By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Private sector executives and the Opposition yesterday argued that the Government will almost certainly “bust” its key fiscal targets after unveiling a near-$395m deficit for the 2024-2025 half-year.

Michael Pintard, the Free National Movement (FNM) leader, voiced scepticism that the fiscal year’s traditionally revenue-rich second half will “dig themselves and the Bahamian people out of the hole” created by a deficit which expanded by 52.6 percent or $136.1m compared to the same point in the prior fiscal year.

Despite narrowing the December gap between the Government’s revenue and spending to a $38.3m deficit, representing a 42 percent year-over-year decline, the Ministry of Finance’s report for that month still revealed that a total $394.8m worth of ‘red ink’ was incurred during the six-months to year-end December.

The half-year deficit, which will be a key focus in next week’s mid-year Budget presentation by Prime Minister Philip Davis KC, is more than five times’ greater than the $69.8m target for the 2024-2025 full-year. The $394.8m, which measures by how much government spending exceeded its revenue income, is also significantly higher than the $258.7m deficit incurred at the 2023-2024 fiscal year’s mid-point.

And, while the Davis administration was able to narrow that year’s deficit via the $72m Budget surplus generated during that year’s second half, it will have to generate a sum more than four times’ greater if it is to hit 2024-2025’s target or come close. To hit it spot on, the Government will need to generate a massive $325m second-half surplus - some $253m higher than the prior year’s achievement.

Gowon Bowe, who headed the private sector’s Coalition for Responsible Taxation when VAT was introduced, told Tribune Business that the fiscal numbers presented for the first six months “really don’t inspire confidence that the projected deficit is going to be met”. And he added that it was “not sufficient” for the Government to blandly promise it will make up the difference without providing evidence to back its assertion.

Pointing out that the Government’s original 2024-2025 Budget gave no hint of any “abnormal” revenue boost or spending reductions, he argued that “as fiduciary agents of the country” the Davis administration to “take the mature road and say maybe we were too aggressive or too ambitious in our original projections” and use the mid-year Budget to post revised deficit and other targets that are more realistic.

While “I won’t be the one saying it significantly destroys our fiscal affairs”, Mr Bowe emphasised that what appears to be a substantial deficit overshoot “warrants detailed explanation” and a plan for any corrective action the Government plans to take. This, he added would also be better received by external observers such as investors holding Bahamian government bonds and the international credit rating agencies.

And the Fidelity Bank (Bahamas) chief executive reiterated previous warnings for the Government not to be “penny wise and pound foolish” by slashing capital spending to reduce the deficit. This, he argued, would undermine investment in key infrastructure assets that provide the foundation for business development and economic growth.

The Government has been steadily dripping out the monthly fiscal reports for October, November and December 2024 over the past week ahead of next Wednesday’s mid-year Budget. Its decision to reveal the half-year deficit ahead of the Prime Minister’s announcement, observers suggested, appears to be part of a calculated PR strategy to get ahead of bad news and “take the sting out of the tail” for the Bahamian public.

Mr Pintard, though, yesterday asserted that the Government’s call for its fiscal policies to be judged solely on the full-year numbers will not hold up given the figures for the first six months and earlier. “They want us to forget what’s happened in the first quarter, second quarter and look at the end of the fiscal year, then judge them. We don’t buy that argument,” he told Tribune Business.

“We believe that the hole they have dug themselves and the Bahamian people into.... we believe they are going to bust their projections and have a widening deficit. The question is: What do they have to show for it?”

The Opposition’s leader was backed by the party’s finance spokesman, Kwasi Thompson, who told the House of Assembly that the latest monthly fiscal report releases have revealed “devastating” news with the “rapid deterioration” of the Government’s fiscal deficit - although December 2024 reverses that trend somewhat.

Asserting that the Government appears to have “abandoned any sense of fiscal discipline”, he questioned how the Government will make up the $325m difference between half-year performance and full-year target given that it traditionally spends more during the final six months of the fiscal year.

“These reports reveal devastating news on the state of the Government’s finances, each revealing a rapid deterioration of the Government’s fiscal deficit and an apparent abandonment of any sense of financial discipline as the Government’s deficit has now reached just under $400m at the mid-year,” Mr Thompson blasted.

“The Government’s Budget deficit is $69.8m. How will this be made up in the next six months? How will the Government make up [the difference] in six months? Especially during the time when traditionally you spend more in the second half of the year.

“We will, of course, have much more to say on this. We await the upcoming mid-term Budget report and hope it will contain the strong measures that this administration will take to curb its wasteful and extravagant spending and get its fiscal house in order.”

Pointing out that the Government has frequently missed the deadlines, enshrined in statute law, by which it is supposed to release monthly and other fiscal reports, Mr Thompson added: “The reports are to be published no later than four weeks after the end of the reporting period.

“This administration has operated in almost total breach of this statutory requirement with almost every single Budget report being published late. Does the Government have the information, but is it electing not to publish it in line with what the law requires?

“But what is particularly revealing is what we now see being played out over the last ten days or so. In rapid succession since last week, the Government – all of a sudden – have found it convenient to release the reports for October, November and December.” 

However, the December fiscal report provides a glimmer of positive light that the Government will likely draw comfort from, as the monthly deficit declined by $27.6m year-over-year to $38.3m from $65.9m during the same month in 2023.

“This outcome reflected a $67.2m (36.2 percent) growth in revenue receipts to $253.1m, which exceeded the $39.6m (15.7 percent) increase in spending to $291.3m,” the Ministry of Finance said. “Of the $212.8m in tax collections, taxes on use and permission to use goods were higher by 91.2 percent ($12.8m), due to collections of communication levies.

“Taxes on international trade and transactions gained 74.8 percent ($31.2m), benefiting from recent increases in departure taxes and the introduction of the tourism sustainability levy. VAT improved by 17.8 percent ($15m) on account of higher collections associated with goods and services and realty transactions.

“Non-tax revenue aggregated $40.3m for a 69.3 percent ($16.5m) boost over the prior year. The yield from other non-tax revenue rose sharply, by $12.8m, primarily reflecting receipt of rental ($12.1m) and dividend payments ($3.3m).”

As for government spending, the Ministry of Finance added: “The $271.7m in recurrent outlays for the month represented an increase of 18.4 percent ($42.3m) from the corresponding period in the prior year. Public debt interest costs were higher by 56.6 percent ($25.4m), of which 56.2 percent was paid to non-residents.

“Other payments rose by 30.6 percent ($5) due to transfers to non-financial public corporations. Use of goods and services expanded by 28percent ($11.6m), primarily associated with payments for rent, utilities and other various services. Capital expenditures narrowed by 12.1 percent ($2.7m) and were almost entirely for the acquisition of non-financial assets.”

Turning to the Government’s debt liabilities, the Ministry of Finance added: “During the review month, central government’s debt outstanding decreased by an estimated $11m. The $453.8m in proceeds from borrowings was primarily derived from foreign currency sources (56.8 percent). Of the $464.9m in debt repayment, 65 percent was in foreign currency.”