The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government says it has broken the long-standing trend of May Budget deficits with a $101.7m positive swing that generated a near-$26m monthly surplus for the recently-closed 2023-2024 fiscal year.

The Ministry of Finance, in unveiling the Davis administration’s May 2024 fiscal performance, said the surplus - which means the Government’s revenue income actually exceeded its total spending - reversed prior year monthly deficits of $75.9m in 2023 and $80.8m for 2022.

The outcome, which it said was driven by a combination of increased tax and other revenue collections plus year-over-year reductions in both recurrent and capital spending, helped push the Government’s deficit for the first 11 months of the 2023-2024 fiscal year down further to $151.1m.

With just one month, June, to go in that fiscal cycle, May’s performance as detailed by the Ministry of Finance placed the Davis administration within just $20m of the projected full-year deficit target of $131.1m. However, slashing the ‘red ink’ further to achieve that goal will be extremely difficult based on historical fiscal trends.

For June is typically when the Government incurs its largest monthly deficits as multiple ministries, departments and agencies race to present bills for payment before year-end that the Ministry of Finance knew nothing about. The Government has run deficits totalling $318.7m and $212m for June 2023 and 2022, respectively, showing the task facing the Davis administration in achieving its initial deficit goals.

Subsequently, in unveiling the 2024-025 Budget, the Government revised the deficit forecast for the past fiscal year to the higher end of a range between 1 percent and 1.5 percent of Bahamian economic output or gross domestic product (GDP). This was later narrowed down to $210m, meaning that the Davis administration must cut the June deficit to around $60m to realise this.

This represents a major reduction compared to prior years, and will have to be achieved despite a significant undershoot on VAT projections. The Ministry of Finance’s late Friday release shows that VAT, which accounts for more than 50 percent or half the Government’s tax revenue, was just at 78.8 percent of the full-year target with 11 months of 2023-2024 completed.

While already slightly ahead of the prior 2022-2023 full fiscal year collection, at $1.254bn, the roughly $100m in additional VAT that June will yield will put the full 12-month total at around $1.354bn. This will be some $237m below the $1.591bn target set for the 2023-2024 full-year.

VAT’s under-performance, which Prime Minister Philip Davis KC previously blamed on delays and evasion relating to the collection of the 10 percent levy on high-end real estate sales, also means that the Government’s tax and total revenues are also set to come in below target.

As at end-May, the Government had collected just 87 percent and 85.6 percent of total tax and revenues forecast for 2023-2024, respectively, largely due to VAT’s undershoot. Total tax revenues at end-May stood at $2.539bn, leaving a $380m gap to close in June to reach the $2.919bn target. June in 2023 yielded just $174m in total tax revenue.

As for total revenues, these stood at $2.841bn at end-May as opposed to a full-year target of $3.319bn - leaving a $478m gap to bridge in June. Still, the Government can point to its revenue successes, as real property tax enforcement and compliance efforts, including auctions of delinquent properties, helped beat the full year’s $195.3m target with some $196.2m collected as at end-May 2024.

Questions, meanwhile, were raised over whether the Government has deferred payments to vendors and other payables, as well as cut capital expenditure, to help meet its 2023-2024 deficit targets. These were based on the fact that payments for goods and services, as well as subsidies, fell in May due to what were described as “timing-related differences”.

Fred Mitchell, the PLP’s chairman and minister of foreign affairs, in a recent note to the party’s supporters also said The Bahamas “is in a tight economic squeeze” and that the Government is “seeking to pay as we go, not to borrow if we don’t have to”. Some, including the Opposition, interpreted this as an admission that the Government has cash flow and liquidity difficulties, and is paying vendors in stages.

This was vehemently denied by Mr Mitchell. And Mr Davis, during the 2024-2025 Budget debate, asserted “that suggestions that the reduction in the deficit is due to an accumulation of payables are erroneous” as these had been slashed from 3.9 percent of GDP to 2.1 percent.

The Ministry of Finance, detailing May’s fiscal performance, said: “The $242.9m in recurrent outlays for the month represented a decrease of 17.9 percent ($53.1m) from the corresponding period in the prior year.

“Outlays for the use of goods and services decreased by $25.3m to $46.6m, primarily explained by timing-related differences in payments. Subsidies dropped by $14.8m to $19.9m, and was attributed to timing differences in transfers to SOEs (state-owned enterprises).”

No further explanation was provided on these “timing differences”. Elsewhere, interest payments on the Government’s debt fell by $8.4m to $62.9m in May 2024, while spending on social assistance and transfers decreased by $1.3m to $19.5m.

“Capital expenditures declined by 48.5 percent ($17.7m) to $18.8m. The bulk was expended for the acquisition of non-financial assets (89.7 percent), and the remaining 10.3 percent represented capital transfers,” the Ministry of Finance said.

“Preliminary data on the fiscal outturn for May 2024 showed an estimated surplus of $25.8m compared with a deficit of $75.9m a year earlier. This outcome reflected a 12 percent ($30.9m) increase in revenue receipts to $287.5m alongside a 21.3 percent ($70.8m) reduction in spending to $261.7m.”

As for tax and revenue performance, the Ministry of Finance added: “Tax receipts improved over the same period in the prior year by 9.4 percent ($20.8m) to $241.6m. Property taxes [increased by] $15.1m to $21.9m, reflecting the outcome of enhanced revenue collection measures.

“International trade and transactions taxes [rose by] $12.6m to $77.6m supported by growth in domestic demand, and VAT collections [increased] by $8.8m to $107.7m. Non-tax revenue aggregated $45.9m for a $10m gain relative to the corresponding period in the prior year.

“Immigration and Customs administrative fees and service charges supported a $3.3m increase in income from the sale of goods and services to $22.7m. Other non-tax revenues were higher by $7.1m at $23.2m, primarily linked to receipt of surplus bank fees/levies.”

As to what this all meant for the Government’s debt, the Ministry of Finance said: “During the review month, central Government’s debt outstanding increased by an estimated $17.3m. Proceeds from borrowings totaled $107.4m, with a dominant 97.7 percent derived from Bahamian dollar bond issuances. Repayments of $90m were mainly earmarked for domestic government securities.”