Funding for all forms of COVID support expected to fall away by next fiscal cycle
NASSAU, BAHAMAS — The government expects to achieve revenues of 25 percent of GDP by fiscal year 2025/26 by limiting expenditure to 20 percent of GDP, among other strategies, the Ministry of Finance revealed.
In a statement on the 2021 Fiscal Strategy Report released late Thursday night, the ministry said the nation’s fiscal health is “in a perilous state” but that it will be restored by improving government efficiency through digitization, continued economic diversification and improvements in revenue policy and administration to achieve revenues of 25 percent of GDP by fiscal year 2025/26.
“Containing expenditure will be equally important in achieving fiscal targets and the government intends to limit recurrent expenditure to 20 percent of GDP and capital expenditure to 3.5 percent of GDP by the end of the same period,” the Ministry of Finance noted.
“The planned result is the achievement of a modest budget surplus by fiscal year 2024/25.”
The report noted the nominal debt level is expected to increase in FY2021/2022 to approximately $10.8 billion or 93.3 percent of GDP, a decline from the 100.4 percent experienced during the most recent fiscal year.
“Debt levels are anticipated to peak at $11.2 billion in FY2023/24 before declining to $10.8 billion or 74.1 percent of GDP by FY2025/26,” the report noted.
It further stated: “Based on the current fiscal trajectory, inclusive of revenue enhancement and expenditure containment plans, the government anticipates maintaining achievement of its 50 percent debt target 2030/2031.”
The report noted that the government plans to reduce the debt-to-GDP ratio to no more than 50 percent of GDP by 2028/29.
Achievement of this target is critical in ensuring government’s fiscal consolidation efforts, reducing the increasing debt burden and providing fiscal headroom to weather unforeseen macroeconomic shocks in the future.
– Ministry of Finance
With funding for all forms of COVID-19 support expected to fall away by the next fiscal cycle, the government’s forecasts anticipate maintaining a ratio of recurrent expenditures to GDP of no more than 20 percent of GDP over the medium term.
The government acknowledged that the increased level of debt, in tandem with the recent sovereign credit downgrade by Moody’s Investor Services as well as Standard and Poor, will necessitate higher rates of interest.
According to the report, at the core of the government’s plan to restore the nation’s fiscal health is the inclusion of an aggressive strategy to improve revenue generation and revenue administration to achieve the target revenue collections of 25 percent of GDP by FY2025/26.
“That, in turn, will require both an enhancement of the tax base as well as improved efficiency in tax administration,” the report noted.
“Achievement of this target is critical in ensuring government’s fiscal consolidation efforts, reducing the increasing debt burden and providing fiscal headroom to weather unforeseen macroeconomic shocks in the future.
“While a robust level of economic growth is anticipated over the near term as the economy reflates, a credible strategy to achieve these fiscal goals will also necessitate concerted efforts to increase the longer term potential growth of the economy.”
