The Tribune

By NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

A BAHAMIAN economist yesterday voiced renewed fears that taxpayers will be “left holding the bag” after Moody’s “dropped some red flags” in its latest evaluation of the Government’s finances.

Therese Turner-Jones, who from 2017 to 2021 served as general manager for the Inter-American Development Bank’s Caribbean group country department, told Tribune Business that the rating agency’s Bahamas assessment published earlier this week subtly signalled it was sceptical about the touted $39.3m Budget surplus and revenue gains that drove it.

Moody’s described that figure, which measures by how much revenues exceeded the Government’s spending during the 2025-2026 fiscal year, as “preliminary” while also asserting that June’s dividend payouts from public corporations - and the 120 percent year-over-year VAT increase - must be repeated annually to make a Budget surplus sustainable.

Ms Turner-Jones branded the near-$127m year-over-year increase in dividend income received by the Government during the 2025-2026 fiscal year, which hit a total $169m, as “extraordinary” given that virtually all public corporations such as Bahamas Power & Light (BPL) and Water & Sewerage are perennial loss-makers that rarely, if ever, turn a profit.

And she also challenged how The Bahamas’ national debt could increase by just over $1bn during the 2025-2026 fiscal year, as revealed by the Central Bank, yet the Government was still able to achieve a Budget surplus. “That doesn’t make any arithmetical sense,” Ms Turner-Jones argued.

The discrepancy between the Budget surplus and $1bn debt increase could be explained by the Government’s modified cash basis of accounting, which only records expenditure when monies are spent, if the net $700m borrowing was deposited in the National Investment Fund or other bank accounts and not used.

However, Ms Turner-Jones argued that Bahamians are not being given a full picture of how the country’s finances are being managed, asserting that “the transparency is definitely not there as to what’s going on” and called for greater disclosure from the Government so the numbers “make sense”.

Given unanswered concerns over off-the-books spending by the Government, including the National Investment Fund’s $311m outlay and possibility up to $965m may have been deposited in accounts in its name; the $728.7m loaned to state agencies that have no income to repay these advances; and public-private partnership (PPP) liabilities that are starting to “crystallise”, Ms Turner-Jones signalled that Bahamian taxpayers may be on the hook for millions in unknown liabilities.

And, while describing the Moody’s Bahamas assessment as “a little bit sharper” than those by its counterparts, Standard & Poor’s (S&P) and Fitch, she argued that this nation has again “gotten off lightly” through “another get-out-of-jail” credit report that largely ignored fiscal governance and off-the-books spending concerns.

“I think that again they are dropping some red flags,” Ms Turner-Jones told Tribune Business of Moody’s codified, cautious language. “The whole point about what it takes to get an upgrade is pretty clear - more sustainable revenue, a more predictable downward trajectory with the debt, which means put a hold on some of the expenditures.

“They didn’t do a deep dive into the expenditures, but this government has not outlined any fiscal consolidation measures of any sort. It seems that whatever revenue they get in they try to spend while trying to keep a little surplus.

“The surplus number, all of us are trying to wrap our heads around how the debt increased but they still ran a surplus, and they still need to borrow at the extent to which they are borrowing. Why is the debt rising so much? I just don’t know if what we are seeing is actually there.”

Moody’s signalled that the Davis administration will need to turn June’s revenue spike - driven by the collection of VAT arrears and dividend payments from public corporations - into a consistent annual event rather than just a one-off improvement or one-off gains if it is to regularly achieve an annual Budget surplus.

“The full-year surplus also benefited from a strong June outturn, including VAT arrears collections and dividend receipts, much of which the Government applied to settling outstanding obligations. The durability of revenue gains, rather than the headline surplus alone, will therefore be important to assessing the underlying fiscal improvement,” the rating agency asserted.

Ms Turner-Jones told this newspaper that Moody’s report was “much more highlighting of the vulnerabilities” of The Bahamas, including its exposure to climate change and more frequent and powerful hurricanes. She added that, when at the Caribbean Development Bank (CDB), the rating agencies had warned climate risks mean no Caribbean nation will likely ever return to a ‘Triple-A’ credit rating.

A return to ‘investment grade’, and escape from so-called ‘junk’ status, is not ruled out but The Bahamas remains three notches below the former. “I think we’re going to have to see what happens for the rest of this year, how sustainable this June number is, and get to the bottom of what is happening on the debt side,” the Bahamian economist added.

“At some point, all this will fly in somebody’s face and it will be the taxpayer left holding the bag. We have not had a lot of discussion that we have a narrow tax base, and have among the lowest tax-to-GDP ratios in the region. Most developing countries have a higher tax-to-GDP ratio.”

VAT collections more than doubled year-over-year for June 2026, growing by 119.6 percent from $113m to $248.3m on the back of enforcement to likely set a monthly record, even though the period only included payments from larger monthly filers. The June returns for quarterly VAT filers and payers are due to be submitted in July.

The other major June boost came from what the Ministry of Finance described as “significant gains in dividend income from several public entities” whose identities were not revealed. This produced a more than seven-fold jump in ‘other’ non-tax revenue from $23.3m in June 2025 to $172.8m.

On the spending side, the Government’s outlay on goods and services increased more than four-fold in June 2026, rising year-over-year from $61.8m to $255.1m due to increased spending on “utilities and communications”. This is likely due to the Government settling arrears it owes to public corporations, which then sent these payments back to it as dividends.

Speaking specifically to the June 2026 fiscal numbers, Ms Turner-Jones said far greater detail is needed to analyse both the monthly and full-year 2025-2026 outturn, as she zeroed in on the public corporation dividend payments plus the discrepancy between the debt expansion and Budget surplus.

“My view is there’s still a lot we don’t know,” she told Tribune Business. “The transparency is definitely not there with what’s going on. My line is just that we need more information and there ought to be a breakdown of the arithmetic on what’s come in and what they’ve spent to come in at $39m.

“The $39m surplus, according to what’s been presented to us, appears legitimate now, but it can’t be verified because it’s not been audited. Here, we are stuck with the data. I just find it all very cloak and dagger-ish.” Ms Turner-Jones noted that the Government’s last audited accounts, examined by the Auditor General, were for 2021 some five years ago.

“The big missing chunk is the alignment of the debt,” she said. “How do you increase the debt by that amount and still end up with a surplus? That doesn’t make any mathematical sense. This is just a partial picture as painted but it’s all we have to go on. We can’t really talk about something unless it’s audited, and we’ve not had one for five years.

“How did the debt go up so much and we say we have a surplus?” Ms Turner-Jones also challenged the amount of non-tax revenue, including dividend payments, that the Government received in June, asserting that the number was “an outlier” and “so huge” with nothing like it in previous years. Stripping it out would transform the surplus into a deficit approaching $200m.

“We need more information on what that non-tax revenue is,” she said. “I’m very happy that these state-owned enterprises are turning over dividends, but we don’t have any profit-making state-owned enterprises. That’s a very extraordinary event. How did that happen? BPL is not over-performing. Where’s it coming from?”

Moody’s, asserting that consistent Budget surpluses will not be able to rely on one-off revenue gains such as those enjoyed in June 2026, said sustaining increases in the Government’s income will also depend on achieving its 15 percent corporate income tax, or domestic minimum top-up tax, targets.

“Further consolidation will depend on higher DMTT receipts and restraint in primary spending. The fiscal 2027 budget projects DMTT revenue of $350m, a substantial increase from the first year of collections,” it added this week.

“Our baseline forecasts an overall surplus of 1.5 percent of GDP and a primary surplus of 4.6 percent, compared with 0.2 percent and 4.1 percent, respectively, in fiscal 2026. Unlike the revenue-led improvement in fiscal 2026, our forecast assumes expenditure declines relative to GDP, while the revenue ratio remains broadly stable.

“Primary expenditure growth slows to around 1.2 percent, from 15.7 percent in fiscal 2026, and interest payments fall to 3.1 percent of GDP from 3.8 percent. Achieving this spending path while establishing a reliable DMTT revenue stream will be important to sustaining larger surpluses,” Moody’s continued.

“We expect sustained primary surpluses to support a gradual decline in government debt from 70.7 percent of GDP at end-fiscal 2026 to 67 percent in fiscal 2027 and 65.9 percent in fiscal 2028.

“Lower interest costs should also improve debt affordability, with interest payments declining from 17 percent of revenue in fiscal 2026 to 13.9 percent in fiscal 2027. Revenue shortfalls or higher-than-projected primary spending would slow this improvement, limiting the rebuilding of fiscal space.”