The Tribune

• From $70m deficit one year to $448m surplus the next
• Gov’t: ‘Proof of pudding in eating’ and ‘going to be done’
• Opposition: ‘Bahamian people deserve an explanation’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has completely overturned its medium-term Budget projections by forecasting a more than half-a-billion dollar swing that will drive it to a $448.2m fiscal surplus at end-June 2026.

The Davis administration’s near-total rewrite of estimates given just 15 months before prompted Kwasi Thompson, the Opposition’s finance spokesman, to demand that it “give the Bahamian people an explanation” for why the Budget forecasts have been so radically revised.

Besides being forced to push its Budget surplus ambitions back by one year, the Government is now predicting it will generate a $518m positive swing from the 2024-2025 fiscal year’s $69.8m deficit and transform this into $448.2m surplus just 12 months later when the 2025-2026 period closes.

The deficit forecast for the upcoming 2024-2025 fiscal year, which starts on July 1, contrasts with the $109.2m surplus that was projected in last year’s Budget. It is also markedly different from the $287.3m surplus that was predicted in the previous Fiscal Strategy Report, released in February 2023, for the upcoming year.

And the $448.2m surplus now forecast for the 2025-2026 fiscal year represents a 63 percent increase on the $275.1m projection given in last year’s Budget, as well as a 136 percent jump on the $209.8m set out in the 2023 Fiscal Strategy Report. Compared to the latter figure, the projection has more than doubled, increasing by $238.4m.

Mr Thompson yesterday argued that the fiscal responsibility provisions in the Public Finance Management mandate the Government, by law, to explain any major “deviations” in Budget estimates set out in previous Fiscal Strategy Reports. These provisions, he added, were designed to prevent administrations from arbitrarily changing forecasts arbitrarily and ensure projections were consistent within reason.

Michael Halkitis, minister of economic affairs, did not directly respond to this when questioned on the matter yesterday by a Tribune reporter, instead seeking to turn the tables by attacking the Opposition for constantly preaching “doom and gloom” with regard to The Bahamas’ economy and fiscal position.

Asserting that the Government’s political opponents have been “wrong in every case”, he acknowledged that this fiscal year’s $131.1m deficit target was “very, very aggressive” but said the forecast “overshoot” was within “acceptable” limits.

This did not satisfy Mr Thompson, who grounded his concerns over the changed Budget forecasts and outlook on the Public Finance Management Act section that stipulates the Government must publicly state its “reasons for any deviations from the general principles, fiscal responsibility principles and fiscal objectives in the previous Fiscal Strategy Report”.

“The Government clearly stated in its Fiscal Strategy Report that the Budget 2024-2025 should have a $287m surplus. The Government, without justification, has brought forth a budget with a $69m deficit,” he argued. “The law is clear. The Government cannot arbitrarily deviate from its fiscal targets.”

Mr Thompson told Tribune Business: “The law makes it clear that if you have put forward projections, and you stated those projections in your previous Fiscal Strategy Report, you are expected to continue with those projections but, if you cannot, you must state why you cannot continue with them. The law is clear on that.

“In their previous Fiscal Strategy Report, they stated the [2024-2025] Budget should have a surplus of $287m. They have changed that and, for a change of such significance, it deserves an explanation. There’s been no hurricanes, no pandemics, been no major economic shocks.

“We need to understand why you projected to have a surplus in this Budget, and changed your projection to actually having a deficit in this Budget. The law requires you to have an explanation. The law requires you to come to the people and explain why you have changed,” the former minister of state for finance continued.

“It’s a consistent behaviour by this government in not abiding by the law and, more importantly, not providing the information the people deserve. They’re very consistent with that. The only thing I would say is to judge them on their behaviour.

“If they are unable, one to be consistent with their previous Fiscal Strategy Report, they were unable to be consistent with their Budget projections, why should we believe anything they say with respect to the latest projections. They have done it without explanation. The key point is Bahamians deserve an explanation. You cannot tell the Bahamian public you are going to change fiscal targets without explanation.”

Mr Halkitis, though, dismissed these concerns and argued that the Opposition were picking on minor issues in a bid to undermine The Bahamas’ economic and fiscal improvements. “The Opposition has to have something to say,” he replied.

“I’ll just say this. For the last two-and-a-half years all we’ve heard from the Opposition, particularly their spokesman for finance and their leader, is doom and gloom. First we were going to go to the IMF, we were going to default on our bonds, we’re not meeting our targets, you’re going to destroy the economy if you raise the minimum wage or decrease VAT. They’ve been wrong in every case. We beat our projections.”

Turning to the likely deficit outcome for the current 2023-2024 fiscal year, Mr Halkitis added: “We were very, very aggressive in projecting a 0.9 percent [of GDP] deficit. We will come in about anywhere between 1-1.5 percent. We didn’t meet the 0.9 percent but the overshoot we think is acceptable.”

Tribune Business calculations suggest the percentage range given by the Government works out to a 2023-2024 fiscal deficit outturn of between $146m to $216m. This, as previously reported, does not align with historical trends that have typically seen the Government 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 Government.

However, Mr Halkitis said the International Monetary Fund (IMF) has already conceded that the Government will this year beat its projection that The Bahamas was set to incur a 2023-2024 deficit equal to 2.6 percent of GDP - meaning that spending would have exceeded revenue income by around $379m.

“I met with them in April at the [IMF and World Bank] Spring meetings,” Mr Halkitis said. “They themselves conceded we will come in better than what they originally projected. I believe those experts and economists before I put any stock in what comes out of the mouths of the Opposition.”

Asked how confident the Government is in its 1-1.5 percent of GDP deficit target, given that it is now facing traditionally heavy deficit months, Mr Halkitis said: “We’re very confident. We’re changing the status quo and the proof of the pudding will be in the eating.

When you see the outturn from this fiscal year in a few months, because we have a few days in May to complete and June, you’ll actually see the performance of the Government. We hear the predictions of doom and gloom and that we’re not going to do it. It’s going to be done. It will be done. We have done it in the past two years. Perhaps when we hear Moody’s, S&P, the IMF and other observers from abroad say it, we’ll believe it.”

Mr Thompson, though, voiced scepticism that the Government will hit its 1-1.5 percent of GDP deficit target. “The Government also continues to defy all logic, and is trying to sell the public in its own contrived fantasy, that it will come close to meeting the current Budget deficit target of $131m,” he argued.

“Their internal analysis must tell them by now that the Budget outturn will likely be more than $300m. As is typical, the final quarter of the fiscal year’s total deficit is normally around $300m for the “spend heavy” final quarter when outstanding obligations are closed off before the end of the fiscal year.

“The Government does a disservice to the Bahamian people, and destroys its credibility, when it refuses to come clean on the true state of the nation’s finances. The Bahamas has been fortunate over the last three years, and has not had any hurricanes or pandemics, so why has the Government not been able to meet the targets that they set?”