NASSAU, BAHAMAS: The Government may be forced to cut spending to deliver its projected $291.4 million fiscal surplus, the Fiscal Responsibility Council has warned, describing the target as “aggressive” amid weaker-than-expected revenue collections, rising payment arrears and a planned doubling of government guarantees.
In its assessment of the 2026/2027 Annual Budget, the Council questioned whether the Government can achieve a surplus equal to 1.6 percent of gross domestic product (GDP) after revenue collections fell significantly behind budget expectations during the first nine months of the previous fiscal year.
The Council said the Government collected $2.552 billion between July 2025 and March 2026, representing just 62.4 percent of its revised $4.093 billion full-year revenue target. While collections were $81.6 million higher than in the same period a year earlier, the Government had achieved 69.7 percent of its revenue forecast at the corresponding point in the 2024/2025 fiscal year.
The FRC warned that $1.541 billion would have to be collected during the final three months of 2025/2026 for the Government to meet its revised revenue target. That would represent a 65.6 percent increase over the estimated $930.3 million collected in the fourth quarter of the previous fiscal year.
“The FRC is of the view that should revenue collections for key categories like property and departure taxes and other sources continue to underperform expectations, alongside tempered fourth-quarter VAT collections that is expected to stem from the April 1, 2026, removal of VAT on unprepared food, meeting the FY 2025/26 revenue goal will be increasingly challenging,” the Council said.
The report revealed that property tax collections reached 62.6 percent of their budget target through March 2026, compared with 75.2 percent during the same period a year earlier. Departure tax collections stood at 63.5 percent of the revised forecast, compared with 105.7 percent of the full-year target collected during the first nine months of 2024/2025.
Non-tax revenue also lagged significantly, reaching only 54.4 percent of the budget target compared with 68.6 percent a year earlier. Property income was particularly weak, with the Government collecting just 25.3 percent of the projected amount.
The FRC acknowledged that some of the revenue shortfall was related to the timing of collections from the Domestic Minimum Top-Up Tax, with those payments expected during the fourth quarter. However, it said meeting the Government’s projections for that tax would be critical to closing the revenue gap.
The Council also raised doubts over the Government’s ability to move from a $157.4 million deficit during the first nine months of 2025/2026 to its projected $32.7 million full-year surplus.
According to the report, the Government would have needed to produce a $190.1 million surplus during the final quarter to achieve that goal. By comparison, it recorded a fourth-quarter surplus of just $45.5 million in the previous fiscal year.
“Given the uncertainty surrounding achievement of the revenue goal, meeting the projected fiscal balance may require adjustment to the expenditure programme,” the FRC said.
Those concerns have carried over into the 2026/2027 fiscal year, for which the Government is projecting total revenue of $4.263 billion and expenditure of $3.972 billion. The forecasts produce an overall surplus of $291.4 million, equivalent to 1.6 percent of GDP.
The projected surplus is nearly nine times the revised $32.7 million surplus for 2025/2026. It is based on a $170.3 million, or 4.2 percent, increase in revenue, combined with a $50.5 million reduction in recurrent expenditure and a $37.9 million cut in capital expenditure.
Recurrent spending is forecast to decline from $3.630 billion to $3.580 billion, while capital spending is expected to fall from $430 million to $392.1 million.
“The FRC is of the view that below-budget revenue performances to date amid persistent downside risks suggests that this forecast is optimistic,” the Council said. “Achieving this objective could require downward adjustment in the spending programme.”
The Council noted that cutting expenditure could prove difficult because both recurrent and capital spending are already forecast below their 2025/2026 levels.
Capital investment is projected at just 2.1 percent of GDP, well below the Government’s fiscal objective of at least 3.5 percent. The FRC recommended that the Government consider revising the capital expenditure target so it aligns with the fiscal policy framework outlined in its 2026 Fiscal Strategy Report.
The report also questioned the sharp change in the Government’s fiscal balance objective. The target moved from allowing a deficit of no more than 0.5 percent of GDP to requiring a surplus of 1.7 percent in 2026/2027.
The Government is targeting progressively larger surpluses of 2.8 percent, 4.3 percent and 4.6 percent of GDP by 2029/2030 as part of its effort to reduce central government debt to no more than 50 percent of GDP by 2030/2031.
While describing the more ambitious surplus targets as consistent with faster debt reduction, the FRC said the Government should provide more information explaining the rationale behind the major shift.
It also noted that there did not appear to be an amendment to the Public Finance Management Act’s First Schedule formally putting the new 1.7 percent fiscal balance target into effect.
Debt stood at $12.473 billion at the end of March 2026, comprising $7.062 billion in domestic debt and $5.411 billion in external obligations. The total increased by $704 million, or six percent, during the first nine months of the fiscal year.
The amount was also $1.087 billion above the Government’s projected end-of-year debt stock of $11.387 billion. The FRC said meeting that projection would have required a net debt repayment of more than $1 billion during the final three months of the fiscal year.
Beyond the revenue and debt concerns, the Council identified an expanding range of fiscal risks, including rising government guarantees, public-private partnerships, state-owned enterprises, pensions and unpaid government bills.
The stock of government guarantees stood at $315.1 million, or 1.8 percent of GDP, at the end of March. However, the Government’s Fiscal Strategy Report projects that guarantees will more than double to $718.1 million, or 3.9 percent of GDP, by the end of 2026/2027.
The budget identifies $183.8 million in proposed new guarantees, including $84 million for the Bahamas Mortgage Corporation, $90 million for the Bridge Authority and $9.8 million for the Education Loan Authority.
However, the Fiscal Strategy Report attributes the expected increase in guarantees to approvals for the Grand Bahama Energy Company, Public Hospitals Authority and Bahamas LNG Partners. The FRC called for clarification on the timing of the disbursements and reiterated its recommendation that the Government establish a ceiling on guarantees as a percentage of GDP.
The Council also warned that the Government’s acquisition of Grand Bahama Power Company would expose taxpayers to additional fiscal risks requiring continuous monitoring.
It said public-private partnerships represent another area of concern. Five PPP projects with a combined investment value of $437 million were listed in the budget, but the information provided was limited to basic descriptions, private partners, project costs and locations.
The FRC described the publication and implementation of the Government’s promised PPP Assessment Framework as an “urgent and necessary priority”, particularly as the administration increasingly relies on private partnerships to deliver major infrastructure projects.
The report found the budget non-compliant with the requirement to provide plans for approving new PPP contracts.
Concerns were also raised about the financial oversight of state-owned enterprises. The Government has allocated $566.8 million in recurrent subsidies and $31.6 million in capital support to these entities in 2026/2027, up from $550.8 million and $27.8 million, respectively.
However, the Government’s risk assessment covered only nine of its 32 public agencies and government business enterprises because of data limitations.
Just four of 18 listed public entities submitted the required annual plans with the budget, while only four of 19 government business enterprises provided statements of corporate intent.
The FRC called for a stronger framework to hold these entities accountable for their reporting obligations, warning that their financial performance could create unplanned demands on the Government or result in the state assuming their debts.
Payment arrears meanwhile almost doubled, rising from $122.4 million at the end of December 2024 to $241.8 million at the end of December 2025. The Council recommended that the planned adoption of accrual-based accounting be prioritised in the short term to strengthen the tracking and reporting of those obligations.
Pension and gratuity payments are budgeted at $215.9 million for 2026/2027, accounting for 5.4 percent of total expenditure. The Government estimates that pension obligations under the existing unfunded system could reach $4.2 billion by 2032.
The FRC welcomed progress towards pension reform, including the tabling of a white paper proposing to transition public officers with fewer than eight years of service to a contributory pension system.
Overall, the Council said the Government had made progress on pension reform, arrears management, disaster-risk financing and public financial management. However, it maintained that the combination of ambitious revenue forecasts, elevated financing costs, expanding guarantees, PPP exposures, rising arrears, climate threats and pension obligations could undermine the budget’s targets.
It called for accelerated reforms to improve public investment management, PPP governance, state-owned enterprise oversight and fiscal risk reporting to preserve the country’s fiscal credibility and reduce its vulnerability to future economic shocks.
