By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister and Opposition’s finance spokesman yesterday clashed over assertions the Davis administration has never “bust” its deficit and other Budget targets and will not do so in 2024-2025.

Philip Davis KC, in leading-off the mid-year Budget debate in the House of Assembly, argued that Opposition claims that it will not hit its full-year $69.8m deficit target - despite exceeding this by more than five-fold at the mid-way point - were mere “conjecture” and “sophistry”.

And he instead urged the Free National Movement (FNM) “to join the International Monetary Fund (IMF) and say what we did in three years was remarkable” - a reference to the Washington D.C.- based Fund’s assessment that The Bahamas’ rate of economic and fiscal recovery from COVID-19 had beaten all predictions.

“Since this administration took office, the Government has not exceeded its Budget. The suggestion we will do so this fiscal year is without evidence, conjecture and wishful thinking on their part,” Mr Davis said in a blast at the Opposition. We fully intend to meet our deficit target for this fiscal year.

“When we came to office the deficit was 13.5 percent of GDP (gross domestic product). The deficit was 13.5 percent of GDP. Last year we brought it down to 1.3 percent of GDP. So when you want to talk about the deficit, look at the history. Look at what we’ve been able to do in three years.”

Mr Davis’ verdict was somewhat harsh, and possibly unfair, given that the Minnis administration was left with little choice but to run a $1bn-plus annual deficit at COVID-19’s peak. Pandemic-related lockdowns caused the bottom to fall out of the Bahamian economy overnight, which forced the Government to step into the gap left by the private sector. 

The economy’s re-opening, and subsequent reflation, inevitably helped narrow the COVID era gap between government spending and revenue to present deficit levels, with expanding GDP also helping to keep ratios in check. The Prime Minister, though, argued that the Opposition has failed to give the Government due credit for what it has achieved with the economy’s revival post-COVID.

“Join the IMF and say what we did was remarkable,” he teased. “Join the IMF and say what we did was remarkable. I just want to repeat what I said before since you took offence. We have not exceeded our Budget, so any suggestion we will do so this year, to borrow a word from my learned friend [Fred Mitchell] is sophistry. Sophistry.” 

Mr Davis did not explain what he meant by “not exceeding Budget”, and whether he was referring to the deficit - which measures by how much government spending exceeds revenue - or recurrent or total expenditure.

However, Kwasi Thompson, the Opposition’s finance spokesman, challenged the Prime Minister’s assertion by pointing to the $55m gap between the 2023-2024 deficit target and the actual outcome as disclosed in Ministry of Finance documents.

“The Prime Minister indicated you did not bust your Budget while you were in office; that you met your deficit in every year,” he said. “I wonder if you can explain your 12-month report on Budget performance for 2023-2024, which indicated you had a Budget deficit where you had a target of $131.1m, and then your actual deficit was $186.7m.

“Your [target] Budget deficit was $131m, but your actual deficit was $186.7m, so you didn’t make the deficit during that year, 2023-2024. So, if you can, explain that.” Mr Thompson’s contention that the Government had “bust” its 2023-2024 deficit target, and thus the Prime Minister’s position was inaccurate, drew no response from the Prime Minister.

Against the backdrop of a $394.8m half-year deficit, which will require the Government to generate a $325m Budget surplus (revenues exceeding expenditure) for the six months to end-June 2025 if it is to precisely hit its full-year target, Mr Davis yesterday sought to explain the $192m year-over-year recurrent expenditure increase at the mid-point.

Asserting that this was planned, he said: “We designed this fiscal year’s Budget to accommodate increased investment in several areas and, indeed, these expenditure items have risen during the initial half of the fiscal year according to plan.

“There has been some confusion – I hope sincere, rather than calculated – about those investments being executed precisely as intended. I can assure you the details were clearly presented in the Budget Communication in May, just as I can assure you that recurrent spending as a percent of Budget in the first half of the current fiscal year falls well within historical norms.”

Outlining some of the spending increases, Mr Davis said there was a $4.4m year-over-year jump in mailboat subsidies to $6.9m. He justified this based on the vital role operators play in transporting freight to the Family Islands, and the fact they have not had an increase for ten years despite ongoing cost and inflationary pressures.

Garbage collection and network support together accounted for a near-$10m year-over-year spending increase, with the Prime Minister adding: “These services are indispensable, and although maintaining and enhancing them is indeed a significant cost, I can’t believe anyone would choose the hazards of insufficient investment in this area.”

“In addition, we have also engaged major commitments for landfill maintenance and information technology, both of which play vital roles in our operations. This particular category of expenditure saw an increase of nearly $7m. All of these commitments, which are characterised as consultancy services, totalled $44m for the first half of the fiscal year.

“Just as families and businesses have been facing rising costs, so, too, has the Government. Our rental costs increased by $20.7m in the first half of the fiscal year compared to the prior period. The increase in this area is driven by a lack of suitable accommodations for our ministries and Departments,” Mr Davis continued.

“The Registrar General’s Department, Freedom of Information Secretariat, and Department of Public Prosecution all moved into new accommodations within this fiscal year. The Immigration Department will consolidate its operations and move into new accommodations before the end of the fiscal period.” The Public Service Commission and Department of Labour are also scheduled to move.

While combined subsidies to the Water & Sewerage Corporation and Public Hospitals Authority (PHA) also increased by $16.6m year-over-year for the 2024-2025 first-half, Mr Davis added: “The rise in interest costs were also a factor that contributed to the increase in recurrent spending, which rose $34.3m year-over-year.

“This interest increase was largely due to paying accrued interest on facilities that were replaced by cheaper facilities. The growth in these interest payments has exerted upward pressure on overall recurrent spending. However, a part of our debt strategy has been utilising more concessional funding that would bring down our cost of borrowing. We anticipate that our cost of borrowing will smooth out in the second half of this fiscal year.

“The last major spending category that I want to address is compensation of government employees, which grew by $16.9m. The nominal growth value of wages and salaries has been relatively flat, growing only 0.4 percent year-over-year,” he added. 

“Over the last three years, wages and salaries have been at an average of 11.5 percent of the recurrent budget, and 2.5 percent of GDP each year. So, the increase in compensation of government employees has not been driven by wages and salaries but other compensation benefits along with an increase in NIB contributions.”