The Tribune

• Still projecting $131m deficit to investors
• Upbeat forecast as recently as April ‘24
• Visitor spending 29% up ‘in real terms’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government says foreign direct investment (FDI) inflows are now “substantially” above pre-COVID trends at $215m while sticking to its original target of slashing this year’s fiscal deficit by 75 percent.

The Davis administration gave international investors, creditors and capital markets participants an upbeat assessment of The Bahamas’ economic recovery and future prospects last month as it hailed a 29 percent increase in “real terms” in per capita tourist spending between 2019 and 2022.

The figures were released in an April 2024 briefing given by Michael Halkitis, minister of economic affairs, in what was described as an “investor engagement”. The contents, which have only just been publicly disclosed by the Ministry of Finance, were not accompanied by the minister’s audio commentary and only feature the slides that the international audience was shown.

However, they reaffirm the Government’s mid-year Budget stance by showing that the administration is not backing down from its original 2023-2024 Budget projection that the fiscal deficit will be cut by almost $400m compared to the prior year and come in at $131m - a sum equivalent to 0.9 percent of Bahamian economic output or gross domestic product (GDP).

This is despite the deficit for the half-year to end-December 2023 coming in at almost double, or 197 percent higher, than the full-year target at $258.7m. However, the presentation given by Mr Halkitis reiterated in two places that the Government has not budged from fiscal forecasts that many observers believe were too ambitious and are unlikely to be achieved.

Noting that the 2023-2024 half-year deficit represented a near-$20m year-over-year decline, compared to the prior Budget year’s $279m, the presentation said: “The fiscal deficit narrowed by 7.2 percent on a year-on-year basis even as one-off capital expenditures materialised, which are expected to normalise during the second half of the year and lead to a deficit of 0.9 percent of GDP versus 3.8 percent in fiscal year 2022-2023.”

It is impossible to judge how close the Government is to achieving that GFS deficit goal, which measures by how much its spending exceeds its revenue income. This benchmark does not include debt principal repayment, meaning the $131m or 0.9 percent of GDP represents net new debt that will further add to the $12.748bn in total Bahamian public sector debt.

No fiscal figures have been released since those for the six months to end-December 2023 were unveiled with the mid-year Budget, and last month’s investor presentation similarly did not reveal any data beyond year-end. The Ministry of Finance has yet to unveil the monthly reports on fiscal performance for January, February and March 2024, along with the quarterly report covering those three months.

The Public Finance Management Act 2023 stipulates that the Ministry of Finance’s financial secretary “shall publish the monthly summary report.... no later than four weeks after the end of the month or as soon as reasonably practicable thereafter”. A similar timeline, namely “no later than four weeks or as soon as reasonably practicable thereafter”, applies to the quarterly fiscal reports.

The January, February and March 2024 monthly reports, as well as the 2023-2024 third quarter report, are all now past deadline although the “as soon as reasonably practicable thereafter” language gives the Government an escape clause.

It is unclear why no fiscal data has been forthcoming beyond the 2023-2024 fiscal year’s first six months, although observers suggested there are two potential explanations - the Government’s financial performance has fallen well short of target and expectations, or the Davis administration has met/exceeded them and plans to surprise everyone with a grand reveal during next Wednesday’s Budget.

The investor presentation given by Mr Halkitis hailed a “well-tuned counter-cyclical fiscal policy offering The Bahamas greater leeway to improve budgetary performance”. It also touted a 6.7 percent year-over-year increase in tax revenues during the 2023-2024 first half, and an “expected” 29.4 percent jump in non-tax revenue during the 12 months to end-June 2024.

The Government’s revenues, as a percentage of GDP, are still predicted to hit 23 percent at $3.3bn this fiscal year - just two percentage points shy of its professed 25 percent of GDP target. Total revenues, according to the presentation, are forecast to increase further to $3.6bn in 2024-2025 and $3.9bn in 2025-2026.

“Despite a challenging environment, The Bahamas’ fiscal performance in the first half of 2023-2024 showed a slight improvement over the outperforming 2022-2023 levels,” the investor presentation said. “Revenue collection remains a key driver of fiscal performance, up 3.6 percent on a year-on-year basis and year-end levels on track to exceed pre-Dorian and pre-pandemic figures.”

However, the Government’s investor presentation was almost as notable for what it did not include. Tribune Business previously reported at the time of the mid-year Budget that 2023-2024 first half total revenue and tax collections, as a percentage of the full-year projection, were behind the 44.9 percent and 44 percent achieved during the prior year period featuring the six months to end-December 2022.

And, while government revenues may be up year-over-year, they were behind the full-year growth targets. VAT accounted for $47.2m, or more than half, of the $73m year-over-year growth in tax revenues to come in at $646m for the six months to end-December 2023. This accounted for more than half, or 55.2 percent, of the Government’s total tax revenues and was equal to 40.6 percent of the full-year target.

However, while VAT revenues were up by 7.9 percent year-over-year, this growth rate has to hit 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 full-year total revenue and tax collections must also expand by a much faster 16 percent if the Government is to achieve its $3.319bn revenue target for the full year.

The Government’s investor presentation last month, though, highlighted the Bahamian tourism industry’s post-COVID rebound by pointing to 360 percent growth in visitor arrivals between 2021 and 2023, which rose from 2.1m to 9.7m largely due to the continued expansion of the cruise industry.

And, while no dollar figures were provided, investors were informed that per capita visitor spending and the industry’s economic impact continue to grow. Agreeing that “structurally increasing visitor spending is critical [to] underpin this momentum”, the presentation added: “The average amount of visitor expenditure per visitor has steadily increased since 2012, and was 29 percent higher in 2022 than in 2019 in real terms.”

As for economic growth, the Government’s investor presentation included the lower 2.6 percent real GDP growth estimate for 2023 produced by the Bahamas National Statistical Institute (BNSI) and agreed that this nation’s pace of economic expansion is trending towards the 1.7 percent forecast over the medium-term (2024-2026) by the International Monetary Fund (IMF). That, though, is still above pre-COVID rates.