Progressive Liberal Party (PLP) Leader Philip Brave Davis said yesterday that while he is not surprised by the Moody’s projection that the government will not meet its deficit target, he does not think the government should “embrace” the agency’s recommendation to exercise restraint in its spending.
Last week, international credit ratings agency Moody’s changed its outlook of The Bahamas from negative to stable while affirming the country’s Baa3 credit rating.
In a more detailed statement, Moody’s said, “We think the fiscal deficit target of 1.8 percent of GDP (gross domestic product) in FY (fiscal year) 2018/19 is attainable as a large share of revenue is collected in the third quarter of the fiscal year.
“However, this would still require spending restraint in the second half of FY 2018/19 and efforts to avoid the accounting-led slippage seen in FY 2017/18.
“Because the government has not built a track record under the new fiscal rules, we have incorporated conservative projections in our baseline scenario with the deficit reaching two percent to 2.5 percent of GDP in FY 2018/19.”
In response to the recommendation for spending restraint, Davis said, “It depends on what school of thought you belong to in respect to economic principles that speak to growth.
“There is a school of thought that the more the government is the driver for economic growth, and if they are not spending, there could be no growth.
“This a prediction for austerity, and austerity does not, in my view, assist in growth.”
He added, “I think the government ought to think twice before they embrace this, because right now it is very important that growth is manifested through government spending, and not just government spending, but what I call smart spending.”
Davis said that it was “not surprising” to learn that the government might not meet its fiscal goals.
He said, “Our spokesperson for finance, Chester Cooper, predicted that in several of his contributions over the course of the last several months. We have looked at it ourselves, and from the [increase] of the VAT (value-added tax) by 60 percent.
“We pointed to the fact that [although] you increased VAT, that did not necessarily mean that you will increase revenue, and to believe that is a fallacy.
“We were grounded in that view because we asked and continue to ask the government for the scientific basis or data upon which they relied to increase VAT by 60 percent. They have never provided it… We do not know that it has been done.
“Of course, what we do know is that no consultations had taken place and if that is so, then we feel that the increase was just a seat-of-the-pants decision.”
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