Bahamas reduces national debt

The Bahamas’ national debt has fallen to US$10.48 billion, following a near US$343 million in principal repayment.

In the newly released First Quarter Fiscal Snapshot and Report on Budgetary Performance FY2021/2022, the Ministry of Finance said the country’s debt ratio at the end of September represented 98.1 per cent of GDP, down from 100.5 per cent at end-June.

“With the rebounding domestic economy, government’s gross borrowing was contained at US$497 million as compared to US$921 million in the same period of the prior year. Domestic bonds totalled US$48.8 million to cover required financing,” the report noted.

It said foreign borrowing from international development agencies aggregated US$23.7 million, mainly comprised of US$10.4 million for energy sector reconstructions, US$2.8 million for government digitisation initiatives, US$2.7 for a micro and small business programme, and US$2.4 million to support the health sector with containment of the COVID-19 pandemic.

Short-term financing comprised US$265 million in treasury bills and US$160 million in central bank advances.

Bahamas’ fiscal deficit, which stood at US$153.5 million, was nearly 55 per cent less than it was a year ago, but still in line with the projected 16.1 per cent budget target, the report showed.

The Ministry of Finance also noted that preliminary data for the first quarter, July to September, indicates an expected narrowing of the fiscal deficit to US$153.5 million from US$345.1 million in the previous year.

“This outcome is largely due to the reopening of the economy. Revenue receipts improved with increased tourism and taxable activities due to lessened COVID restrictions. However, expenditure to support various social assistance and employment support programmes in response to the pandemic continued during the period,” the report said.

Vax and figures

The ministry’s document showed that revenue for the first quarter stood at US$572.8 million, an increase of US$272 million, or more than 90 per cent year on year, and 25.5 per cent higher than the budgeted target due to the strong rebound in the tourism sector and the reopening of the economy.

Tax receipts improved by 85 per cent or US$230.2 million to US$499.7 million at the end of the quarter. That included value-added tax US$294.7 million, which grew by US$160 million, which the ministry attributed to enhanced economic activity resulting from reduced COVID-19 containment measures amid vaccinations against the coronavirus.

“Likewise, gaming taxes amplified period-over-period to US$10.5 million, a 93.7 per cent increase from the previous period,” the report noted.

The Ministry of Finance said that at the end of the quarter, 17,154 Bahamians were still benefiting from the government’s unemployment benefits programme administered by the National Insurance Board. As a result, recurrent expenditure increased by 13.3 per cent to US$663.6 million during the first three months of the fiscal year, accounting for 23.5 per cent of budgeted spending.

Meanwhile, ratings agency Standard & Poor’s has downgraded The Bahamas’ sovereign creditworthiness citing “the failure of successive governments to implement timely and effective” fiscal reforms even prior to COVID-19.

Downgraded to junk

In a statement on Friday, the S&P joined its rival, Moody’s, in downgrading the country to ‘junk’ status by slashing its long-term and local currency rating to ‘B+’ from ‘BB-’, saying the national debt had increased by US$2.4 billion in two years.

However, S&P broke with Moody’s in simultaneously providing The Bahamas with a glimmer of hope by upgrading its outlook for its public finances from ‘negative’ to ‘stable’.

It based this upgrade on its expectation that the economy’s post-COVID recovery will drive increased revenues and narrow the Government’s annual fiscal deficit despite the absence of major reforms.

“The stable outlook reflects our view that the economic recovery presently under way will support government revenues and reduce pressure on government expenditures, supporting a gradual decline in fiscal deficits over the next 12 months,” S&P said in its Bahamas country analysis. “We expect continued, but decelerating, growth in the national debt.”

S&P also predicted that the Bahamian economy will expand by 3.7 per cent in 2021, a rate that is higher than the projections of both the International Monetary Fund and the Central Bank of The Bahamas.

The rating agency is also projecting growth of 8.6 per cent in 2022, but is voicing concern at the same time that “slow progress” in enacting fiscal reforms had undermined the Government’s finances even before the double blow inflicted by COVID and Hurricane Dorian.

“Although successive governments have continued to work on policies and legislation to support their fiscal responsibility mandate, they have not enacted material revenue measures or sustained expenditure cuts,” S&P said, adding that it expected the 10 per cent rate cut in the VAT would be revenue-neutral.

CMC