NASSAU, Bahamas -- At the time of the 2019/20 National Budget, Deputy Prime Minister and Minister of Finance the Hon. K. Peter Turnquest mentioned that this Government Administration had envisioned its approved budgetary operations resulting in a fiscal deficit of approximately $137 million, or 1.0 percent of Gross Domestic Product.

“After accomplishing a 67 percent reduction in the deficit since assuming office, we were indeed well on our way to achieving our established fiscal targets in our steady move toward a balanced budget,” DPM Turnquest explained as he presented the 2020/21 Budget Communication in the House of Assembly, Wednesday, May 27, 2020.

“Hurricane Dorian swept through The Bahamas only two months into the 2019/20 Budget year and quickly derailed approved estimates, which resulted in the tabling and approval of the Supplementary Budget.”

He noted that up to the nine-month mark — the latest published and available monthly data — the country was performing on target with the Supplementary Budget estimates, underpinned by what had proven to be a strong revenue performance and the roll out of a number of hurricane recovery and restoration measures.  Given the robust level of economic activity in the first half of the fiscal year, despite the September storm, overall performance for the nine months to March 2020 was relatively buoyant.

The DPM said total revenue grew by $68.9 million, or 4.1 percent to $1.7 billion over the nine-month period — representing 73.4 percent of the budget — as compared to the same period of FY2018/19.  

He said on the expenditure front, recurrent expenses moved higher by $112.7 million or 6.6 percent to $1.8 billion in the nine months to March 2020 — equating to 67.5 percent of the Budget — being boosted by a union lump sum payment-led $47.9 million, or 9.1 percent increase in compensation to employees.

“Recurrent expenses related specifically to Hurricane Dorian amounted to $14.1 million for the nine month period, including $7.9 million in allowances to displaced civil servants, $2.7 million toward landfill operations, and $0.5 million in food assistance.  Further, the Government paid an additional $48.4 million in FY2019/20 in arrears payments as at April 2020 — just below 50 percent of the budgeted amount, bringing the total paid off since the beginning of the arrears program to a revised $230.1 million.  To date, we are left with a balance of $85.5 million to repay from the more than $300 million backlog of old bills we met when we assumed Office.”

The DPM noted that Capital outlays widened by $70.8 million, or 55.2 percent over the previous fiscal year to $198.9 million, or 51.6 percent of the Budget, primarily explained by hurricane related spending. Specifically, approximately $20.0 million was earmarked for the rehabilitation of power supply on Abaco, with another $5.4 million spent on water restoration activities in the affected islands. An additional $13.1 million was allocated for debris removal and clean up on both islands, and another $0.3 million on machinery and equipment.  Up to March 2020, the Small Business Development Center (SBDC) had disbursed approximately $2.9 million in loans for businesses affected by Hurricane Dorian, in an effort to facilitate their reopening. This figure has since expanded to $3.4 million.

He said, “Given these developments, the fiscal deficit widened to $255.9 million in the nine months to March 2020, as compared to $140.3 million in the comparable period of FY2018/19.  This equates to some 37.8 percent of the revised Budget.”

DPM Turnquest said, “It goes without saying that the impact of COVID-19 has altered, yet again, the budget estimates for FY2019/20.  To address the pressing health concerns and to ensure that resources were made available to individuals and businesses facing the brunt of this crisis, this Administration took the necessary steps to increase expenditures and forgo revenues, which placed upward pressure on the overall fiscal balance.” 

He stated that total expenditure as a result of the assistance programs for food, unemployment, and additional outlays to the Ministry of Health for the detection, treatment and mitigation of the coronavirus are expected to cost the Government some $83.6 million between March and June 2020.  The Tax Credit and Tax Deferral Employee Retention Program is anticipated to undergird some $60.0 million in revenue loss through the end of FY2019/20. 

“Taken together, with total revenues expected to decline to roughly $2.1 billion, and expenditures estimated to rise to some $2.8 billion at the end of FY2019/20, we now project a deficit of some $770.0 million, or 6.4 percent of GDP for the current fiscal year.  Compared with the Supplementary Budget estimate, this represents a widening in the deficit of some $96.0 million, or 1.1 percentage points in the GDP measure.”           

The DPM said consequently, total Government Debt is forecasted at some $8.2 billion at end-June, or 67.9 percent of GDP, as compared to the estimated 64.4 percent at the time of the Supplementary Budget.

He added that the substantial impact of COVID-19 on The Bahamas’ economy has already generated reaction from the international market. Standard & Poor’s recently revised our sovereign debt rating down one notch to BB last month.  Although this was expected, it is a prime example of why the Government is developing a robust and strategic recovery plan, so as to mitigate against future downgrades, and the attendant negative elements that are attached to downgrades. 

“I would note here that the Government is intent on focusing its debt management strategy over the medium term, to effect the best benefit to the citizens of The Bahamas.  In this light, we are in the process of a debt conversion for a number of loan facilities that will allow us to lock-in fixed rates in a low interest rate environment. This should result in debt servicing savings even in the near term. 

“Though it will not be easy, we can glean on the lessons from a number of our regional counterparts that it is better to address these issues sooner, rather than later. To restore the fiscal affairs of our country, this Administration will remain disciplined in its fiscal management over the medium to long term.”