The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman last night warned the Government “must adjust” its Budget targets and figures despite year-over-year improvements in its October revenues and deficit.

Kwasi Thompson, the east Grand Bahama MP, voiced alarm over the fact that - with two-thirds of the 2023-2024 fiscal year left - the Government’s near-$120m deficit for the first four months was almost equal to the $131.1m full-year target.

With the deficit, which measures by how much the Government’s new spending exceeds its income, standing at 91.3 percent of the full-year forecast at end-October, he told Tribune Business: “What stood out to me was the deficit. They’re at 91 percent of their projected [full-year] deficit in the Budget.”

And, with the World Bank slashing its 2024 economic growth projections for The Bahamas to 1.8 percent, Mr Thompson called on the Government to respond to this and its performance for the fiscal year-to-date by adjusting its full-year financial goals when it unveils the mid-year Budget that is due to be presented next month.

The Davis administration forecast constant, or real, gross domestic product (GDP) growth of 5.5 percent for the 2023-2024 fiscal year when forming the Budget. Economic growth is a key driver of government revenues, and Mr Thompson argued that this projection is now out of line with both the World Bank and even the International Monetary Fund’s (IMF) more optimistic 2.3 percent expansion forecast.

“The Government’s Budget numbers are based on 5.5 percent economic growth. The Government has to adjust what is in their Budget,” the Opposition finance spokesman argued, also basing this on the fiscal performance through to end-October 2023.

Simon Wilson, the Ministry of Finance’s financial secretary, could not be reached for comment before press time last night and it remains to be seen who is correct - the Government, or the IMF, World Bank and credit rating agencies - when it comes to projections for The Bahamas’s fiscal and economic performance in 2024.

The Government’s monthly fiscal performance for October, which was released late on Friday, disclosed a mild acceleration in improved revenue and tax collections year-over-year. Compared to October 2022, total revenues rose by 9.2 percent or $21m to hit $248.2m as opposed to $227.2m, while total tax income increased by 7.25 percent to reach $220.2m compared to $205.3m the year before.

VAT revenues, derived from September filings which included both monthly and quarterly filers, rose 7.5 percent or by $8.8m year-over-year to hit $126.8m for October 2023 as compared to $118m in 2022. However, while October’s revenue growth pace was improved compared to the 2023-2024 fiscal year’s first quarter, it was still some way short of what the Davis administration needs to hit its full-year target.

To hit its full-year total revenue and tax targets of $3.319bn and $2.918bn, respectively, the Government needs to increase its income by 16 percent and 15 percent compared to what it generated in 2022-2023.

This means that, to achieve the $462m increase in total revenues and $381m jump in tax income it has projected for the 2023-2024 full-year, the Government will have to grow its income at a much faster pace over the remaining eight months than it achieved during the first third of the fiscal year.

For the first four months to October 2023, the Government’s total revenues increased by some 3.4 percent or almost $30m, reaching $911.8m as opposed to $882m for the same period in 2022. Tax revenues rose at a slightly faster pace, growing by 5.6 percent year-over-year for the same period to reach $824m as compared to $780.1m in 2022 - a $43.9m jump.

VAT revenues were up by 3.5 percent, growing by $15.6m to strike $464.6m as opposed to $449m. However, despite the increase, as a percentage of the total full-year forecast the Government collected less VAT during this fiscal year’s first four months as compared to last year - 29.2 percent versus 31.8 percent.

VAT, which is the Government’s main revenue source, accounting for almost 48 percent or nearly half its recurrent income, has to increase by a much greater 27 percent or $339m over the $1.252bn collected in 2022-2023 to hit this year’s target of $1.591bn.

And, while October’s $61.5m deficit represented a decline on the prior year’s $74.9m by almost 18 percent, the amount of ‘red ink’ incurred over the first four months increased by 24.4 percent or $23.5m from $96.2m to $119.7m.

Total government spending for October, while increasing at a slower rate than revenue, jumped by 2.5 percent or $7.6m to hit $309.7m. And, for the first four months of 2023-2024, spending overall has risen by 5.5 percent to $1.032bn - a rate that is slightly faster than the revenue increase. Recurrent spending, on fixed costs such as salaries and rents, grew by $43.6m or 4.8 percent to reach $952.4m.

“The $294.7m in recurrent spending for the month represented an increase of 2.2 percent ($6.5m) from the corresponding period in the prior year,” the Ministry of Finance said. “Key categories and movements are as follows: Personal emoluments at $68m increased by $3.1m, which was primarily associated with salary-related adjustments.

“Public debt interest payments were higher by $10m at $86.4m amid recent increases in the debt stock and interest costs. Outlays for the use of goods and services declined by $16.5m to $46.7m. Subsidies grew by $8.4m to $43m, owing to timing differences in state-owned enterprises (SOE) transfers. Payments related to social assistance and transfers rose by $1.6m to $23.4m.”

Mr Thompson, in a statement referring to the World Bank’s reduced growth forecast, said: “We must ask the Government what the downgrade in the economic growth forecast means for its revenue forecast. The current budget anticipated a substantial growth in revenue driven by a projected robust 5.5 percent economic growth over the 2023-2024 fiscal year.

“A slower-than-expected growth in the economy will obviously translate to a smaller bump in government revenue. Again, we point out that this will require budgetary adjustments. We have already told the Government to heed the analysis of international and domestic commentators and proactively adjust the Budget to avoid a spike in the deficit and greater-than-projected debts.

“Bahamians should not have to wait until the February mid-year Budget statement or May budget speech to learn that Budget adjustments will be necessary when the Government has known that its Budget performance has been off for some months now.”

However, four months does not make a full fiscal year and is not necessarily an indicator of how the 12-month outcome will look due to the cyclical nature of the annual Budget.

The first quarter in every fiscal year is traditionally the weakest as it coincides with the slowest part of the tourism season and therefore less economic activity. It is typically the second half of the Budget cycle that is key in determining the Government’s financial performance.

This is when it traditionally collects the bulk of its revenues, as the early part of the calendar year coincides with the peak winter tourism season and high point of economic activity. It is also when the Government collects its Business Licence fees, bulk of real property taxes and benefits from commercial vehicle licensing month.

Mr Wilson previously said the 2023-2024 second half will be vital to determining the full-year performance given that it is when a number of fee increases – cruise passenger departure levies and boat registration fees – kick-in.

However, the other key determinant of the fiscal year is the size of June’s monthly deficit, which is typically far larger than any of the preceding 11 months. This is because multiple government ministries, agencies and departments deluge the Ministry of Finance with bills it knew nothing about in a bid to have them paid before the financial year-end.