By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

THE Government last night signalled it remains wedded to its full-year fiscal targets despite amassing a near-$400m deficit during the first six months as recurrent spending jumped 13.4 percent year-over-year.

The Ministry of Finance, in a written release taking issue with Tribune Business’s reporting of its half-year 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 yesterday voiced confidence that the full-year deficit target will be met because the bulk of the Government’s revenue is collected between March and April.

Due to the cyclical nature of the Budget, and revenue generation, he argued that it is too early for critics and the Opposition to conclude the Davis administration will miss its forecasts as revenue collection has not peaked.

“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,” said Mr Halkitis.

However, the new 15 percent corporate income tax or domestic minimum top-up tax (DMTT) being levied on Bahamian companies that are part of multinational groups with annual turnover exceeding 750m euros will not be an immediate salvation for the Government.

While the levy is forecast to generate $140m, a sum equivalent to 1 percent of annual gross domestic product (GDP), for the Government, Mr Halkitis confirmed these revenues will be seen “early” in the 2025-2026 Budget cycle and play no part in the current fiscal year.

The Ministry of Finance also blamed the $394.8m deficit for the six months to end-December 2024, a figure more than five times’ greater than the full-year goal, on “front-loading” capital spending outlays for school repairs and critical roadworks. 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 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.

The ministry’s statement only referred to a $25m payment, the first tranche in a total $50m outlay, to subscribe for shares in the Development Bank of Latin America and the Caribbean. It added that this will give The Bahamas access to “a new semi-concessional funding envelope” of $200m.

And Prime Minister Philip Davis KC yesterday also announced the signing of a $200m “framework agreement” with the Africa Export-Import Bank that will enable The Bahamas to develop “climate-resilient and trade-enhancing infrastructure” such as roads and energy. Together, these two facilities represent a combined $400m in low-cost, low-interest financing that the Government will be hoping to access.

This, though, gives no insight into what caused the year-over-year recurrent spending hike in the 2024-2025 first half. 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 to Tribune Business 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 a corrective plan.

An analysis of the Government’s December 2024 and half-year fiscal numbers also shows year-over-year increases, albeit smaller than for goods and services, for categories such as civil service salaries; subsidies; and public debt interest payments. Total spending for the half-year, recurrent and fiscal combined, was up 17.8 percent year-over-year at $1.839bn versus $1.561bn - a $278.3m rise year-over-year.

Thus the Government will have to address the spending side of the Budget to come in close to its 2024-2025 projections - something that may not be easy to accomplish given the likely pressures exerted by the upcoming general election to increase expenditure.

The December 2024 data also revealed that the Government spent a greater portion of its full-year Budget expenditure during the first half, with total spending; goods and services; and subsidies as well as capital expenditure all exceeding more than 50 percent of the 12-month estimates.

And recurrent spending and civil service emoluments were also close to that 50 percent mark. In contrast, most spending categories as a proportion of the full-year expenditure estimates were several percentage points lower at the mid-point in the 2023-2024 fiscal year.

The Ministry of Finance yesterday touted the “highest-ever recorded revenue growth” for the first half of a fiscal year, with total income up 10.9 percent year-over-year at $1.444bn as opposed to $1.302bn for the 2023-2024 first half. Total tax revenue stood at $1.296bn, a 10.8 percent increase compared to the $1.169bn achieved the year before, while VAT collections were up $21m at $667m.

As a percentage of full-year revenue estimates for 2024-2025, most key categories were ahead of 2023-2024 comparatives, thus fuelling confidence that the Davis administration will likely hit its income target for the 12 months to end-June 2025. It must now control spending if it is to close the $325m half-year ‘gap’ between the actual deficit and its forecast.

“As reported for the first six months of the current fiscal year, Government’s total revenue reached $1.4bn, a gain of $142.2m over the prior year, and representing the highest-ever recorded growth for any first half-year revenue performance,” the Ministry of Finance said in its statement.

“It is important to highlight that based on the cyclical nature of Government’s revenue, this strong revenue performance in the first half of the fiscal year is projected to be reinforced by even higher yields in the second half.

“This expectation is clearly supported by historical analysis of revenue performance which shows that, on average, 57 percent of the total - especially from tourism, VAT, Business Licence and property taxes - is collected in the closing six months of the fiscal year,” the Ministry of Finance added.

“To illustrate, real property tax intake averages 72 percent in the second half, which aligns with payment due dates. Tourism gains with the peak in visitor arrivals also helps to boost VAT receipts.” It also pointed to the Government’s “stepped up revenue enforcement measures that continue to yield positive results”.

However, Tribune Business has repeatedly pointed out that the Government is likely to narrow the deficit due to the revenue-rich fiscal year’s second half based on the factors that the Ministry of Finance mentioned. And it has also acknowledged the $72m surplus achieved during the 2023-20245 second half, as well as the Government beating the International Monetary Fund’s (IMF) forecast for last year.

Yet the half-year deficit, which will be a key focus in next week’s midyear Budget presentation, 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 - by 52.6 percent or $136.1m - 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.

The Ministry of Finance said yesterday that its “expectation of an improved second half fiscal performance is in line with the surplus position of $72m in the prior year, following the deficit of $44.8m in the second half of fiscal year 2018-2019 - the last normal year before the pandemic.

“The Government is committed to ensuring that its fiscal operations are conducted in a manner that supports sustainability through a reduction in the overall deficit as projected in the medium-term fiscal framework. Recent performance confirms the significant progress made in reducing the overall deficit to 1.3 percent of GDP in fiscal year 2023-2024, and the anticipation of a further improvement to 0.5 percent for this fiscal year.”