The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A near-20 percent increase in total government spending caused The Bahamas’ fiscal deficit for the 2024-2025 first quarter to triple when compared to the prior Budget year.

The Ministry of Finance’s just-released fiscal performance report for the three months to end-September 2024 revealed that a $143m spending increase drove the year-over-year expansion in the Government’s deficit, which jumped from $61.5m during the same period in 2022-2023 to $185.4m. Revenues, meanwhile, grew by just $18.7m or 2.8 percent to $682.2m, meaning spending grew more than seven times’ faster.

The Davis administration has frequently argued that Bahamians should base their assessment of its fiscal prudence, and ability to meet the deficit and other targets, on the full-year results rather than the outcome for just one quarter as the Budget’s cyclical nature typically shifts the bulk of revenue generation into the second half of the year.

However, comparisons with previous first quarter fiscal reports show that the Government’s total spending as a percentage of the full-year expenditure forecast increased markedly for this 2024-2025 fiscal year. The total $867.7m spent was equal to 24 percent of the forecast $3.613bn annual spend, which represents a notable increase over the 20 percent and 20.09 percent benchmarks attained in the two previous years.

And, compared to a total outlay of $674.8m in the 2022-2023 fiscal first quarter, the Government’s spending for the same period has increased by almost $200m in just two years. “Total expenditure expanded by $142.6m (19.7 percent) to $867.7m (24 percent of the Budget target),” the Ministry of Finance’s report for the 2024-2025 first quarter revealed.

“Recurrent spending was higher by $83.5m (12.6 percent) at $743.9m, 22.8 percent of the Budget target, with the bulk associated with compensation outlays (29.1 percent), payments of goods and services (21.3 percent) and public debt interest (15.1 percent).

“Capital expenditure increased by $59.1m (91.5 percent) to $123.8m or 35.9 percent of the Budget target. Growth was concentrated in the $51.7m boost in outlay for the acquisition of non-financial assets, primarily allocated to road works and school infrastructure-related repairs, and with an additional $7.4m expended for capital transfers.”

One well-placed financial source, speaking on condition of anonymity, said the sharp increase in first quarter spending will again raise suspicions that the Government is paying-off old bills incurred in the prior fiscal year.

To meet its 2023-2024 fiscal targets, and avoid a significant deficit overshoot that would have triggered fiscal responsibility clauses in the Public Finance Management Act requiring it to explain why this has occurred and provide a corrective action plan, they suggested the Davis administration had deferred paying sums owed to vendors and others until the new 2024-2025 fiscal year.

“That doesn’t make any sense whatsoever other than them settling old bills,” the source said of the jump in 2024-2025 first quarter fiscal spending. “The first quarter is always slow on spending because the agencies and ministries are just ramping up.

“Whatever they were settling was prior year bills, not from the current..... They have to explain what circumstances led to the material and precipitous increase in recurrent spending. What this means is because they’ve used up so much of their [spending] allocation already the Government will have to clamp down on spending for the rest of the year.”

The Ministry of Finance, detailing what drove the spending increases, said: “Subsidies, which include transfers to government-owned and/or controlled enterprises that provide commercial goods and services to the public, rose by $10.5m (11.1 percent) to $104.3m and accounted for 25.3 percent of the Budget.

“Subsidies to public non-financial corporations increased by $9.1m (9.9 percent) to $101.2m, reflecting higher assistance to the Water & Sewerage Corporation ($5.5m), Bahamasair ($2.2m) and University of The Bahamas ($2.4m). Transfers to private enterprises and other sectors rose by $1.3m (72.6 percent) to $3.1m.”

Other major spending increase drivers included civil service pay and benefits; expenditure on goods and services; and so-called “other payments” that included “planned allocations” to the Parks and Beaches Authority and Lucayan Renewal Holdings, which is the Government-owned special purpose vehicle (SPV) that holds Grand Bahama’s Grand Lucayan resort.

“Compensation of employees grew by $8.2m (3.9 percent) to $216.7m, which represented 24.4 percent of the Budget target and was explained by planned staff promotions, salary adjustments and additional hires,” the Ministry of Finance report said.

“Spending on the use of goods and services was boosted by $39.6m (33.2 percent) to $158.6m, and included the following key developments. Rental costs, comprising payments for office lease and rent, vehicle leases and living accommodations, increased by $8.8m (43 percent) to $29.4m.

“Utilities and telecommunications outlays advanced by $5.3m (58.9 percent) to $14.4m. Spending on services - including IT networks, consultancy services, operation of facilities and equipment maintenance - grew by $21.7m (39.2 percent) to $76.9m.”

With debt servicing (interest) payments and social security benefits effectively flat against prior year comparisons for the 2024-2025 first quarter, the Ministry of Finance report added: “Other payments were boosted by $26.3m (40.5 percent) to $91.1m, 25.2 percent of the Budget.

“Current transfers not elsewhere classified broadened by $25.2m (49.4 percent) to $76.3m, largely owing to disbursements of planned allocations for scholarships and grants, the Beaches and Parks Authority, court services and Lucayan Renewal Holdings.”

As for the increase in the Government’s capital spending, the Ministry of Finance explained: “Capital transfers increased by $7.4m (61.8 percent) to $19.5m, led by allocations for public-private partnerships (PPPs) relative to roadworks. Expenditure on the acquisition of non-financial assets was boosted by $51.7m (98.2 percent) at $104.3m.

“Outlays for other structures expanded by $29.9m, of which 42.6 percent was attributed to roads repairs and maintenance and the balance for sporting and airport infrastructure and Family Island development projects.

“Investments in buildings other than dwellings rose by $9.6m (33.4 percent), allocated for school construction projects  - general schools and new primary and secondary schools -  government building maintenance, and small home repairs.”

The Government’s direct debt increased by $305.4m to $11.656bn at end-September 2024. Three-quarters, or 75 percent, of the $210.6m increase in its net Bahamian dollar borrowing came from $159m in Central Bank advances.

“The $210.6m net increase in Bahamian Dollar liabilities included net redemption of domestic securities amounting to $18.6m, while bank loans were higher by $70.1m. A net of $159m was obtained by way of Central Bank advances,” the Ministry of Finance report said.

“Foreign currency transactions resulted in a net borrowing of $94.8m. Net drawings on bank loans totaled $133.8m, while net loan redemptions to international development agencies amounted to $39m. Approximately 85.4 percent of the latter was earmarked to reduce liabilities to the IMF, 8.5 percent to the Caribbean Development Bank, 4.5 percent to the Inter-American Development Bank and the balance to the Chinese Export-Import Bank.

“Consequent on these developments, the direct charge on the Government - inclusive of exchange rate adjustments, increased by $305.4m to an estimated $11.656bn at end-September 2024 for 79.1 percent of GDP, as compared to 77.6 percent of GDP at end-June 2024.”