Focus | The context of the upcoming government budget
Today, the minister of finance will present a new budget in an environment that is both promising and challenging. There is no doubt that the Bahamian economy is growing. The Department of Statistics’ latest gross domestic product (GDP) release revealed as much.
That the Bahamian economy is growing should not be surprising, as the world’s economy is also growing and with it all developed economies and most developing economies. Yes, there is no doubt that the government’s finances are improving; both Standard and Poor’s and Moody’s credit rating agencies suggested as much, holding off on any further downgrades of the country’s credit rating. Again, that the government’s finances are improving should not be surprising, considering the significant increase in value-added tax, cuts in expenditure and a growing economy.
There is also no question that there is international interest in the Bahamian economy, as several promising foreign investment projects have recently been approved for islands throughout the country. All this good news would be cause for exuberance but for the reality of some sobering issues on the other side of the ledger.
Yes, the economy is growing but that growth is subdued and lower than even the government’s expectations. It is also too low to have a meaningful positive impact on the high level of unemployment in the country.
There is also growing sentiment that the U.S. economy will soften, and with it the world economy already slowed by concerns over Brexit and the trade war between the U.S. and China.
Yes, the government’s finances are improving but at the expense of a higher tax burden, which is probably among the reasons the economy did not perform at the level expected by both the government and the International Monetary Fund (IMF). The unwillingness of the credit rating agencies to downgrade the economy is quite tentative and they have made it known that any slight change in the government’s fortune could restart the downgrade train. And, yes, international investor interest is up in the country, but so is local anxiety about foreign participation in the economy as well as some concern about the country’s participation in the World Trade Organization. These competing realities mean that the minister of finance, perhaps more than any other, must walk a tight rope.
The minister of finance’s tight rope requires him to do whatever he can to grow the economy, which often means giving tax relief and boosting spending, especially on the capital side. Doing these things, however, cannot be done now without risking increasing the deficit and irritating the credit rating agencies. The public feels overburdened with taxes and fees, yet the minister has to do more to increase revenue intake if he is to meet his medium-term goal of balancing the government’s budget; he can only do so by squeezing more money out of taxpayers, even if by more aggressively going after taxes due. Additional foreign investment might well solve much of the minister’s problem but the best prospects for such is probably Chinese – and both the Bahamian and American government seem to have increased difficulty with that.
What is the context of the upcoming fiscal budget? It is financial and fiscal riddles wrapped up in enigmas. It is complexity begging for simplicity. It is difficult choices to be made for a demanding people. In short order, we will see how the minister of finance and the government fare in this most challenging environment.
• Zhivargo Laing is a Bahamian economic consultant and former Cabinet minister who represented the Marco City constituency in the House of Assembly.