The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance chief yesterday asserted he is “at a loss” over why the Prime Minister is standing by the $70m full-year deficit target despite overshooting this more than five-fold after just six months.

Philip Davis KC, unveiling the mid-year Budget in the House of Assembly, sought to soothe concerns over the near-$400m deficit at end-December 2024 by reiterating the Government’s oft-stated position that “there is no need for alarm with respect to our ability to achieve our fiscal targets”. 

To justify this stance, he argued that revenue and spending trends had left his administration “comfortable that we will stay in line with the Budget” and produce a year-end deficit equal to 0.5 percent of economic output or gross domestic product (GDP). Mr Davis also voiced confidence the Government will achieve its 23.3 percent revenue-to-GDP target following “record” half-year revenues of $1.44bn for the first six months.

However, while the Prime Minister touted both the revenue numbers and success of the Government’s tax enforcement/compliance initiatives, little was announced by way of new measures or actions that would help close the gap between the full-year and half-year deficits. Tribune Business previously reported that a fiscal surplus four times’ greater than the $72m generated in the 2023-2024 second half is needed to achieve this.

Kwasi Thompson, the Opposition’s finance spokesman, told this newspaper he heard nothing in Mr Davis’ presentation to justify or explain the Government’s seeming confidence that it can come close to eradicating the $325m ‘gap’ separating the $394.8m half-year deficit from the full-year target of $69.8m during 2024-2025’s final six months.

And, pointing out that the $394.8m first-half deficit has occurred despite the Government’s record revenue income, the east Grand Bahama MP argued that this “tells the story as to the economic hole that The Bahamas is in”.

“We expected to hear the Government justify why they are sticking to their targets,” Mr Thompson said. “Unfortunately, I did not hear any explanation, we did not see any credible evidence as to why they are sticking to these targets.”

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, it 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. Mr Davis, while affirming these numbers yesterday, gave no further insight into the spending increase other than to say it was within Budget limits.

“While recurrent spending for this year is higher than the previous year, it is important to note that all essential recurrent expenditures were carefully planned and incorporated into the 2024-2025 Budget. So the recurrent spending, as you have heard, remains well within the expected and acceptable range of its established Budget target,” the Prime Minister said.

Instead, he sought to shift the focus to the capital spending jump, asserting that the Government had “made it a priority to improve the efficiency of capital funding where we no longer wait until the last moment to start capital projects, causing fiscal distortions”. Thus the increase in 2024-2025 first-half capital spending to 63.9 percent of the full-year’s $344.5m allocation as compared to the ten-year historical average of 30 percent.

“Over the last ten years, capital spending has accounted for an average of approximately 30 percent of its Budget within the first half of the fiscal year. This year was the first in over a decade where capital spending has been over 60 percent of its Budget target in the first half of the year - nearly double the historical norm,” Mr Davis said.

“Although we have front-loaded capital funding in the first half of the fiscal year to begin and more efficiently execute projects, we intend to remain within the capital expenditure Budget target for the remainder of the fiscal year since projects have already been mostly funded or have planned funding arrangements.”

Mr Thompson, though, did not buy the Prime Minister’s explanation especially given that it avoided fully explaining the rise in the Government’s recurrent or fixed-cost outlays on items such as civil service salaries, rents, subsidies to state-owned enterprises (SOEs) and interest payments related to its debt.

“The information that was provided by the Prime Minister about front-ending capital expenditure, again, it did not make a lot of sense to me and was incomplete in that, while you may have front-ended [an extra] $86m of additional capital expenditure, he said nothing - and could not justify - why you spent $192m extra for recurrent,” the east Grand Bahama MP said. “That is far more.

“There was nothing to state, no explanation at all to state, why they had spent $192m more than they did the previous year in the same timeframe. I believe Bahamians do not feel any relief, are not feeling any different as a result of the extra $192m that the Government has spent. I am at a loss as to why they are confirming these same targets.”

And, despite the Government taking credit for a strong 2024-2025 first-half revenue performance, Mr Thompson added: “The sad part about it is I don’t believe they have recognised the position that we are unfortunately in: That we have record revenue but a deficit in six months of almost $400m with this record revenue.

“Record revenues and a $400m deficit in six months. That, to me, is unfortunately telling the story as to the economic hole The Bahamas is in.” The Opposition finance spokesman sought to argue that, when the $122.415m in unpaid invoices and arrears as at December 31, 2024, was added to the $394.8m, the ‘real deficit’ stands at more than half a billion dollars or over $500m.

However, the Government’s cash-based accounting system only recognises expenditure when it is made, not when the liabilities, debt or payment obligation is actually incurred. Mr Davis, meanwhile, said that as a result of the the first-half deficit and related financing activities some $451.1m was added to the Government’s debt during the final six months of 2024.

“As a result of net borrowing activities, central Government debt increased by $451.1m to $11.7bn, which equated to 79.2 percent of GDP at the end of December 2024, a significant improvement when compared to the 100.4 percent debt-to GDP ratio at the end of June 2021,” the Prime Minister said.

“Mr deputy speaker, over the past six months of this fiscal year the financing mix included the following transactions. On the domestic front, a net borrowing of government securities totaling $209.4m, bank loans totaling $42.9m and Central Bank advances amounting to $169m. In terms of foreign currency, a net borrowing of $315.8m in loans from international financial institutions.”