The government is now projecting that its 2019/2020 deficit is expected to be $677.5 million, or roughly 5.3 percent of the gross domestic product (GDP), Deputy Prime Minister and Minister of Finance Peter Turnquest said yesterday.
Turnquest, who tabled the 2019 Fiscal Strategy Report in the House of Assembly, said Hurricane Dorian, the Category 5 storm that devastated Abaco, Grand Bahama and the surrounding cays, set government plans of a balanced budget back by four years.
The government initially projected a deficit of $137 million, or one percent of the GDP for 2019/2020.
Turnquest said the government will now have to borrow $507.9 million to deal with the effects of Dorian.
The storm destroyed the majority of homes and businesses in Central Abaco and some of its barrier cays.
Grand Bahama also suffered extensive economic damage from the storm.
The Inter-American Development Bank (IDB), in a recent report, said Dorian caused $3.4 billion in damage and losses to The Bahamas.
The Fiscal Responsibility Act, which was passed last year, mandated a deficit ratio of 0.5 percent for the 2020/2021 fiscal year, but that is now not expected to happen until 2024/2025.
“It is clear that the impact of this monstrous and unprecedented hurricane will prevent the government from achieving the fiscal objective for the overall balance of one percent for fiscal year 2019/20, and the deviation will exceed the 0.5 percent compliance margin allowed in the Fiscal Responsibility Act, 2018,” Turnquest said.
“As such, the government is invoking the exceptional circumstances clause, which allows for a temporary departure from the fiscal targets because of exceptional events.”
He added, “We now anticipate returning to compliance in fiscal year 2024/25, which will allow the debt to GDP ratio to resume its downward trajectory towards the 50 percent target by fiscal year 2028/29.
“I want to emphasize, Mr. Speaker, that prior to this event, we were on track for our fiscal consolidation in 2024/2025.
“[D]espite the impact that Hurricane Dorian has had on our nation, both socially and economically, we will not be derailed.”
Turnquest said Dorian resulted in a loss of an estimated $236 million in revenue on account of the disruption of commerce on Abaco and Grand Bahama.
“As such, the projected revenue yield for fiscal year 2019/20 has been adjusted downwards from the approved estimate of $2.628 to $2.395 million,” he said.
“On the expenditure front, the government expects to spend an additional $182.7 million in hurricane-related outlays — of which $82.7 million will be used to facilitate recurrent expenses such as landfill operations for cleanup, food assistance programs and unemployment benefits, among others.
“Capital expenditure is anticipated to increase by $100 million for hurricane initiatives, which will include the restoration of water and electricity in Abaco and Grand Bahama, the provision of temporary housing, vehicle replacement, and other repairs to critical infrastructure, such as hospitals and clinics on the storm-ridden islands.”
He added, “Thus, in total, aggregate expenditure is estimated to increase by $302.6 million in fiscal year 2019/20 to $3.073 million, as compared to the $2.765 million approved estimate.”
The tabled report included the mandated fiscal adjustment plan to outline the reason for the government’s departure from its fiscal targets as well as its plan to address the issues.
Turnquest said spending will decrease to allow for lower deficits beginning next year.
“Over the medium term, it is anticipated that Hurricane Dorian and other spending imperatives related costs will taper, allowing for lower deficits beginning in fiscal year 2020/21, which will see a reduction in the deficit to $498.9 million from $677.5 million, with further reductions occurring in fiscal year 2021/22 to $301.2 million and eventually to $82.0 million in fiscal year 2024/25, when the government is expected to return to compliance with a deficit ratio of 0.5 percent,” he said.
He added, “[Dorian] is a reminder that the best of fiscal plans can be usurped by external factors outside of our control.”