The Tribune

• PM: Holding to $131m forecast ‘not wishful thinking’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s leader yesterday predicted the Government’s full-year fiscal deficit will be “around $400m or higher” as the Prime Minister stuck to an original forecast that is less than one-third that amount.

Michael Pintard based his grim analysis on the fact that the $258.7m half-year deficit, as unveiled in the mid-year Budget, was almost double that of the Government’s $131.1m forecast for the full 12 months. However, Prime Minister Philip Davis KC doubled down on his assertion that improved compliance and enforcement will bring the numbers back to target, adding: “This is not just wishful thinking.”

“For the remainder of this Budget cycle, our fiscal targets remain unchanged,” he said in leading-off the mid-year Budget debate. “The Government has not adjusted its revenue, spending or deficit forecasts. We remain confident in our projections of strong financial performance in the latter half of this fiscal year.

“This is not just wishful thinking. Revenues tend to increase during the peak winter months. And we also expect to see increased receipts from improved collection efforts, as well as the new Business Licence fees. In the medium term, our projections also remain the same.

“The revenue enhancement measures we’ve rolled out are expected to keep us on track to arrive at our goal of revenue making up 25 percent of GDP in just a few years.” However, Mr Pintard yesterday asserted that “wishful thinking” is exactly what the Prime Minister’s deficit projections are.

The Marco City MP, basing his prediction on the Government’s half-year fiscal performance for the six months to end-December 2023, told the House of Assembly: “We expect, unfortunately for us, that their deficit figure is likely to be somewhere around $400m. It may be even higher but, certainly, it wasn’t important enough for the mover and seconder of this resolution to mention that in their notes.”

The “mover” and “seconder” were the Prime Minister and Jobeth Coleby-Davis, minister of energy and transport, respectively. The GFS deficit measures by how much the Government’s spending in the current 2023-2024 fiscal year exceeds its revenue income, with the figure that materialises representing what is added to the $11.5bn national debt.

It remains to be seen who is correct - Mr Davis and the Government, or Mr Pintard and the Opposition - and the former is right that the bulk of the Government’s revenues are earned during the fiscal year’s second half due to it coinciding with peak winter tourism season activity.

And, while the half-year deficit overshot the full-year target by $127.6m in just six months, Simon Wilson, the Ministry of Finance’s financial secretary, previously told Tribune Business that the Budget’s cyclical nature meant it was impossible to predict the full-year outcome based on the first six months’ performance.

However, while the Government generated a collective $30m fiscal surplus for the four months covered by the 2022-2023 winter period, it subsequently incurred a $288m deficit for May and June 2023 as multiple ministries, departments and agencies raced to have bills paid before that fiscal year closed.

Based on such trends, while the Government is likely to run a larger fiscal surplus for the 2023-2024 winter months - say $100m - it will also probably incur a deficit of at least $200m for the May/June period. Using such estimates, which are admittedly conservative, would put the full-year deficit around $350m.

Such a figure, while lower than Mr Pintard’s, would place the deficit within the range forecast by the International Monetary Fund (IMF). The IMF, in its statement on the annual Article IV consultation with The Bahamas, estimated 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.

A $350m deficit would, though, still represent a significant achievement for the Government as it would be equal to a $183m or 34.4 percent reduction compared to 2022-2023’s $533.4m worth of ‘red ink’. This would signal that the Davis administration is keeping the deficit on a downward trajectory, albeit the reduction is slower than projected.

Mr Pintard, though, yesterday argued that the Government has a “credibility challenge” through sticking to its $131.1m deficit and other fiscal forecasts even though - in his opinion - they are unlikely to be met.

“This is precisely why many creditors as well as multilateral institutions evaluating us, and investors - domestic and international - are having problems doing business and, in fact, lending money to this administration because the view is it is very difficult to believe their economic plan or fiscal plan. We have a challenge with the credibility of the Davis/Cooper administration,” he argued.

There have been signs, though, that a higher-than-projected government deficit has already been anticipated and priced-in by Bahamian and international investors. Mr Pintard, though, also pointed to the fact that the Government has quietly adjusted the 5.5 percent economic growth projected for the 2023-2024 fiscal year to just 1.1 percent in the mid-year Budget.

The original Budget, presented in May, forecast that the Bahamian economy would grow five times’ faster in 2023-2024 based on gross domestic product (GDP) measures that strip out inflation’s impact. Getting GDP growth estimates correct is critical because this is the main driver of the Government’s income and a major determinant of whether revenues will come in on target.

“They have since revised the growth rate for our economy, I believe, to 1.1 percent,” Mr Pintard said, “in the same book they love to refer to, and in which they are now scrambling to find the page and line item. It’s very interesting that they didn’t bother to include that in the Prime Minister’s presentation.” A check of the mid-year Budget book shows GDP in constant prices has indeed been reduced to 1.1. percent.

“This administration, in the midst of its mid-term report, must hit the reset button,” the Opposition leader added. “The way this administration is heading will not produce the kinds of benefits we need.... We are deeply concerned about the direction at the mid-year point.”