The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman yesterday argued the IMF’s deficit warning should serve as “a wake-up call” for the Government not to waste “record-breaking revenues”.

Kwasi Thompson, former minister of state for finance in the Minnis administration, told Tribune Business that the Government must rapidly determine if the International Monetary Fund (IMF) is accurate with its prediction that the 2023-2024 Budget deficit will be almost triple initial forecasts. And, if this is so, implement or unveil a plan to bring the public finances back on Budget.

Speaking after the Fund, in its statement on the annual Article IV consultation, warned that The Bahamas’ 2023-2024 fiscal deficit will be almost three times’ the Davis administration’s own estimates, he asserted: “Again, the issue is that we are having record-breaking revenues and we should be moving in the direction of a surplus.

“This is a huge wake-up call for the Government as to why is it we are having record-breaking revenues but cannot meet with Budget. The Government has to look at what the IMF says and the Government, first of all, has to answer whether what the IMF is saying is accurate.

“If it is, they must implement a plan to bring them back on Budget or show how they’re going to make adjustments to bring them back on Budget in the coming years. The Government has to look at that and evaluate that, and ask why the IMF projections are what they are. If the IMF is accurate, there are certain steps the Government is mandated to do as a result, and put in a plan to make the adjustments.”

The IMF, as disclosed by Tribune Business, has estimated that the current fiscal year’s deficit will be “considerably larger than that expected in the Budget” at a sum equal to 2.6 percent of gross domestic product (GDP).

This is almost triple the Davis administration’s forecast of a deficit equivalent to 0.9 percent of GDP or total Bahamian economic output. The IMF’s prediction, if accurate, would mean that the deficit - which measures by how much government spending exceeds its revenue income - would balloon to around $378.73m compared to the Government’s $131.1m forecast.

Seizing on this, Mr Thompson said in an earlier statement: “The IMF in its statement released yesterday is now projecting that the Government’s deficit for this fiscal year 2023-2024 will approach $380m, which is almost 200 percent higher than the $131m deficit in the Government’s budget and medium-term fiscal strategy.

“This massive projected spike in the deficit is also projected by the rating agency Standards & Poor (S&P) in its September 2023 report on The Bahamas.” S&P is forecasting a deficit - which measures by how much the Government’s spending exceeds its income in any fiscal year - of 3.2 percent of GDP, which is equivalent to $466m - almost $100m higher than that forecast by the IMF.

“The Government must state whether these projections - first by S&P and now by the IMF - are accurate, and if it is true that they are on track to blow the budget deficit target by almost 200 percent,” the Opposition finance spokesman said.

“If this is so, the Government must follow the fiscal responsibility provisions of the Public Finance Management Act and come to Parliament with a plan on how they will curtail their extravagant and unnecessary spending so as to bring the budget back in line with what Parliament had approved.”

Time will tell who is correct - the IMF or the Government - given that there is a $247.6m difference between their respective fiscal deficit estimates for the 2023-2024 fiscal year. However, if the Fund is proven right, it will mean that the Government’s ambitions of generating a fiscal surplus of $109.2m in the 2024-2025 Budget year will likely become less achievable and this goal will have to be pushed back.

The Government will also have to undertake significantly more borrowing than planned to cover this year’s fiscal deficit if the IMF’s predicted outcome comes true, resulting in a further increase to the $12.556bn total public sector debt that was in existence at end-September 2023. While new revenue sources, such as carbon credits, are being targeted, these are unlikely to come to fruition in 2023-2024.

Turning to other issues raised by the IMF, Mr Thompson noted it had called on The Bahamas to ensure that members of the Fiscal Responsibility Council, the public finances watchdog, are selected through “an independent process”.

Recent legal reforms passed by Parliament in the Public Finance Management Act 2023 switched responsibility for appointing the Council’s members from the House of Assembly speaker to the minister of finance (now Prime Minister Philip Davis KC) - the very person whose ministry, and fiscal strategies, plans and actions they are supposed to be scrutinising.

“The IMF also specifically expressed concern about the ‘renewed pressures on global food and oil prices’ that burden lower-income households, and expressed the need for well-targeted measures to help without adding further strain,” Mr Thompson added.

“We have raised this point time and time again. We say again, take VAT off healthy food and pay for it by cutting unnecessary spending and raising VAT on property transfers over $2m. Surely the Government must stop the wasteful spending while the critical needs of the people continue to go unmet, and at a time when they are projected to overshoot their budget deficit target by some $248m.”

The IMF, in its Article IV statement, said: “While the objectives of the authorities’ medium-term fiscal plan are laudable, staff assesses that more policy measures will be needed to achieve this targeted adjustment.

“In particular, based on current policies, the fiscal deficit is expected to be 2.6 percent of GDP in 2023-2024, considerably larger than that expected in the Budget. Over the medium-term, debt would fall to 78 percent of GDP by 2027-2028 but gross financing needs would remain high for the next several years at around 20 percent of GDP.

“Even though, under this path, debt is judged to be sustainable, a faster reduction in debt would be valuable in lessening the risk of sovereign stress and, in so doing, would be rewarded through a lower interest burden for the public debt.”