The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Achieving current projections of a 78 percent year-over-year cut in the Government's fiscal deficit will be "a significant ask" based on existing trends, a governance reformer warned ahead of today's 2023-2024 Budget.

Hubert Edwards, head of the Organisation for Responsible Governance's (ORG) economic development committee, told Tribune Business in a recent interview that he is "not 100 percent bullish" on the Davis administration's ability to fufill the cut forecast in its 2022-2023 mid-year Budget.

The Government's latest projections call for the projected $575.4m fiscal deficit for the current year to be slashed by more than $450m, or some 78.3 percent, to $125.3m during the 2023-2024 fiscal period as a precursor to achieving a $278.8m Budget surplus the following year.

A $125.3m deficit, which measures by how much government spending exceeds its revenues, and is a measure of net new borrowing to fill that gap, would be the lowest for at least a decade if it can be achieved. Given that it is intended to set the Government up to run a surplus the following year, representing one of the few times in Bahamian history when revenues have been higher than expenditure, the 12 months to end-June 2024 represent a pivotal fiscal period.

However, Mr Edwards told this newspaper ahead of today's Budget, when projections may be revised: "I am not 100 percent bullish on the ability to shrink the deficit at the level that was initially projected. I do anticipate some level of decrease in the deficit, but it's a significant ask."

The ORG economic development committee chief said he was basing his assessment on recent comments to this newspaper by Simon Wilson, the Ministry of Finance's financial secretary, who said fiscal performance over the final months of the current 2022-2023 period is critical to "creating the platform for next year" that will enable the Government to hit its much-needed deficit reduction.

"If that doesn't happen it's going to be a challenge that 78 percent from where I sit at this time," Mr Edwards added. While the Bahamian economy has reflated post-COVID, and regained much of the output that it lost due to the pandemic, it has not grown much beyond where it was at the end of 2019.

"It has come back, and come back in a rapid way, but has not gone significantly beyond where it was," he said of the economy. "A 78 percent reduction at this stage, I think, is going to be a significant ask but I do anticipate there will be a reduction in the deficit."

Mr Edwards added that the forces shaping the Budget had been outlined by Mr Wilson, with the Ministry of Finance and Department of Inland Revenue "doubling down on these tax initiatives in order to get the revenue to a level where it needs to be" via tougher enforcement actions.

"While he did not explicitly say so, he left enough information on the table in response to you which indicates the Government has serious concerns about the conditions it will face if it's unable to deliver the level of revenue needed through traditional channels," he added, identifying these as VAT, Business Licence fees and real property taxes.

"In my mind the failure to get these numbers is going to put the fiscal space under constant pressure. If that becomes a challenge, the Government is going to have to look at alternative measures of taxation. I believe we are going to see a projection which suggests that significant revenue is going to come from real property tax enforcement and collection efforts, and significant revenue is going to come from VAT collection and enforcement efforts."

Mr Edwards said the Government's financial goals had effectively been set out in its latest Fiscal Strategy Report, which aims to grow revenues by almost $1.2bn to over $4bn by the 2026-2027 fiscal year when compared to the current 12-month period that ends at June 30. It is also aiming to expand the Bahamian economy from a $13.236bn to a near-$16bn enterprise over the same period.

"I think basically this Budget has to be the first layout of how we’re going to get to that," he added. "How we are going to get the revenue and, certainly, how we’re going to secure the type of government revenue which is going to allow us to maintain the credit rating or improve the credit rating, and then certainly start to see a reduction in the debt-to-GDP ratio.....

“It certainly will have to lay out policies and programmes driven by government to increase revenue because revenue right now is extremely narrow and it needs support. Whether that is going to be increases in taxes or there is going to be an early leaning in on a corporate income tax, we don’t know for sure.

"But one would anticipate that having laid that out, and pretty much told the world what it's going to do, I would expect that they’re to double down and make sure that the numbers are pointing in that direction or, if the numbers do not suggest the level of robust performance that we anticipate, then we might have to look at cutting expenditure.”

Mr Edwards also warned all businesses and Bahamians to "look out" for an announcement on long-awaited National Insurance Board (NIB) rate increases, although some observers voiced doubts that this would be included as part of the Budget presentation as it would break down the traditional separation that has been maintained between the social security system and the Government's fiscal affairs.

While adding that implementation of any NIB increase could be delayed to July, or even New Year's Day 2024, to give employers and their staff time to adjust, the ORG economic development committee chief also predicted that the Government will try to reduce external foreign currency debt as a proportion of its $11bn-plus national debt - and even refinance or replace it with the domestic variety - in a bid to lower interest and debt servicing costs.

Calling for the Government to attack the $400m-$500m collective taxpayer subsidy provided to state-owned enterprises (SOEs), and reduce this in the 2023-2024 Budget, Mr Edwards also urged the Government to "look at how it is better able to facilitate the private sector in terms of the ease of doing business.

"The Government has outlined a very ambitious recovery plan in terms of its Fiscal Strategy Report," he added. "The question is: Is it doing enough, fast enough, to ensure the change in infrastructure matures fast enough to ensure delivery of this change."

And Mr Edwards warned that, "if the trend isn't broken, we are likely over the next year, year-and-a-half, to be sitting at a total public sector debt at or near $13bn. That will not augur well for fixing the circumstances of the country moving forward. If we assess that against the $16bn growth we are trying to achieve, rather than expanding the difference between revenue and expenditure, it will continue to narrow and that will not be a good thing".