The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government must use today’s mid-year Budget to justify and “elaborate” on why it believes it will hit its full-year deficit target despite needing a more than four-fold increase in its second half surplus to do so.

Gowon Bowe, a member of the original Fiscal Responsibility Council, the watchdog created to verify and analyse the accuracy of the Government’s fiscal projections, voiced scepticism that the Davis administration will meet its original $69.8m deficit goal for the 2024-2025 full-year despite the Government’s own public expressions of confidence that it will do exactly that.

With the six-month deficit to end-December 2024 standing at $394.8m, a sum more than five times’ greater than the 12-month target, Mr Bowe told Tribune Business that the Government will need revenues to exceed its total spending by $325m during the 2024-2025 second half to achieve its initial forecast.

And that $325m ‘surplus’ is more than four times’ greater than the $72m generated during the second half of the previous 2023-2024 fiscal year. The Fidelity Bank (Bahamas) chief executive said that, with no “abnormalities” in terms of major revenue boosts or spending reductions identified by the Government, the fiscal performance to-date “doesn’t inspire confidence that the projected deficit is going to be met”.

He argued that, rather than sticking to the line that it will meet its original forecasts, a “more credible way” would be for the Government to use today’s mid-year Budget as an opportunity to admit it may have been “too optimistic” with some of its projections, identify areas where it can realistically claw back some of the first-half deficit, and present a revised figure that is realistic for both domestic and international markets.

The Ministry of Finance, in last week hitting back at Tribune Business reporting of its fiscal numbers, reasserted its optimism that the traditionally revenue-rich second half of the fiscal year will enable it to reverse course and bring the 2024-2025 deficit down towards its original $69.8m full-year target by end-June.

This message was reinforced by Michael Halkitis, minister of economic affairs, who said: “Yes, absolutely. I’m confident we will meet our fiscal goals. Budgets are very cyclical and, especially for us, when the majority of revenue collections - the Business Licence, the boater registration [fees] and real property tax and such - that revenue comes in by March or April.”

The Government’s stance is that end-December’s $394.8m deficit is merely the half-time score, and that it will make up the lost ground over the year’s second-half that coincides with peak economic activity associated with the winter tourism season. But, while it touted the $72m fiscal surplus generated during the prior year’s second-half, it will have to achieve four times’ that to come within range of its 2024-2025 full-year goal.

Without “tangible evidence” as to how this will realistically be accomplished, Mr Bowe said of the Government’s response in a recent interview: “Again, unfortunately, it appears it has run to the PR route, messaging: ‘Don’t worry, just trust us’ versus elaborating on the elements only lightly alluded to.

“It does not surprise me there is not the willingness to issue more details as I’d hoped. That would be the smarter and more mature. Even if you take that $72m surplus, currently you are $325m behind what you had projected [for the full year]. Even if that surplus grows by double it will still not get you to your original projection.

“I take it as a bit insulting to the general populace that ‘we’re confident we’ll still meet the deficit target’ without elaborating on the details. I’d much prefer that they elaborate on the details in the mid-year Budget.”

Expanding on this theme, Mr Bowe added: “If you have a situation where you are clearing arrears, so that expenditure in the second half is significantly reduced, it would be less concerning. Equally, if you have a more significant revenue bump it would be less concerning. 

“I think the Government really needs to understand it is not sufficient to state ‘we believe we’re going to meet our full-year projections’ without tangible evidence as to why that belief is sustainable and reasonable. When we see the level of deficit as it stands, in the absence of abnormal activity on the revenue or expenditure side, that’s not going to be significantly reduced in the second half.

“So there’s no real expectation that you will be able to make up that ground in that time. Put it this way: I have no reason to believe there will be an extra Business Licence or real property tax bump that’s going to take them well above and have the level of surplus to realistically say the full-year [deficit] is going to be less than $200m. There hasn’t been any sufficient explanation up to this point of abnormalities that allow me to say that,” he continued.

“The first set of numbers and the half-year results don’t inspire confidence that the projected deficit is going to be met.” Mr Bowe also argued that the mid-year point of the Budget cycle was not too early to forecast where the full-year number will end up as any extra revenue or spending obligations would likely be known to the Ministry of Finance at that point.

The Ministry of Finance last week blamed the $394.8m deficit for the six months to end-December 2024 on “front-loading” capital spending outlays for school repairs and critical roadworks. These expenditures were not broken down, but it hinted that this trend, which saw capital spending increase by $86m or 64.1 percent to $220.1m year-over-year during the first six months, will not be repeated during the second half.

However, the Ministry of Finance gave no explanation for the ramp-up in fixed cost spending during the 2024-2025 first half. Recurrent expenditure on civil salaries, rents and goods/services rose by $192.2m, or almost $200m, to strike $1.619bn during the six months to end-December 2024 when compared to the same period in the prior year.

Much of the $192.2m increase, some $94.9m or close to half, came from a 37.7 percent year-over-year rise in the Government’s spending on goods and services, which jumped to $346.6m compared with $251.7m during the same period in the prior fiscal year.

Several observers have already privately voiced their suspicions that the increase in overall spending, and especially that for goods and services, is driven by the fact that the Government is paying off outstanding bills owed to its vendors which were kicked into 2024-2025 from the previous fiscal year to allow it to meet its targets and avoid triggering fiscal responsibility legislation requiring publication of a corrective action plan.

Mr Bowe, noting that there was “no mention of clearing up payables from the prior year”, said both the Government and Opposition’s responses to the half-year fiscal performance were driven by political imperatives with a general election looming on the horizon.

“The Opposition has gone to the extreme that ‘the sky is falling, the sky is falling’ which, again, is not sensible rhetoric to put out into the marketplace because, even if you succeed in the general election, are you going to doing something radically different?” he added. “And I think the governing party responded not as the Government but as a political party moving into the general election.”

Mr Bowe said he knew “for a fact” that international markets, including rating agencies, investors and bondholders, had believed that the Government’s original $69.8m deficit forecast “would not be met” and The Bahamas has “not done anything to dispel that belief”.

Calling on the Government to recognise that much of its externally-held foreign currency debt is traded and listed on the international markets, he added: “I think we need to move to governance, not politics. The most important thing is that they [foreign markets] have confidence in our pronouncements and we do not have them second guessing or making their own projections.

“They can say things are not as rosy as forecast, but the Government is mostly transparent and is clear with warnings about what is going on in our fiscal affairs.”