, during its Budget communication and post-Budget messaging.

However, Mr Edwards said it was clear from the 2023-2024 Budget numbers that "when you drill down, you get the impression that if not properly marshalled this could go very wrong, very quickly if the results don't turn out as projected".

Michael Halkitis, minister of economic affairs, addressing the Prime Minister's Office's media briefing last week, said projections of improved revenue and deficit outcomes for the 2022-2023 fiscal year had "proven wrong" the Opposition and others who had argued the Government's targets were too aggressive.

Simon Wilson, the Ministry of Finance's financial secretary, last week said he was "pretty confident" the Government will slash the 2022-2023 fiscal deficit by $54.8m, or near-10 percent, compared to the last projection of $575.4m. "Unless something drastic happens to the revenue we should finish this year at over $100m above target," he told Tribune Business.

"March was a very strong month. We have to wait and see on April's numbers. June last year wasn't as strong as we wanted it to be, so we have to keep our fingers crossed for June." However, Mr Wilson added that there had been no sign of any easing in revenue trends heading into the last month of the fiscal year, which closes on June 30, 2023.

The Government's Budget numbers predict that 2022-2023 revenues will come in some $107.8m above forecast, finishing the year at $2.909bn as opposed to $2.801bn, and thus setting it up to further cut the deficit next fiscal year on the path to achieving a fiscal surplus in 2024-2025. The 2022-2023 fiscal deficit is now projected to come in at $520.6m.

Mr Halkitis, meanwhile, took on assertions by the Opposition and others that the Davis administration is challenged with controlling its spending. He argued that next's year Budget involves a "cut in spending" when inflation is taken into account, as total recurrent expenditure is forecast to rise by just $12m year-over-year.

"If you look at this Budget, this upcoming Budget next year, we anticipate spending to increase over this year's level by $12m," he argued. “So government spending is budgeted to increase by $12m, and let me put that in some context for you. For government spending in this fiscal year is anticipated to be $3.074bn, and next year $3.085bn.

"An increase of around $12m. That is less than one half of a one percent increase; it's exactly a 0.4 percent increase, less than half of one percent. If you adjust it for inflation, it's actually a cut in spending. Spending in this Budget is anticipated to increase by less than half of one percent."