Fiscal deficit projected to climb to $1.3 billion

Fiscal deficit projected to climb to $1.3 billion
Deputy Prime Minister and Minister of Finance Peter Turnquest

NASSAU, BAHAMAS — Deputy Prime Minister and Minister of Finance K Peter Turnquest gave a sobering outlook on the Bahamian economy as he warned the government’s fiscal plan will come at “a necessary but unprecedented cost”.

Delivering the 2020/2021 budget communication, Turnquest noted that given the current state of the domestic economy, the outlook for the near-term is “very subdued”.

The fiscal deficit is budgeted at some $1.3 billion, or 11.6 percent of GDP for the upcoming fiscal year.

It represents the largest deficit to be incurred by any Government in the history of The Bahamas, he said.

Turnquest also noted that recurrent expenditure, at some 22.4 percent of GDP in the upcoming fiscal year, is expected to remain “relatively stable over the next two fiscal years, before tapering off slightly to 21 percent in FY2022/23”.

“Capital outlays are anticipated to decline from 4.5 percent in the upcoming fiscal year to steady around 2.0 percent over the medium term, which is in line with the Government’s broader fiscal policy objective to make better use of Public Private Partnerships (PPPs) and secure private financing for public projects,” he said.

“The fiscal deficit is forecast to decline from 11.6 percent in the imminent fiscal year to 6.7 percent in the subsequent year, with a further reduction to 2.9 percent in fiscal year 2022/23.”

Turnquest said most sectors of the economy will take time to restart, and many businesses will need time to rebuild and rebound.

He said the Government’s contributions to the economy will be a vital lifeline to keep the economic engine running.

Turnquest said the country’s rebound will be heavily dependent on how quickly travel resumes, noting that the Central Bank has forecast that real GDP in The Bahamas will contract by some 12 percent.

He noted that “unprecedented times call for an unprecedented budget”.

“This budget is unlike any the country has ever seen before. The 12 months past have been unlike anything the country has ever experienced,” he said.

“Most sectors of our economy will take time to restart and many businesses will need time to rebuild and rebound. The Government’s contributions to the economy will be a vital lifeline to keep the economic engine running, and to deliver the impact we seek from our immediate restoration plan.

“The Resilient Bahamas Plan will come at a necessary but unprecedented cost. What is at stake is the unquestionable need to protect the Bahamian people, stabilize our economy and transform this crisis into an opportunity for our national restoration.”

According to Turnquest the government expects to expects to run a deficit of some $1.3 billion, or 11.6 percent of GDP in the new fiscal year.

“The imperative of investing in a strategy like the Resilient Bahamas Plan, coupled with the associated revenue loss from subdued business activity will result in an unprecedented fiscal deficit.”

The government’s plan he said seeks to achieve several objectives, namely: to protect the well-being and engender the confidence of our citizens and residents; maintain economic stability during the COVID-19 induced crisis; and plant the seeds for accelerated recovery.

“In doing so, we will transform this crisis into an opportunity for our economic and national revival,” he said.

Turnquest also stressed that there will be no tax increases.

“While there may be headcount reductions due to retirements and expiring contracts for consultants and services, there will be no public sector layoffs. There will be no one left to fend for themselves while the economy is reeling from the worst slowdown in modern history. We will stand united in support of people and communities, businesses and consumers, who are already feeling the strain.”

Still, Turnquest noted that despite the stark decline being seen in our various fiscal and economic indicators, the country will move onward from this crisis.

“There are a number of independent economic indicators to give the Bahamian people hope and reassurance,” he said.

“Most recently, we have seen prospects for the near term that indicate an appetite for private sector investment. The Cruise Port’s $130 million bond offering was oversubscribed when it closed on May 18.

“This signals that, despite the uncertainty surrounding COVID-19, investors are confident in the tourism industry generally, and the recovery of the cruise industry and revitalization of Downtown Nassau, in particular,” Turnquest said.