Hurricane Dorian and the COVID-19 pandemic have led to an estimated threefold increase in the fiscal deficit to $788.1 million in FY2019/2020 from $219.3 million in the previous fiscal year, according to the Fourth Quarter Fiscal Snapshot and Report.
The report stated that the severity of the impact of COVID-19 on revenue performance was “very pronounced” in the final quarter.
While total revenue for FY2019/2020 decreased by $337.1 million or 13.9 percent to settle at $2.09 billion, in the fourth quarter alone, the government saw reductions across the board of its tax categories by 55.2 percent — led by a significant contraction in value-added tax (VAT) receipts, which decreased by $169.2 million (55 percent).
There were also significant contractions in customs and import duties, falling by $54.2 million (or 63.6 percent), departure taxes by $27.6 million (or 63.7 percent), license to conduct specific business activity by $37.6 million (or 75.1 percent) and gaming taxes by $8.2 million (or 47.2 percent).
The Ministry of Finance said these numbers reflect the combined impact of slower economic activity in Hurricane Dorian-affected Abaco and Grand Bahama, and the reduction in business activity amid the series of national lockdowns throughout the last quarter of the fiscal year.
Acknowledging the severity of the impact of COVID-19 on revenue performance, Deputy Prime Minister and Minister of Finance Peter Turnquest said despite the strain on government finances, the Minnis administration continues to meet government obligations while doing its part to sustain domestic economic activity.
“Consistent with our budgeted plans, we are disbursing millions in unemployment assistance, maintaining public service salaries and engaging in targeted capital expenditures to support the COVID-19 response and the broader effort to restore the economy,” he said in a statement yesterday.
“Prolonged shutdowns increase fiscal risks for all governments, including our own, which is why we are closely monitoring the situation. The coronavirus is not going away, so our highest priority is adapting so that business and commerce can occur safely despite COVID-19.”
Economic activity came to a near standstill during the last quarter of the 2019/2020 fiscal year, April 1 through June 30, during which the country’s border’s were closed to international commercial flights and a national lockdown forced hotels and businesses deemed non-essential to close their doors to slow the spread of the deadly novel coronavirus.
With tourist activity projected to remain subdued throughout the remainder of the year and the first half of the 2020/2021 fiscal year, Turnquest said the government will have to lean heavily on domestic spend to buoy the economy.
“The domestic economy is going to lead the way with a well-considered and balanced reopening strategy; this is not only important to restore the livelihoods of Bahamians, it is important for the country’s fiscal health,” he said.
“We are actively working on new models and testing our assumptions to determine if, when and where adjustments may be necessary.”
Looking at the whole picture, tax receipts for the FY2019/2020 fell by $349.0 million (15.9 percent) to settle at $1.849 billion.
“This was partly explained by the shift in taxes on realty transactions from stamp to value-added tax, which resulted in a corresponding $158.5 million (70.3 percent) decline in stamp taxes on realty and financial transactions,” the snapshot showed.
“Notwithstanding, VAT receipts declined by $19.2 million (2.1 percent), under the weight of weakened economic activity. Growth in non-tax collections, of $11.8 million (5.2 percent) to roughly 84 percent of the revised budget, was primarily due to the $12.8 million payout from the Caribbean Catastrophic Risk Insurance Facility (CCRIF).”
On the expenditure side, total government spending grew by $231.7 million to $2.8 billion, representing an increase in recurrent expenditure which settled at $2.5 billion and capital expenditure which stood at $368.7 million, enlarged by outlays for Hurricane Dorian ($94.0 million) and COVID-19 initiatives ($39.5 million).
“In the final quarter of FY2019/20, the government spent over $57.3 million directly on COVID-19-related recurrent and capital expenditures. These items included $1.7 million to support the COVID-19 response in the Family Islands; $1.2 million to cover rental charges associated with government-funded quarantine sites and over $4 million to purchase medical supplies, including PPE, between the Ministry of Health and the Public Hospitals Authority. It also included $39 million to support business continuity programs for Bahamian small businesses,” the Ministry of Finance noted in the report.
At the end of June, government debt stood at $8.24 million.
“The government’s operational requirements resulted in a net increase in its debt obligations of $714.4 million for FY2019/20. Short-term funding comprised $228.0 million in Treasury bill taps, and another $60 million in Central Bank advances — the latter being repaid within the fiscal year,” the ministry of finance noted.