Prime Minister and Minister of Finance the Rt. Hon. Perry Christie said, on June 22, 2016, that, in reviewing the fiscal achievements of his Government, it is vital to explain why they have been so important to the future prospects for The Bahamas’ economy and for employment opportunities going forward.
“Had we done nothing to address the fiscal situation in 2012 and simply maintained the fiscal structure left to us by the party opposite when in power, then a straightforward counter-factual analysis reveals that the burden of public debt would have continued to swell to levels exceeding 80 per cent of GDP within the next five years,” Prime Minister Christie said, his closing statement for the 2016/2017 Budget Debate in the House of Assembly.
He noted that if one can contrast that with the medium term fiscal outlook in the current year’s Budget Communication, which sees the debt burden reversing its upward march during the course of the coming fiscal year and falling to under 60 per cent of GDP in two years time.
“Now, had we been fiscally irresponsible, with the debt burden trending towards 80 per cent of GDP, one can well imagine the economic consequences that most certainly would have ensued,” Prime Minister Christie stated. “We most surely would have been downgraded to junk status and interest rates would be sharply higher.”
The economy would be considerably weaker and unemployment would be commensurately more elevated, as well, he pointed out.
In the face of a fiscal crisis, Prime Minister Christie added that the Government would then have been obliged to impose draconian and deep cuts in spending, including significant layoffs of public sector workers. Massive tax increases, including a VAT with a rate well in excess of 7.5 per cent, would also likely have been needed, he noted.
“This is not a wild and fanciful conjecture on my part,” Prime Minister Christie said. “It is precisely the experience that has been lived by certain countries within the European Union which, confronted with the urgent need to implement sharp fiscal redress, have had to suffer deep contractions of their domestic economies, in some cases in eight years over the last decade, with unemployment rates at 25 per cent and above.”
He said that he is, thus amused to hear Opposition members asking Bahamians the irrelevant question of if they find themselves better off today than four years ago.
“The more appropriate question to ask is whether or not Bahamians find themselves better off today than they might have been if my Government had continued the fiscally irresponsible fiscal policies of our predecessors,” Prime Minister Christie said. “The answer is obvious.”
Despite the “unfounded laments from members across the aisle”, Prime Minister Christie said, the data speak for itself.
He noted that since coming to office, his Government has reduced the GFS Deficit each and every year. The reductions were as follows: in 2013/14, by $51 million; in 2014/15, by $107 million; in 2015/16, by $231 million; and in the coming fiscal year, by a further projected $50 million.
He pointed out that is a total reduction in the GFS Deficit of $439 million.
He added that by the coming fiscal year, the Deficit will have been projected to be cut by fully 80 per cent from the all-time record high of $539 million, or 6.4 per cent of GDP, left by the opposition.
Prime Minister Christie said he was surprised by the claim made by the Deputy Leader of the Opposition, the Hon. Peter Turnquest that the Government had been telling Bahamians a so-called “GFS Deficit lie”.
In the context of what his Government has achieved, Prime Minister Christie said that was an admittedly offensive assertion, based on a simple and inaccurate calculation or miscalculation.
“What the Member for East Grand Bahama did was to look at the fiscal results for only part of the 2015/16 fiscal year and then he produced a forecast for the full year by assuming that the fiscal trends during the part-year would continue at the same level for the balance of the year,” Prime Minister Christie said. “With this inaccurate and inappropriate approach, he thus came up with a full-year estimate for the GFS Deficit, which he estimated at $446 million.”
“That is a far cry from the Budget estimate of $150 million,” Prime Minister Christie added. “Unfortunately, the estimate presented by the Deputy Leader opposite is pure fantasy and has no connection to the real world in which we live.”
Prime Minister Christie proceeded to explain why that was the case.
For one thing, he said, the pattern of Recurrent Revenue is rather irregular during the course of the fiscal year, with a disproportionate share of fiscal year collections occurring in the second half of the fiscal year.
“Indeed, in the first half of the 2015/16 fiscal year, Recurrent Revenue collected amounted to only 44 per cent of the full year estimate,” Prime Minister Christie said. “Over the three previous years, that ratio ranged from 39 per cent to 45 per cent of the full year total.”
A simple extrapolation distorts his analysis and invalidates his conclusion, Prime Minister Christie noted.
“Had he factored in the actual pattern of the fiscal flows during the course of the fiscal year, or waited for the end of the fiscal year, he would have been able to produce a much more realistic, much more reliable estimate of the 2015/16 GFS Deficit,” he said.
As well, through ongoing monitoring and prudent fiscal management, the Government is able to manage evolving fiscal pressures during the course of the year, particularly in respect of Recurrent Expenditure, in order to stay close to our fiscal objective, Prime Minister Christie said. Every responsible government around the world exercises that type of responsible husbandry of the public finances and his Government is no exception in that matter, he added.
Prime Minister Christie said in one of the fiscal tables contained in his contribution, Mr. Turnquest also made simple errors, such as forgetting to deduct Debt Redemption in the calculation of the GFS Deficit for 2014/15. He also forgot to extrapolate Debt Redemption in 2015/16, instead using the partial year result to represent the full year outturn, he added.
“More damning to his argument, however, is that he then goes on to question, on the basis of his defective analysis, the numbers that underlie the Budget estimate of a GFS Deficit of $150 million in 2015/16,” Prime Minister Christie said.
Prime Minister Christie added that Mr. Turnquest went so far as to suggest that the Government is intentionally trying to mislead Bahamians.
“It is for me, as the Minister of Finance, to reassure this House and all Bahamians that great care and prudence are exercised in the preparation of the national Budget,” Prime Minister Christie stated. “As members opposite know full well, and they know, the fiscal projections presented in the Budget Communication every year are subjected to careful and meticulous scrutiny, both here in The Bahamas and abroad.”
Prime Minister Christie pointed out that in its annual Article IV assessment of the state of, and prospects for, the Bahamian economy, the IMF engages in intensive discussions with officials and Ministers, and the Executive Board of the Fund reviews and comments on the evaluation prepared by IMF staff. The international credit rating agencies, for their part, pore over the fiscal numbers with a fine-tooth comb, he added.
“Accordingly, we see to it that the projected outturn for the current fiscal year and our projections going forward are backed up by prudent assumptions about the growth of the economy, as well as conservative estimates of the impact of revenue policies,” Prime Minister Christie said.
“Thus, the projections for the GFS Deficit that are presented in the Budget Communication this year are fully supported by, and fully consistent with, the projections for Recurrent and Capital Expenditure, as well as Recurrent Revenue that are laid out in plain view in the Communication.”
“It is, in my view, simply ludicrous and irresponsible to suggest that any Government could imagine it possible to try to fool anyone about the nation’s fiscal situation.”
Prime Minister Christie said that of course, fiscal matters are complex and are influenced by any number of developments during the course of the fiscal year. As such, it does occur on occasion that outturns may differ from Budget estimates, whether because economic developments have evolved somewhat differently than had been expected or because the timing of projects and expenses has varied.
“However, in the event, we do go to great lengths to explain such variances for all to see and understand,” Prime Minister Christie said.
For instance, he pointed out, in the current year’s Budget Communication, the Government readily acknowledged that the outturn for the GFS Deficit in 2014/15 was somewhat higher than had originally been projected. That year’s Deficit is now estimated at $381 million, he added, up $95 million from the Budget projection of $286 million.
The Communication, Prime Minister Christie added, went on to explain the major factors that account for that Deficit deviation, namely a $100 million increase in Recurrent Expenditure reflecting an additional $84 million for Debt Redemption; a $42 million shortfall in Recurrent Revenue due to a lower level of current dollar GDP than forecast; and a $41 million increase in Capital Expenditure due to the acceleration of the RBDF vessel project, with four ships completed and delivered during the fiscal year, to the tune of $66 million.
“While the Deficit in 2014/15 was thus higher than projected, I would note that the outturn still represented a decline in the GFS Deficit of $107 million from the previous fiscal year,” Prime Minister Christie said. “Similarly, this year’ Communication also explained the $9 million increase in the GFS Deficit in 2015/16, from $141 million to $150 million.
“Again, a number of factors were at play in this development. Recurrent Expenditure was up by $57 million, which incorporated increases of $33 million for Debt Redemption, $35 million for interest payments and $13 million for the CLICO payments, to name a few.”
He continued that a lower than expected level of nominal GDP led to a shortfall of $37 million in respect of Recurrent Revenue. And Capital Expenditure was $52 million lower than projected due to the timing of projects.
“Clearly, our approach in the presentation of fiscal outturns and forecasts speaks volumes to our solid record of sound, transparent and responsible fiscal management,” Prime Minister Christie said.
By Eric Rose
Source: Bahamas Information Services
