By NEIL HARTNELL
Tribune Business Editor
The Opposition’s finance spokesman yesterday voiced alarm over Standard & Poor’s (S&P) prediction that the fiscal deficit for the 2023-2024 Budget year will come in more than three times’ higher than the Government’s forecast at $466m.
Kwasi Thompson, also east Grand Bahama MP, in a statement responding to the credit rating agency’s recent country analysis on The Bahamas, said his party is “gravely concerned” by the wide divergence between its projections and the Davis administration’s own deficit target of $131m for the current fiscal year.
The latter figure is equivalent to 0.9 percent of Bahamian gross domestic product (GDP), or economic output, but S&P is forecasting a deficit - which measures by how much the Government’s spending exceeds its income in any fiscal year - of 3.2 percent of GDP.
Suggesting that any improvement in the Government’s fiscal health will be more gradual than the administration anticipate, S&P’s comments also suggested that austerity measures may be required, via spending cuts, new and/or increased taxes or a combination of both, if higher economic growth fails to materialise and revenue and deficit targets are not hit.
“We expect that fiscal deficits will continue to decline and the pace of nominal debt growth will slow, translating into a gradual reduction of our net debt-to-GDP ratio, although the interest burden will remain high. The expanding economy is supporting government revenues, which increased almost 12 percent in the most recent fiscal year,” the credit rating agency added.
“While some of the pandemic-related programmes are ending, the interest burden, combined with other spending rigidities, including state-owned enterprise (SOE) outlays, continues to weigh on expenditures. We expect the deficit to reach to 4.6 percent of GDP in fiscal year 2022-2023, and to further fall to 3.2 percent in fiscal year 2023-2024.”
Mr Thompson, former minister of state for finance in the Minnis administration, said yesterday: “The Opposition is gravely concerned with the projection by S&P that the Government will have larger than forecasted deficits for the last fiscal year and this one.
“Based on the GDP estimates in the Government’s Budget document, that would translate into a deficit of over $600m last year [2022-2023] and over $500m this year. This year the deficit is to drop to $131m. It is stunning to see these projections of massive fiscal deficits at a time of record revenues. The PLP continues to squander the economic recovery with its total abandonment of proper fiscal management.”
Tribune Business calculations suggest Mr Thompson’s figures may be slightly out. For example, based on the GDP numbers and percentages contained in the 2023-2024 Budget, the 3.2 percent of GDP deficit forecast by S&P would be equivalent to $465.78m. However, the 4.6 percent of GDP forecast for the recently-closed 2022-2023 year would be some $630.2m - almost $110m higher than the Government’s own $520.6m projection.
Any miss of the 2023-2024 deficit target by the magnitude suggested by S&P, which would be equal to $334m based on the rating agency’s and the Government’s respective forecasts, could undermine The Bahamas’ fiscal credibility and investor/market confidence in its public finances at home and abroad. It would also place the Government’s ambition of achieving a fiscal surplus by the 2024-2025 fiscal year in peril.
S&P, meanwhile, also warned that the Government will likely struggle to meet its debt reduction targets “without material new revenues, significant cost-cutting or well above average economic growth”.
The rating agency, in a report that made no change to this nation’s creditworthiness, said the debt blow-out produced by Hurricane Dorian and the COVID pandemic means the Government’s “previous fiscal consolidation plans” are insufficient to achieve its fiscal goals unless economic growth is strong enough to avoid the imposition of further austerity measures.
“We believe the country’s record of slow progress in reforming public finances and key economic sectors has weakened its financial profile over the long-term and hurt its economic performance,” S&P said of The Bahamas. “The Bahamas has faced two large negative shocks (Hurricane Dorian in 2019 and the pandemic in 2020), resulting in a significant rise in government debt and testing the Government’s resolve to put the nation’s finances on a sustainable path.
“The rapid increase in debt in recent years means the Government’s previous fiscal consolidation plans will likely be insufficient to meet its debt targets without material new revenues, significant cost cutting or economic growth well above historical averages. Furthermore, the country remains vulnerable to environmental risks.”
Joining Moody’s and the Inter-American Development Bank (IDB) in warning that The Bahamas faces “elevated” external financing risks, with the Government requiring $2.1bn during the present 2023-2024 fiscal year to refinance maturing debt, S&P nevertheless hinted it was optimistic that it will source the necessary funding to cover the $300m foreign currency bond coming due for repayment in January 2024.
However, it then warned that “material spending cuts will be more difficult to implement if they become necessary”, pointing to the “drain” imposed by subsidies to loss-making state-owned enterprises (SOEs) which consume 15 percent of the Government’s total annual expenditure.