By NEIL HARTNELL
Tribune Business Editor
Government revenues declined by 50 percent in March, the deputy prime minister revealed yesterday, as the COVID-19 crisis threw a better-than-expected post-Dorian fiscal showing “out of whack”.
K Peter Turnquest, speaking as the government unveiled its finances for the first nine months of the fiscal year, told Tribune Business that its performance had been tracking “ahead of where we anticipated we would be” in the revised budget passed by the House of Assembly in February.
Despite the VAT and multiple tax breaks granted to aid reconstruction efforts on Abaco and Grand Bahama, total government revenue still expanded by four percent or $67.9m year-over-year. However, the fiscal deficit - measuring the difference between the government’s income and its expenses - inevitably widened by 79.3 percent to $251.5m due to increased Dorian-related expenditure.
However, the bulk of Dorian-related costs were set to be incurred during the final three months of a 2019-2020 fiscal year that closes at end-June. That quarter, which the government is a full month into, will now also contain the full impact of COVID-19’s economic fall-out as well as the bulk of hurricane restoration costs.
Marlon Johnson, the Ministry of Finance’s acting financial secretary, told this newspaper that April’s revenues were in line with the Government’s latest revised projections although he declined to provide a figure. Echoing Mr Turnquest, he added that it had been “slightly ahead” of forecast pre-COVID-19 with revenues remaining “healthy” despite the Dorian tax breaks.
Bahamians will likely gain their first true insight into the economic and fiscal devastation caused by the pandemic when Mr Turnquest presents the 2020-2021 Budget on May 27, together with the Government’s short, medium and long-term plans for reviving and rescuing the economy and preventing its collapse.
Mr Turnquest yesterday said the Government has $240m worth of funding remaining in its current borrowing “envelope” which it believes will be sufficient to carry it through to the June 30 year-end without having to take on any further debt.
Warning that COVID-19’s fall-out will impose “a significant burden” on families and businesses, he again reiterated that there was “no question we’ll have to make difficult decisions” concerning loss-making state-owned enterprises (SOEs) and other drains on the Public Treasury in the pandemic’s wake.
The depth of the likely economic contraction will force the Minnis administration to urgently consider reforms that its predecessors may have shied away from due to their perceived unpopularity with voters, and Mr Turnquest indicated that “additional options” will be discussed ahead of a 2020-2021 Budget year that starts on July 1.
“We were ahead of where we’d budgeted, or thought we’d be in the revised Budget,” the deputy prime minister told Tribune Business of the nine-month period to end-March. “Some of the post-Dorian expenditure was still to come through in this [fourth quarter] period, all things being equal, but prior to the time COVID-19 started we were ahead of where we anticipated we would be.
“Nobody could have seen this coming, and it’s thrown everything out of whack including the progress we’d hoped to achieve by now..... We know March was about 50 percent off [in revenues], and we expect a just as significant or maybe even a little bit more for April this year, but we’ll see.” Mr Turnquest had previously indicated government revenues could be off as much as 70 percent.
March and the 2019-2020 fiscal third quarter contained around two weeks’ of COVID-19 impact as a result of the global tourism shutdown and subsequent national lockdown/curfew imposed by the Government. The full impact, and that of Dorian recovery costs, will only become evident once the third quarter is completed.
Mr Johnson, the Ministry of Finance’s top official, yesterday confirmed that April’s revenue performance had met the third set of Budget projections for the year. “The trends for April are in line with what we anticipated given the impact of COVID-19,” he added, with much economic activity having ground to a halt.
“Things had been lining up consistently with what we anticipated would be the refreshed Budget based on Dorian. You really wouldn’t see the impact of COVID-19 on the economy until the fourth quarter numbers are complete.
“As the deputy prime minister would have said, coming into the third quarter before COVID-19 the Government felt confident it would meet the revised Budget numbers or slightly over-perform the Budget numbers but COVID-19 presents a slightly different reality,” he added.
“It looked like we were tracking slightly ahead of where the revised Budget was. Revenue looked fairly health even though Abaco and Grand Bahama were enjoying their concessions and were into their rebuilding. The rest of economy was performing well, and all things were consistently lining up against projections. Then COVID-19 happened. We’ve just got to ride it out.”
Mr Turnquest, meanwhile, said the Government felt it will fully “take up” the $240m remaining from its previous borrowing activities between now and end-June. “Hopefully it will take us to the end of the fiscal year,” he added. “If it doesn’t, we might have to do some things in the interim. We are trying to be prudent and delay any unnecessary expenditure so that we don’t have to get into that situation.”
Similarly, the $119.5m COVID-19 stimulus package enacted to-date - measured in combined spending and revenue foregone - is intended to prop up the economy, private sector and jobless Bahamians until the fiscal year-end when it will be reviewed and the impact assessed. Mr Turnquest added that “most firms taking advantage of the incentives are meeting their commitments”.
The deputy prime minister said the Government was “certainly going to try” and stick to the three-year schedule it set to pay off $360m worth of unfunded arrears, which was one of the key justifications for hiking the VAT rate to 12 percent.
A further $8.9m worth of payments were made during the three months to end-March 2020, taking the total to $230.1m or 64 percent of the total due to be paid off by the end of the 2020-2021 fiscal year. However, Mr Turnquest added a caveat, saying: “Circumstances have obviously changed quite a bit since, but we’ll still do our best to make payments on that commitment.
“But circumstances are fluid here, and we’ll see have to see how that fleshes out in the fiscal numbers with the potential deficit for the new year and and what that means in terms of financing.”
Acknowledging that the $414m collective subsidy to state-owned enterprises (SOEs) was an obvious area to look for spending cutbacks, Mr Turnquest added: “I think we recognise that in order to cut the level of subsidies to those entities, and the consequential drain on the public purse, we’re going to have to be very creative and make some hard decisions for sure.
“What that might look like is up to the SOEs, and we have some ideas we’ve shared with them. We’re going to have to make some difficult decisions, no question about that, to make them cost recovery entities.”
Mr Turnquest argued that previous fiscal reforms enacted by the Minnis administration would give the Government “a jump start” on re-opening the economy, but he conceded: “We do understand the burden on individual families as well as businesses is going to be significant as we come out of this curfew and shutdown period.
“We have to be mindful of that as we stimulate business and consumer demand, and try and get some kind of economy going. We keep hearing the comparison with depressions, and the 2008-2009 financial crisis being less of a concern as that was confined to the financial system. This is definitely a significant trauma to our economy and fiscal health.”
The $58.7m worth of Dorian-related outlays helped ensure the Government’s spending grew faster than its income during the nine months to end-March 2020. While revenues were up 4 percent, total spending rose by 9.8 percent or $179.4m year-over-year to hit $2.009bn. This compared to $1.829bn at the same point in 2018-2019.
“Tourism-related payments declined by $29.1m (81.5 percent) to $6.6m, reflecting the suspension of several marketing subventions provided for under various Heads of Agreements for visiting cruise ships and hotel properties in Abaco and Grand Bahama,” the Government’s “fiscal snapshot” said.
“Interest payments grew by $7.4m (3.1 percent) to $242.3m over the nine-month period to represent 64.3 percent of the revised budget. Approximately $151.9m was directed to Bahamian dollar debt, while the balance of $90.5m was used to settle foreign currency obligations.”
The Bahamas’ total national debt, measuring the money owed by the Government as well as loans it has guaranteed on behalf of state-owned enterprises (SOEs), stood at $8.457bn at year-end 2019.