The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fiscal analysts and the Opposition yesterday voiced scepticism that the Government will hit its revised deficit target range of $146m-$219m for the current fiscal 2023-2024 fiscal year.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that the Davis administration will have to break the decades-long trend of nine-figure fourth quarter ‘red ink’ to meet the Prime Minister’s 1-1.5 percent of gross domestic product (GDP) forecast that was unveiled in the 2024-2025 Budget communication.

Philip Davis KC, addressing the House of Assembly, signalled that the Government is projecting it will achieve either a near-balanced Budget or modest surplus during the three months to end-June 2024 given that the deficit for the nine months to end-March stood at $214.1m. However, it has also been forced to push back by one year its ambitions to finally achieve a fiscal surplus.

“The revised current GDP estimate for fiscal year 2023-2024 is $14.586bn,” the Government’s 2024-2025 Budget data affirmed. “The anticipated deficit for fiscal year 2023-2024 is expected to fall between 1 percent and 1.5 percent of GDP.” No actual figures for the revised deficit forecast were provided, but Tribune Business calculations showed this works out to between $146m and $219m.

Such an outcome would be slightly higher than the original $131m full-year deficit forecast, which was pegged as equal to 0.9 percent of GDP. However, the Government’s full-year deficit forecast does not align with historical trends that have typically seen it incur $200m-plus deficits during the final three months of its fiscal year.

For the past two fiscal years, 2021-2022 and 2022-2023, the Government has sustained deficits totalling $353.5m and $293.7m, respectively, for the fourth quarter as a result of government ministries, departments and agencies racing to bring forth bills that the Ministry of Finance knew nothing about so that they can be paid and cleared before the fiscal year-end.

Former Ministry of Finance insiders have told Tribune Business that successive administrations, both PLP and FNM, have found it impossible to break this trend. Should this be repeated over the coming weeks, it would likely drive the 2023-2024 fiscal deficit - which measures by how much government spending exceeds revenue - towards $400m rather than the range forecast by the Prime Minister.

Mr Davis, though, highlighted the $108.6m or 39.2 percent year-over-year increase in April’s revenues as providing the basis for why the Government believes it can hit the 1-1.5 percent of GDP range - an outcome that would confound the predictions of international observers such as the International Monetary Fund (IMF) but be spot on with Moody’s April forecast of a 1.2 percent deficit.

“I would like to highlight that, historically, March has typically been the highest revenue-generating month in a given fiscal year,” the Prime Minister told the House of Assembly. “Consistent with that pattern, March 2024 was indeed a strong month.

“But it is the month following to which I draw your attention. The preliminary total revenue for April 2024 is estimated to be $385.8m, reflecting a significant increase of $108.6m or 39.2 percent compared to April in the previous year.

“The strong revenue performance in April shows that fourth quarter revenue performance will be very strong, which provides the basis of our favourable outlook for meeting our revenue targets to the end of the fiscal year.”

Mr Davis said the Government’s deficit for the nine months to end-March 2024 totalled $214.1m, a figure equal to 2 percent of nominal GDP and which incorporates the impact of inflation. That percentage does not align with this newspaper’s full-year calculations, but the actual figure represents a $44.6m or 17.2 percent decline compared to the $258.7m deficit at the 2023-2024 fiscal year’s mid-point.

“This represents a decrease of 14.3 percent from the deficit of $249.8m in the same period of the prior year,” the Prime Minister added of the $214.1m figure. “The deficit in the previous year amounted to 2.4 percent of nominal GDP at end March-2023. We achieved a decrease in the deficit via operational efficiency, while ensuring no new taxes and controlling expenditure.”

Hailing April’s “extraordinary performance” on revenue, Mr Davis said: “Year-over-year revenue growth is currently at 9 percent, notwithstanding the underperformance in VAT on real estate transactions. We expect little or no fall in revenue performance over the last month of the fiscal year, and project total revenue of $3.1bn, which represents an 8 percent increase in overall revenue.

“On the expenditure side, we project both recurrent and capital expenditure to be slightly below our original estimates with recurrent expenditure expected to be about 5 percent below budget and capital expenditure around 10 percent below budget. Most of the shortfall in the capital spending directly relates to slow disbursements from multilateral-funded projects.

“Total expenditure is expected to be $3.3bn in comparison to the budgeted amount of $3.45bn. We estimate that our projected deficit is going to fall between 1 and 1.5 percent of GDP, slightly higher than the 2023-2024 fiscal year’s original forecast of 0.9 percent of GDP.”

Kwasi Thompson, former minister of state for finance in the Minnis administration, was among those voicing doubts over the Government’s ability to break historical precedent and hit its revised 2023-2024 deficit target.

“I think it is extremely difficult for the Government to even come close to meeting their target,” he told Tribune Business. “I think it is also one point to look at...not the existing year’s target but next year’s target.” The Opposition’s finance spokesman said the Government has delayed its plans to achieve a fiscal surplus by one year by projecting it will run a small $69.8m deficit in the upcoming 2024-2025 Budget year.

It had previously forecast that it would generate a $109.2m surplus in 2024-2025, and Mr Thompson said the magnitude of the reversal unveiled yesterday - from revenues exceeding spending back to a deficit position - triggers the fiscal responsibility provisions in the Public Finance Management Act that require the Government to present a corrective action plan to Parliament.

Such a plan is mandated if the adjustment is greater than 0.5 percent of GDP, and the 2024-2025 forecast has swung from a 0.7 percent surplus to a 0.5 percent deficit - a 1.2 percent correction. “Next year’s target was supposed to be a surplus, and they have adjusted that to where they are projecting a deficit,” the east Grand Bahama MP said.

“There are very significant financial and legal implications with the Government making these kinds of adjustment without explanation. It’s not unlawful for the Government to make adjustments but they have to follow the provisions in the law, the provisions in the legislation, with making adjustments. I think it’s extremely unlikely the Government will be able to meet these targets.”

Asked whether he was referring to the Public Finance Management Act’s corrective plan provision, Mr Thompson replied: “That is precisely what I’m referring to when I said there are financial and legal implications for the Government in making these adjustments. They have to follow the law.”

Simon Wilson, the Ministry of Finance’s financial secretary, was at a Customs conference and unavailable for comment before press time. However, Mr Bowe agreed that the revised 2023-2024 deficit forecast triggers questions with the $3.1bn revenue outturn forecast by the Prime Minister more than $200m below the $3.316bn total intake projected 12 months ago.

“You’re correct,” he told Tribune Business. “Our historical fiscal performance, particularly in the fourth quarter of each year, is generally a deficit. Projecting that we are going to be producing a surplus is certainly a trend not in line with what we’ve experienced for the better part of our independent life.

“It’s not a question of how reliable it [the deficit forecast is]. It’s the basis upon which they are formulating that forecast, and are there any unusual items we are unaware of?” Mr Bowe acknowledged that it was possible to hit the 1-1.5 percent of GDP deficit target via asset sales and one-off transactions that generated lump revenue inflows.

Yet he added: “We know it’s unlikely there will be a tremendous reduction in expenditure in the fourth quarter, and the question is around: Is that deferring payments versus recognising everything that’s done?”

Seemingly anticipating suggestions that the Government is delaying paying its bills to meet its deficit targets, Mr Davis yesterday said: “I want to note that payables have been declining, falling to 2.1 percent of nominal GDP at the end of 2023, so that suggestions that the reduction in the deficit is due to an accumulation of payables are erroneous.”

However, the Prime Minister was referring to the first six months and not the 2023-2024 fiscal year’s second half. And Mr Bowe yesterday queried why the Government gave a percentage range for the deficit outcome rather than a figure.

“It begs the question: Why was the Prime Minister, as minister of finance, not given a forecast number instead of a percentage?” he added. “Why give a relative range or percentage because GDP can change? You know what the fourth quarter should be projecting: Why cannot you give an actual number?”

Mr Davis yesterday said of the 2024-2025 Budget forecast: “The fiscal deficit is estimated at $69.8m or 0.5 percent of GDP, with the primary balance showing a surplus of $586.9m or 3.9 percent of GDP. Given this, the debt-to-GDP ratio has been projected at 75.3 percent of GDP at the end of the 2024-2025 fiscal year.

“The 2024-2025 Budget estimate for total revenue amounts to $3.54bn.... Total expenditure is estimated to amount to $3.61bn, of which, recurrent expenditure accounts for $3.27bn and capital expenditure for $344.5m.”