As the government contends with what he described as the biggest “fiscal setback in the last 100 years”, Deputy Prime Minister and Minister of Finance Peter Turnquest yesterday announced the Minnis administration’s intention to borrow $1.3 billion in the 2020/2021 fiscal year.
During a two-hour-long budget communication in the House of Assembly, Turnquest painted a grim economic picture and highlighted a projected deficit of $1.3 billion.
“This is the largest deficit to be incurred by any government in the history of The Bahamas,” he noted.
“That is a fact. This is indeed a testament to the monstrous impact Hurricane Dorian and COVID-19 have leveled back-to-back on our small, open economy.”
He said together, these events delivered “the fastest, deepest economic shock to The Bahamas since the onset of the Second World War”.
“The Bahamian people should rightly want to know why the government finds itself projecting such a high deficit of $1.3 billion.
“The answer is relatively straightforward. It is because the alternative options are much worse. It is a lot easier to keep a person afloat than fighting to drag them back to the surface.
“Our economy is like that. We are investing in our restoration plan to avoid a dramatic scale back that would submerge the economy and leave Bahamians out at sea, without a life raft.
“We are borrowing to keep Bahamian families, communities and businesses above water and to keep the economy afloat, as we see our way through this extraordinary time.”
Turnquest said the corresponding government debt level is expected to rise to nearly $9.5 billion in 2020/2021, equating to roughly 82.8 percent of GDP.
Government debt is projected at $8.9 billion at the end of the current fiscal year, which ends on June 30.
The minister said the ballooning deficit is due in part to flat revenue collections.
“When I presented the budget communication last year, we estimated the government would generate $2.6 billion in revenue,” Turnquest said.
“We are forecasting revenue of only $1.7 billion next year, because of the dual external shocks of Dorian and COVID-19.
“That amounts to revenue that is $900 million below where we were this time last year, when the economy was experiencing positive and steady economic growth.
“What does this all mean? Mr. Speaker, the impact of our revenue shortage is one of the reasons for the large deficit we are forecasting this year.
“The $900 million in lost revenue potential is equivalent to some 35 percent of total government annual spending on average. The falloff in planned revenue is an unparalleled blow from these unprecedented economic shocks.”
‘No new taxes’
The government has budgeted recurrent spending at $2.6 billion, which is $35.3 million or 1.4 percent higher than the revised budgeted sum of $2.5 billion for the supplementary budget.
Turnquest said capital expenditure will feature a number of projects that support hurricane restoration, as rebuilding efforts continue on Grand Bahama and Abaco.
“During this time, the government could have chosen to continue its fiscal restraint measures by cutting back spending and starving a deprived economy,” he said.
“However, we did not choose this route as we appreciate that during a downturn, government spending is crucial to reviving a downtrodden economy. Again, these are unprecedented times that have called for unprecedented measures, and we are intent on ensuring the efficacy of our outlays in line with our overarching fiscal responsibility objectives.”
Despite the projected revenue drop, the government will not increase taxes or introduce any new taxes in the 2020/2021 budget, the minister pointed out.
“It is our considered view that any such move would significantly slow down the timeliness of an economic rebound,” Turnquest said.
He added that the government will also maintain its employment numbers.
“While there may be headcount reductions due to retirements and expiring contracts for consultants and services, there will be no public sector layoffs,” the minister said.
“There will be no one left to fend for themselves while the economy is reeling from the worst slowdown in modern history.”
However, Turnquest said the government will also seek to make substantial reductions in several areas of recurrent expenditure across all ministries.
Some of the cuts include the elimination of the assignment of red plate vehicles to ministers; cancelation of all international travel, except in essential circumstances; discontinuation of the House of Assembly providing breakfast and lunch and a reduction in a number of allocations on discretionary items.
Turnquest said some 42 out of 58 agencies represented in the budget will see a reduction in their budgetary allocations this year.
The minister called on Bahamians to lean on each other as he forecasted that hardships will continue for months to come as most sectors try to rebound.
More than 55,000 people have already filed for unemployment benefits and assistance with the National Insurance Board, representing over 30 percent of the workforce.
“The biggest set of twin setbacks in the last 100 years calls for the biggest fiscal response in 100 years,” Turnquest added.
“And, while we pray to almighty God that we will not face compounding challenges like this again, we are prepared to face, head on, the hardships of this moment.
“When we emerge from this crisis, the government will return to the success of our fiscal consolidation plan, treating this juncture in our national story as an anomaly, not as a license to engage in fiscal indiscipline.”