The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s fiscal deficit for the 2024-2025 Budget year’s first quarter more than tripled year-over-year to $194m with close to one-third of that ‘red ink’ incurred during September.

The Ministry of Finance, in a statement detailing the Davis administration’s September fiscal performance, revealed that month’s deficit rose by almost $20m or 44 percent year-over-year to strike $64.7m when compared to the $44.9m incurred in 2023. The expanded deficit, which measures by how much the Government’s spending exceeds its revenue, was driven by modest slippage on both sides.

Based on the $129.3m deficit for the two months to end-August, the addition of September takes the gap between the Government’s spending and revenue income to $194m for the 2024-2025 first quarter. The latter figure is more than double the projected $69.8m deficit for the full fiscal year, standing some $124.2m above that target, and is also higher than the $186.7m deficit for the just-completed 2023-2024 Budget period.

This gives an insight into the ground that the Government will have to make up over the 2024-2025 fiscal year’s remaining nine months. Kwasi Thompson, the Opposition’s finance spokesman, yesterday warned that the “ballooning deficit” indicated by these figures “threatens to cripple our nation’s economy”, and described the public finances as being “in a state of crisis”.

However, both Prime Minister Philip Davis KC and Simon Wilson, the Ministry of Finance’s financial secretary, have recently asserted that the early 2024-2025 fiscal performance is “no cause for alarm” as it only represents the equivalent of the first quarter score in an NFL football game.

Mr Davis, when faced with similar concerns voiced recently by Michael Pintard in the House of Assembly, urged the Opposition’s leader to focus on the full-year - rather than the first quarter - outcome given the traditional cyclical nature of the Government’s finances and the Budget.

The Government’s first quarter fiscal performance is not necessarily a good guide of how the full 2024-2025 fiscal year will pan out. 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 Wilson echoed this, and the Prime Minister, at last week’s Bahamas Institute of Chartered Accountants (BICA) conference when he voiced continuing confidence that the full-year fiscal deficit will still come in below $100m and close to the projected target.

Figures for the 2023-2024 fiscal year provide some support and comfort for the Government’s position. While it incurred a $258.7m deficit for the first half to end-December, this was then partially offset by the more than $150m collective surplus generated during the February-May 2024 period, which helped to contain the full-year deficit at $186.7m.

A full analysis of the Government’s fiscal performance for September and the 2024-2025 first quarter was not possible as the full report had yet to be published when Tribune Business went to press. Only the press release was issued. However, the $194m deficit incurred for the first three months represents a steep increase compared to the prior year’s $61.6m comparative.

Yet, by comparing the few details that were released, it was clear that September’s expanded deficit was the product of a modest revenue drop-off and slight rise in overall government spending. Economic activity for the period will also likely have been down against September 2023, with major resorts recently describing the month as “very soft” in comparison.

The Government’s total revenues for September were down by $8.2m, or 4.2 percent, compared to 2023 standing at $187.5m as opposed to $195.7m. Total spending was higher by $11.6m, reaching $252.2m as opposed to $240.6m. Recurrent spending, though, which covers the Government’s fixed costs such as civil service wages, rents and debt servicing, fell to $214.3m compared to $222.5m the year before.

Instead, the increase in spending was largely driven by a rise in capital expenditure. “During the review month, revenue receipts totaled $187.5m, a 4.2 percent decline from the prior year. Tax revenue accounted for $167.5m and was dominated by VAT collections of $85.3m, and taxes on international trade and transactions of $55.2m,” the Ministry of Finance said.

“Non-tax revenue collections totalled $20.1m, with $19.6m obtained from the sale of goods and services. Aggregate expenditure settled at $252.2m, with the recurrent and capital components at $214.3m and $37.9m, respectively.

“The year-over-year $8.2m decrease in recurrent expenses was primarily associated with lower interest payments ($10.5m) and other transfers ($3.5m). Under capital spending, the acquisition of non-financial assets, which makes up 81.5 percent of the total, expanded by $13.9m.” The Ministry of Finance added that the central government’s outstanding direct debt fell by $18m during the period.

Mr Thompson, though, pointed out that September’s $85.3m in VAT revenue represented a 7.3 percent, or $6.7m decrease, compared to the $92m collected the year before. And the $167.5m in tax revenue was also lower than the prior year’s $176.6m.

He argued that the data “confirms what Bahamians have felt for months: Our nation is headed in the wrong direction..... VAT collections, a cornerstone of government revenue, decreased from $92m in September 2023 to $85.3m in September 2024”.

And, noting the increase in spending, Mr Thompson said: “The consequences of reckless spending and declining revenue are clear: The deficit for September 2024 skyrocketed to a staggering $64.7m, a significant leap from the $44.8m deficit recorded in September 2023.

“This ballooning deficit is unsustainable and threatens to cripple our nation’s economy, leaving future generations burdened with debt. They cannot hide the truth: Our nation’s finances are in a state of crisis.... We urge the Government to heed the warning signs and take immediate action before it’s too late.”

Neither Mr Wilson nor Michael Halkitis, minister of economic affairs, responded to Tribune Business calls and messages seeking comment before press time.