Minister of State for Finance James Smith revealed Wednesday that less than favourable revenue collections and over expenditure will cause the government to surpass the $122 million deficit predicted in the 2003-2004 budget.
“Throughout the year, we’ve been faced with unexpected expenditure and as a result of that we’ve gone off target,” Minister Smith told the Bahama Journal. “So our deficit is likely to be higher based on situations like this.”
Minister Smith said that the government faces at least $33 million in unexpected expenditure.
He also revealed that, “The 2004-2005 budget is likely to be very much like last year’s budget in the sense that many of the conditions that were [present] then are still in effect now.”
The shortfall that was forecasted in the 2003-2004 budget would have raised government debt by 2.2 percent to 38.7 percent of GDP.
The International Monetary Fund (IMF) has warned that a ratio of government debt to GDP greater than 40 percent could run the country into serious fiscal problems.
Government deficits since 2001/2002 add at least 10 percentage points to government debt, bringing it very close to the 40 percent level.
During his budget communication to parliament last May, Prime Minister Perry Christie placed renewed focus on revenue intake, announcing a number of enhancement measures aimed at collecting more than $1 billion in revenue.
Mr. Smith said Wednesday that, “Revenue performance has been lackluster.”
“Despite the fact that we’ve had very good measures of enhancement in terms of getting the revenue that was due to the government, we have not seen any robust growth corresponding to the growth in GDP,” he said.
“I think this is explained in part by the continued credit constraints that have been imposed for the last three years on the system by the Central Bank policies. And if there is no credit growth, then clearly there is no appreciable growth in imports and consequently we have less in terms of customs duties.”
During an earlier interview, the State Minister indicated that for the first half of the 2003/2004 fiscal year, revenue intake was about $20 million behind projections, forcing the government to maintain its freeze on public sector hiring.
Recently released figures also show that from the period July to September, the government collected $446.1 million and spent $501.8 million, incurring a deficit of $55.8 million for that period.
Revenue shortfall, meanwhile, stood at $39 million for the period July through September.
The government last year (during the 2002/2003 fiscal year) ordered its various ministries and departments to cut back on spending by five percent, underscoring a growing response to economic uncertainties arising out the US-led war with Iraq.
On a $1 billion budget, this cutback represented a reduction in expenditure of $50 million.
According to Mr. Smith, a number of unexpected revenue challenges have arisen in recent months.
These include, an increase in the number of persons who are failing to repay their government guaranteed student loans, he said.
“Already this year, claims in excess of $9 million have been made on the fund because of defaults, despite the fact that we have collection agencies after some of the people, which we continue to watch. And this puts pressure on the budget.
“Then there was also the fact that we relented and accepted the recommendation of the [Public Service] union and made the payment of salaries of some $24 million, which we had not programmed in the budget.”
Further increasing expenses was the cost involved in several other projects, including the several million dollars paid to expand Exuma’s airport facilities to accommodate increased traffic as a result of the Four Seasons Resort opening on that island.
As the government turns its attention to preparing a new budget to be presented in May, Mr. Smith said the watchword for the upcoming year is still caution, “until we are safely out of the woods.”
“We will ask the ministries to be very careful in areas where we need not have to spend a lot,” he said.
ﾓBut we also have to be very careful because there are some expenditures that are unavoidable, in fact those that are connected to revenue growth” Mr. Smith said. “So we would look at them in sort of a cost benefit way and only spend where we can see a return. We will continue with our austerity measures including a freeze on hiring, except in those areas where we feel there is a critical need.ﾔ
Government officials are keeping their fingers crossed that as capital investment projects take root, there will be a moderate turnaround in the country’s economy – perhaps in less than a year.
“We do believe that as time goes on, particularly into next year, many of these projects that have been announced would take root,” Mr. Smith said. “I would also expect that banks would review its credit policy.”
Macushla N. Pinder, The Bahama Journal
