NASSAU, BAHAMAS — The government is seeking to “scale back” capital and recurrent expenditure by a collective $200 million between now and June, it was revealed yesterday, as it also aims to implement a long-planned gaming tax on winnings on January 1, 2021 to help counter significant revenue losses.
The tax was introduced via the Gaming House Operator Amendment Regulations passed in the House of Assembly in 2019.
Senator Kwasi Thompson, minister of state for finance, while addressing the Senate yesterday on the Fiscal Strategy Report noted that for the first quarter of the 2020/2021 fiscal year, there was a contraction in government revenues of some 18.4 percent or $68 million beyond the already lower budgeted revenue.
Prime Minister Dr Hubert Minnis tabled the Fiscal Strategy Report in Parliament yesterday.
“When compared to the 2018/2019 fiscal outcome, the revenue inflow is currently trending at 68.5 percent of pre-Dorian levels,” said Thompson.
Thompson noted that a full recovery of the economy to pre-crisis levels is expected by 2022 when GDP is poised to grow by 8.5 percent, and then trend lower thereafter to 1.8 percent in 2025.
“In the context of this growth picture, government revenue is projected to recover to 17.5 percent of GDP in 2021/22, which is still below pre-COVID-19 and Dorian levels. In the forward years, the expectation is for a gradual firming of government revenue to 19.5 percent in 2022/23; and to 20.5 percent in 2024/25,” he said.
Over the medium-term fiscal horizon, the government’s plan is to reduce recurrent spending from peak Hurricane Dorian and COVID-19 levels of 22.4 percent of GDP in 2020/21 to a targeted ceiling of 19 percent by 2024/25, and to achieve a reduction in capital expenditure from 3.8 percent of GDP in 2020/21 to a steady two percent rate in the final three years.
“For the remainder of this fiscal year and over the immediate term, the government will seek to maintain its current budget deficit target of no more than $1.3 billion. To facilitate this against the expected decline in revenue and to meet our fiscal targets without having to incur additional debt, the government has tasked agencies to scale back recurrent expenditure by $100 million and capital expenditure by $100 million between now and June,” said Thompson.
Thompson noted there are several recommendations being considered by the government to achieve $100 million in cost savings across the medium-term horizon, including the introduction of properly phased-in cost recovery measures slated to commence by mid-2021 for Bahamasair and the Water and Sewerage Corporation (WSC).
With regards to WSC, Thompson noted: “We will be requiring the board to provide a plan to achieve a proper cost recovery model that allows users of the service to substantially cover the costs of operations. This may include — and is not limited to — adjustments in rates, while protecting those most in need. It will also likely include a shift to a monthly billing cycle for all customers. The corporation will also be required to pursue operational efficiencies by improving use of technology and rationalizing its cost base.”
He added: “In the case of Bahamasair, which has also been a significant drain on the public purse, the government has accepted the board’s recommendation to undertake in short order, the necessary fare adjustments and operational changes that will eliminate the need for reliance on government subsidies over time. This will allow the airline to become more competitive as it pursues full cost recovery.”
According to the Fiscal Strategy Report, the national debt is expected to increase to approximately $9.5 billion in 2020/2021 or 83 percent of GDP and grow incrementally to an estimated 85 percent of GDP in 2021/2022. it is expected to taper off to 73.7 percent cent by 2024/2025.
