The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government yesterday revealed that it slashed its fiscal deficit by two-thirds to come in just $55.6m outside its 2023-2024 full-year target despite a 15 percent undershoot on VAT revenues.

The Ministry of Finance, unveiling the Davis administration’s June 2024 and full-year performance, disclosed that it had cut the deficit - which measures by how much the Government’s spending exceeds its revenues - by 65 percent or $346.7m year-over-year, cutting it from $533.4m to just $186.7m.

The latter figure exceeds the Government’s $131.1m full-year deficit target, set back in May 2023, by $55.6m or 42.5 percent but this is likely to be an overshoot that the credit rating agencies, Moody’s and Standard & Poor’s (S&P), and The Bahamas’ international and domestic creditors consider as being within an acceptable range.

The details unveiled yesterday also confound predictions by the International Monetary Fund (IMF), made last November, that the Government’s 2023-2024 fiscal deficit outturn would be much higher at 2.6 percent of gross domestic product (GDP) or around $379m. The $186.7m figure released yesterday is less than half, or some 49 percent, of the IMF forecast.

The Davis administration will likely seize on the fiscal data as affirming its fiscal credibility and that its consolidation plans - which involve a further reduction in the deficit to $69m for the current 2024-2025 fiscal year, and subsequent Budget surpluses thereafter where revenues exceed spending - are on track despite the deficit shrinking more slowly than it has projected.

However, the Government’s political opponents were yesterday quick to suggest that last year’s deficit reduction may have largely been achieved by deferring payments owed to private sector vendors and cutting capital expenditure that represents investment in critical public infrastructure assets such as roads, schools and hospitals.

Capital spending for the 2023-2024 fiscal year came in 17.3 percent, or $63.1m, lower than budgeted at $301.5m compared to the allocated $364.6m. The $301.5m was also almost $26m below the prior year’s $327.4m outlay, thereby raising questions as to whether The Bahamas’ infrastructure is receiving the necessary care and attention.

Michael Pintard, the Opposition’s leader, seized on this in a statement issued last night, saying: “We find it troubling that capital spending decreased by over $20m compared to the previous year, given the massive infrastructure needs throughout the Bahamas and the ongoing water and electricity crisis on the island of Eleuthera.”

He questioned whether “fixing our crumbling infrastructure” is a government priority, with the Opposition also challenging whether delaying payments owed to vendors helped the Government achieve such a big improvement in its fiscal deficit especially since VAT revenues - which represent close to half the Government’s tax income - came in $238m below the 2023-2024 target.

Fred Mitchell, the PLP’s chairman and minister of foreign affairs, in a recent note to the party’s supporters 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”.

The Opposition, interpreted this as an admission the Government has cash flow and liquidity difficulties, and is paying vendors in installments, although this was vehemently denied by Mr Mitchell. However, Dr Duane Sands, the FNM’s chairman, told Tribune Business: “The information Imam receiving from various health-related vendors is that payables are behind by many months; as much as six months’ behind.

“It’s probably the worst kept secret in The Bahamas right now.” 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 2022 and 2023, respectively.

However, for June 2024 it slashed the ‘red ink’ by 83.2 percent or $176.4m year-over-year to just $35.6m and break with historical trends. The Ministry of Finance said this was solely due to a 40.5 percent, or $184.5m reduction, in total spending for the month to $270.6m as revenues were down by 3.3 percent or $8m compared to June 2023 at $235m.

With VAT collections only meeting 85 percent of their full-year target, coming in at $1.353.4bn as opposed to $1.591.4bn, the Government’s total income was also off-target by a similar sum. Total tax revenues fell 6 percent short of the full-year goal, finishing at $2.743bn as opposed to the $2.919bn full year goal - a deficit of $176m.

As a result, total revenues that also include non-tax income only amounted to 92.7 percent of the $3.319bn full-year target, coming in at $3.076bn - a $143m shortfall. However, the Government beat its real property tax revenue targets by 4 percent, collecting almost $8m more than the $195.3 percent goal with $203.2m.

International trade and transactions revenues also finished 2.4 percent of Budget targets, standing at $725.2m compared to $708.5m for the 12 months to end-June 2024, while taxes on other goods and services also closed 5.5 percent up on Budget projections at $435.5m compared to the $412.9m ambition.

Reduced spending was thus chiefly responsible for lowering the June deficit. “Preliminary data on the fiscal outturn for June 2024 showed a significant abatement in the estimated deficit to $35.6m from $212m a year-earlier,” the Ministry of Finance said. 

“This outcome was primarily driven by the 40.5 percent ($184.5m) reduction in spending to $270.6m, while revenue receipts were lower by 3.3 percent ($8m) to $235m. The $245.6m in recurrent [spending] outlays for the review month represented a decrease of 35.1 percent ($133.1m) from the corresponding period in the prior year.”

Breaking this down, the Ministry of Finance said: “Outlays for the use of goods and services decreased by $98.2m to $33.8m. Subsidies receded by $19.4m to $42m. Other recurrent transfers to public entities decreased by $26.2m to $23.9m. Public debt interest payments were higher by $16.2m at $55.8m.

“Capital expenditures declined by 67.3 percent ($51.4m) to $25m. The bulk was expended for the acquisition of non-financial assets (76.5 percent) and the remaining 23.5 percent represented capital transfers.”

As for June’s revenues, the Ministry of Finance said: “Tax receipts improved year-over-year by 17.3 percent ($30.2m) to $204.4m, and featured gains in the following major revenue categories. International trade and transactions taxes grew by $20.3m to $69.6m, supported by growth in domestic demand.

“VAT collections were higher by $8.8m at $99.2m, reflecting improvements in receipts related to realty-related transactions and other goods and services. Non-tax revenue yields moderated by 55.6 percent to $30.6m, following the prior year’s boost provided by the receipt of dividend income from the Bahamas Telecommunications Company (BTC) and tourism-related fees.”

For the full 2023-2024 fiscal year, the Government’s recurrent spending came in 4 percent or $125m below the $3.086bn target at $2.961bn. Total spending came in 5.4 percent below forecast at $3.262bn as opposed to $3.45bn, representing a reduction of $188m compared to the Budget allocation.

Mr Pintard, though, asserted: “To the surprise of nobody, the Government has busted its deficit target by some $56m or some 42 percent even though for most of the last fiscal year, the Davis administration had insisted they were still on track.”

With total revenue falling short of the Government’s target by $243.5 million, Mr Pintard added: “We in the FNM warned the Government during the Budget debate that their revenue projections were unrealistic given the World Bank’s and others’ admonishments that the global economic recovery was slowing.

“VAT revenue alone underperformed by some $238m against Budget coming in 15 percent below the approved budgeted sum.”