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Gov’t urged: ‘Come clean’ on $133.4m spending hike

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman yesterday demanded that “the Government must come clean” over the $133.4m spending jump that drove a near ten-fold deficit surge for the two months to August.

Kwasi Thompson, hitting out after the Davis administration revealed the outcome for the first two months of the 2024-2025 fiscal year, told Tribune Business that “the right question to ask” is whether the 27.7 percent year-over-year spending increase and hugely-expanded deficit have resulted from the Government delaying payment of debts owed to its vendors so it could meet the prior year’s targets.

The combined $129.3m deficit incurred for the two months through August is 85.3 percent, or $59.5m, higher than the $69.8m that the Government is targeting for the full 12-month fiscal year that closes at end-June 2025. And it is also means that the Government has incurred more ‘red ink’ during the initial two months of the 2024-2025 fiscal year than it did during the first four in the prior year.

The expanded deficit, which measures by how much the Government’s spending exceeds its revenue income, was generated despite a modest 3.7 percent increase in revenue for the first two months of the 2024-2025 fiscal year. Total revenue rose by $17.4m year-over-year, rising from $467.9m in 2023-2024 to $485.3m this time around.

The deficit, which grew almost ten-fold from the $13.2m incurred during the first two months of the prior 2023-2024 fiscal year when the Government actually ran an $18.3m surplus for July, was entirely driven by a surge in total spending which hit $614.6m compared to $481.2m for the previous 12 months. And the Government’s debt also rose by $323.4m during the first two months of the 2024-2025 fiscal year. 

The expenditure increase, especially the 89.8 percent rise or near-doubling of the Government’s July 2024 payments for goods and services to $69.3m from $36.5m, is likely to fuel Opposition charges that it deferred paying bills due to private sector vendors until after the 2023-2024 fiscal year closed on June 30 to enable it to meet its deficit projections.

“I believe that is the right question to ask,” Mr Thompson told Tribune Business. “The Government must come clean with respect to their payments in August and July. The Government must come clean, they must be transparent and detail what the real spending situation is. That is the relevant question to ask the Government, and they must come clean.”

The east Grand Bahama MP urged Bahamians to compare the Government’s spending during July and August 2024 with that incurred during prior years. “All you would need to do is look at the spending patterns that took place last year and compare how in the world the Government could have spent $130m more in those two months than they spent last year,” he added.

“That’s completely unacceptable and warrants further explanation.” Simon Wilson, the Ministry of Finance’s financial secretary, could not be reached for comment despite several Tribune Business attempts by telephone, while Michael Halkitis, minister of economic affairs, did not respond to this newspaper’s request for comment before press time.

However, one fiscal observer, speaking on condition of anonymity, yesterday said he was in no doubt that the higher July and August deficits were at least partially due to the Government paying down on arrears owed to its goods and services suppliers that had been deferred from 2023-2024 to enable it to meet that year’s revised deficit targets.

Asserting that the Government has never traditionally incurred the expenditure reported for July and August 2024, they said: “That means they trailed the spending over from the end of last year to preserve that deficit number. The question for the Government is: Does this represent items presented before the end of the 2023-2024 Budget year?

“This is shifting numbers over [from the prior fiscal year]. At the beginning of the fiscal year spending is always slow because the agencies are just ramping up. The Government would not incur that level of expenditure in the first couple of months. It just would not happen.”

The Davis administration’s recurrent, or fixed-cost, spending for the two months through end-August 2024 represented a 21.5 percent year-over-year increase, rising by $93.6m from $435.2m to hit $528.8m in 2024-2025. And it was an almost-$100m increase compared to the recurrent expenditure for the two months through end-August 2022. 

The Government’s capital expenditure for the first two months of 2024-2025 has also risen sharply, leaping 86.7 percent from $46m in the prior year to $85.9m. The latter figure is a tripling of the $27.5m in capital expenditure generated in 2022-2023.

This is also not the first time that suspicions have been voiced that the Government is holding back on its accounts payables and debts owed to vendors, resulting in a build-up of arrears, to ensure it meets fiscal forecasts. Similar charges were levied after the 2023-2024 deficit came in relatively close to its $131.1m target at $186.7m.

Dr Duane Sands, the FNM’s chairman, complained then that deferred payments would spill over into the current 2024-2025 period and future fiscal years as the Government’s cash-based accounting system only captures expenditure when payments are incurred - not when bills are received and commitments incurred that have to be paid in future.

However, the Government’s fiscal performance for July and August are not necessarily an indicator of how the full 2024-2025 fiscal year will pan out. Due to the cyclical nature of the Budget cycle, the first half of the year - from July 1 to end-December - has traditionally always been weaker and a period when the Government - regardless of which party was in power - often incurs heavy deficits.

These are then slashed by the revenue-rich first four months of the calendar year, which coincides with the winter tourism season high and peak economic activity as well as the payment of Business Licence fees, the bulk of real property taxes, and commercial vehicle licensing in March. Thus it is too early to write-off the Government’s chances of hitting its $69.8m full-year deficit target.

Mr Thompson, meanwhile, declined to comment on the net $104m increase in Central Bank advances to the Government to help finance its deficit spending during the first two months of 2024-2025. During that period, the central Government’s direct portion of the national debt increased by $323.4m as it also obtained $216.2m in foreign currency bank loans.

However, he argued that the figures showed “spending is spiralling out of control with no accountability. A moderate rise in revenue is utterly meaningless when overshadowed by an 18.4 percent explosion in spending. This resulted in a staggering $70.1m deficit in August 2024 alone, a significant leap from the $31.7m deficit in the same period last year.

“July 2024 saw a similarly alarming deficit of $59.2m, fuelled by a shocking 34.9 percent increase in spending. The Government seems to have forgotten that every dollar they squander comes directly from the pockets of hardworking Bahamians,” Mr Thompson asserted.

“Where is this money going? It is completely unacceptable that, in two months - July and August 2024 - you have increased spending by over $130m over the same period last year. This government has a responsibility to be accountable to the people. Instead, they offer us a blank cheque and demand blind trust.”

The Ministry of Finance, detailing the July 2024 performance, said: “The $297.3m in recurrent outlays for the month represented an increase of 25.8 percent ($61m) from the corresponding period in the prior year. Outlays for the use of goods and services expanded by $32.8m to $69.3m. Public debt interest payments were higher by $12.8m at $64.7m. Other transfers rose by $12m to $33.4m.”

As for August 2024, it added: “Recurrent expenditure, which represented 83.1 percent of the total outlays at $278.7m, was 14.8 percent ($29.8m) above the spending in the comparable period of the prior year. The key factor underlying this outcome was the $18.4m boost in other payments associated with transfers to public entities and government personal insurance premiums.

“Subsidies registered a gain of 27.3 percent ($7.5m) to $35.1m, primarily explained by increased transfers to state-owned enterprises (SOEs). Outlays for the use of goods and services grew by 15.1 percent ($6m) to $45.4m. Personal emoluments at $74.6m registered a gain of 6.3 percent ($4.4m), which was primarily explained by recent salary-related increases.”

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