The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister yesterday asserted there is “no alarm” over the near ten-fold increase in the Government’s fiscal deficit through August as he hit back at the Opposition’s “rudderless ship” claims.

Philip Davis KC, responding in the House of Assembly to suggestions by Michael Pintard that the Government lacks a credible fiscal policy and anchors for this, argued that the Opposition leader and entire country should focus on the full-year deficit outcome rather than the 2024-2025 Budget year’s first two months.

He argued that it was impossible to predict the full 12-month performance based solely on July and August because of the traditional “ebbs and flows” in the Budget cycle - especially since the year’s first-half deficit is usually offset, or cancelled out to some extent, by the revenue-rich January to April period when the Public Treasury usually generates monthly surpluses.

Asserting that international observers are “astounded” by the progress The Bahamas has made in slashing its post-COVID annual fiscal deficits, which peaked at over $1bn, Mr Davis said: “You’re looking at the deficit in two months. Wait and see what it is in May next year. That’s what you should look at.

“The fact is that the member [Mr Pintard] speaks to the deficit for the first two months of this fiscal quarter, this fiscal year, July and August. When we came into office it was 13 percent [of gross domestic product], and you’ll find we’ve got it down to under 1.5 percent. That’s an astounding achievement. The international community is astounded. He’ll be reading the IMF [report] soon.”

The combined $129.3m deficit incurred for the two months through August 2024 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 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.

Still, Mr Davis reiterated: “You cannot take two months out of the fiscal year and say those two months [mean] a deficit of ‘A’. Wait till the end of the year. See what happens. You can point it out, but it’s the cycle. It ebbs and flows. We know what our commitments are. We know what our commitments are each month. There’s no alarm about what they’re talking about.”

Mr Pintard, though, argued that the Government had “blown the numbers you projected” for the 2024-2025 fiscal year. “They can tell stories all they want,” he retorted. “We say they have broken their projections. We want to understand where this money has gone. On what did they spend it?”

Kwasi Thompson, the Opposition’s finance minister, on Wednesday told Tribune Business 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 2024.

He argued 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 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 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.

And Mr Thompson returned to the attack in the House of Assembly yesterday, arguing: ““The Bahamian people deserve to know why is it that you spent $130m more this year than you did last year during the same period?

“What crisis happened that caused you to spend $130m more this year than you spent last year? That is something that the Bahamian people deserve an explanation to. We must understand what happened or is it that these payments are not new payments?

“Is it that these payments were payments that ought to have been made last Budget period. You must explain to the Bahamian public why is it that you have spent $130m more this year in July and August.”

Glenys Hanna-Martin, minister of education and technical vocation, then interrupted to reiterate Mr Davis’ argument that the Government’s fiscal performance should be assessed over a 12-month period rather than the first two months. She argued that the Opposition was being “misleading” in its commentary and urged them to hold judgement until more data and context is revealed.

“This is the second speaker from the Opposition side who has raised this point about the first two months. And I think, you know, they were in government before. I think they are aware that budgets are 12 months, and the assessment of spending is judged on the Budget and the spending at the end of that budget period,” Mrs Hanna-Martin said.

“So I’m trying to understand what point is being made when it is making a point that has no context. And it’s seeking to make, to create misleading commentary which is not scientific. It’s not based on the Budget, which is a 12 month assessment and how spending is done. The Bahamian people are fairly experienced and very intelligent.

“I’m just wondering: What point are the members seeking? And I’m understanding this point was made last year, too, around the same time. You can go on and on with it, but the reality is the Budget amount and spending is assessed in that context, not pulling out two months and making conclusions which do not relate to factual data.”

The Government’s fiscal performance for July and August is 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.