By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.ne

The Government is projecting it will cut its direct debt by $1.883bn over the next four fiscal years and achieve its targeted 50 percent debt-to-gross domestic product (GDP) ratio one year ahead of schedule.

The estimates, unveiled in the Davis administration’s just-released 2025 Fiscal Strategy Report, rely on it achieving its projected fiscal surpluses from the upcoming 2025-2026 Budget year onwards as well as consistent annual growth in economic output (GDP) to keep the various debt, deficit and other fiscal ratios in check.

The Government is forecasting that it will achieve a combined $976.3m in fiscal surpluses, measuring by how much revenues exceed its spending, over the four fiscal years through 2028-2029 despite its own forecasts showing that GDP growth will slow from 1.8 percent this year to 1.7 percent in 2026, 1.6 percent in 2027, and then further to 1.5 percent for both 2028 and 2029.

Revenue performance is heavily linked to GDP growth and economic activity given The Bahamas’ consumption-based tax system. Yet, despite GDP growth slowing - and ultimately flat-lining to The Bahamas’ pre-COVID and Dorian long-run average - the Government is forecasting consistent annual revenue growth to take its income from $3.896bn in 2025-2026 to $4.556bn in 2028-2029.

That represents a 16.9 percent, or $660m, increase over four years despite relatively sluggish economic growth. While the Government will also be banking on its enhanced compliance and enforcement measures, Kwasi Thompson, the Opposition’s finance spokesman, yesterday asserted that the Davis administration has yet to explain how it will hit its revenue estimates so key to achieving a surplus.

“I agree with some of the commentators that you reported on in terms of the Government not justifying how they will reach their revenue target. They have just not said it,” Mr Thompson told Tribune Business. “It is troubling in that they have projected a huge increase in revenue but not articulated how they will arrive at those numbers.”

And the east Grand Bahama MP also described as “glaring and deeply troubling” the Government’s admission that it owed around $270m in unpaid arrears to Bahamian and other vendors/suppliers at end-2024.

“One glaring and deeply troubling issue the Government cannot ignore is the mountain of unpaid bills it has quietly amassed. According to the report, as of December, government arrears - unpaid obligations to vendors, contractors and public servants - stood at a staggering 1.7 percent of the nation’s 2024 nominal GDP. By our calculation, that amounts to $269m in overdue payments,” he argued.

“It is nothing short of astonishing - even outrageous - that the Government would boast of balanced Budgets and fiscal surpluses while sitting on over a quarter-billion dollars in unpaid debts.” The Fiscal Strategy Report, though, said the Government has adopted a new tool provided by the International Monetary Fund (IMF) to produce its debt and fiscal sustainability analysis.

“In 2023, central government debt totalled $11.428bn or 74.8 percent of GDP,” the report said. “Of this, external debt accounted for 44 percent of the total debt stock and settled at $5.003bn. The balance equated $6.398bn in domestic debt.

“Debt levels rose by 2.8 percent to $11.749bn in 2024 for 74.2 percent of GDP. Domestic debt accounted for $6.625bn (56.4 percent) while external debt comprised $5.124bn (43.6 percent) of the total debt stock. Central government debt is estimated at $11.305bn for 2025, falling to $10.837bn in 2026, $10.36bn in 2027 and $9.866bn in 2028.”

The final reduction would push the Government’s direct debt below the $10bn mark. Further reductions in the subsequent 2029-2030 and 2030-2031 fiscal years are forecast to help take the debt-to-GDP ratio to 50.3 percent in the former year, and then to 45.2 percent the following year, taking The Bahamas below the Government’s 50 percent target.

Much will have to go right for this to occur, including the absence of a major global recession or hit from a Hurricane Dorian strength category five hurricane. The Fiscal Strategy Report conceded that the steady rise in The Bahamas’ absolute debt, and debt-to-GDP ratios, had been driven by “slow economic growth and persistent fiscal deficits”.

“Average real GDP growth declined from 2.2 percent in the 1990s to just under 1 percent between 2000 and 2018,” it acknowledged, with the latter percentage territory that The Bahamas is seemingly reverting back towards. This was then worsened by the fall-out from Dorian and the COVID-19 pandemic.

Still, the Fiscal Strategy Report added: “Central government debt as a percentage of GDP is expected to converge to 50.3 percent in calendar year 2029, and further down to 45.2 percent in 2030. Overall changes in central government debt over the horizon represent a positive debt sustainability trajectory....

“The projected primary balance is expected to generate improving surpluses over the horizon, reflecting stronger revenue and non-interest expenditure performance. Factors outside the umbrella of policy changes [such as] relative inflation, indicate that The Bahamas is expected to experience lower inflation than trading partners.”

And the report continued: “The Government remains firmly committed to restoring and maintaining fiscal sustainability over the medium term through a fiscal framework and debt management... Central to this commitment is the objective to reduce the debt-to-GDP ratio to no more than 50 percent by fiscal year 2030-2031, thereby strengthening fiscal resilience and creating fiscal space for sustainable development.”