The upcoming National Budget, about six weeks away, will be against a background of a shortfall in revenue, greater demands for spending and a need to stimulate the economy, a leading financial expert predicted.
“Unfortunately there is probably no choice but to be a deficit budget,” said the expert, who wished to remain anonymous.
“It would not be a balanced budget at all. The Government would end this year with a deficit and forecast another deficit.”
He was responding to statistics in the latest Quarterly Economic Review, the December 2002 edition released last week by the Central Bank of The Bahamas.
According to the bank, after accounting for a 10.1-per-cent reduction in government contingent liabilities to $368.1 million, the National Debt grew one per cent to $2,173.4 million at Dec. 31, for a 12-month increase of $206 million (10.5 per cent).
Asked how can the country get itself out of debt, the financial expert said the only way to reduce it is to generate surplus budgets and use that money to pay debts.
“But what we are doing is just digging ourselves in a hole. Government ministries would have to get lower budgets across the board and contain spending.”
Given the structure of the economy, the source said the Government has very little flexibility, because the country is too dependent on foreign investment.
But the big question is whether the Government would meet its revenue targets, when it was running $20 million a month behind through October. The Government said November, December and January were on average $6 million ahead on projection, but never explained what accounted for that.
Meanwhile, Government revenue is going to be less than forecast, the source said and it is going to have to spend more because the economy is slowing down and people are being laid off, putting a demand on social services and on the creation of jobs.
“What we rely on is foreign investment to stimulate the economy, but we really need to start taking charge of that ourselves.
“The Government would then look to borrow more money to get the economy going and making some sort of investment.”
However, there is a silver lining behind the dark cloud, particularly if the war is over between the U.S. and Iraq, the source said.
With reasonably high numbers in hotel occupancy, if the country gets foreign investments going such as that of Atlantis, and gas prices continue to decrease, and domestic rates are lower, that would reduce the national debt, he said.
“If the war is truly over, people would continue to come here as opposed to going to Europe and the Middle East.”
The Central Bank’s report said that budgetary financing during the second quarter of fiscal year 2002-03 included total borrowing from domestic currency sources of $74 million and $7.5 million from external creditors. Debt amortization of $19.3 million comprised $13 million in Bahamian dollar repayments and $6.3 million in foreign currency.
As a result, the direct charge on Government rose by $62.2 million (3.6 per cent) to $1,805.3 million at Dec. 31, representing an increase of $202 million (12.6 per cent) for the calendar year, the report said.
For the Bahamian dollar portion, at 87.3 per cent of the total, holder patterns revealed no marked shifts from the previous quarter, with the majority (39.3 per cent) held by public corporations (mainly the National Insurance Board), followed by domestic banks (25.2 per cent), private and institutional investors (23.8 per cent) and the Central Bank (11.6 per cent), the report said.
Government bonds were the largest component of Bahamian-dollar debt (82.8 per cent), with an average term to maturity of 10 years. The rest of the Bahamian-dollar charge consisted of Treasury bills (11.4 per cent) and advances (5.8 per cent), the report said.
As constituted, however, the direct charge excludes short-term advances from domestic banks, which decreased by 47.4 per cent to $35.8 million during the quarter, and by 51.4 per cent during the calendar year.
According to the source, the Government borrowed a net additional $62 million through bonds, and used about half of it to reduce overdrafts to commercial banks.
By Lindsay Thompson, The Nassau Guardian
