The government’s debt is expected to rise to $9 billion by 2021, with a debt to gross domestic product (GDP) ratio of 66.5 percent, as a result of Hurricane Dorian and is expected to peak at $9.4 billion by the 2024/25 fiscal year (FY), according to the 2019 Fiscal Strategy Report released by the Ministry of Finance yesterday.
The debt is projected to hit $8.2 billion this fiscal year with a debt to GDP ratio of 65 percent and then steadily increase to $8.7 billion in fiscal year 2020/2021, accounting for 66.6 percent of GDP, before skyrocketing to $9 billion in fiscal year 2021/2022. The debt is expected to continue rising in FY 2022/2023 to $9.2 billion, accounting for 65.9 percent of GDP, then $9.3 billion in FY 2023/2024 at 64.5 percent of debt to GDP and $9.44 billion in FY 2024/25, with a debt to GDP ratio of 62.9 percent.
“Unexpected costs associated with Hurricane Dorian, together with other expenditure imperatives, will cause a temporary increase in the government’s funding requirements and debt profile over the medium term. Total public debt is estimated to increase to $8,217 million or nearly 65 percent of GDP in FY 2019/2020 compared with the pre-Dorian estimate of 56.4 percent,” the report notes.
“During the medium term, the debt ratio is forecast to rise further to 66.9 percent in FY 2020/21, declining steadily thereafter to 63.8 percent in FY 2024/2025, as the fiscal deficit converges to the previous consolidation path, thereby reducing borrowing needs. Given the debt objective of 50 percent of GDP, the government acknowledges the need to revise its previous timeline for this achievement, from FY 2024/2025 to FY 2028/2029.”
Included in the report is the government’s fiscal adjustment plan and medium-term fiscal outlook, which shows the government won’t reach its pre-Hurricane Dorian deficit levels for at least another five budget cycles.
“Under the revised fiscal plan, the government envisages a steady improvement in the overall balance – from a deficit of 5.3 percent in FY 2019/2020 to 0.5 percent in FY 2024/25. This will place the debt to GDP ratio on a downward path toward the long-term objective of 50 percent of GDP,” the report states.
As for revenue, the report shows that this is not expected to stabilize until FY 2024/2025 and at around 20 percent of GDP.
“Revenue is assumed to be a fixed ratio to nominal GDP of, on average, approximately 19.8 percent – adjusted to account for the diminishing revenue losses linked to Hurricane Dorian. In line with the expected recovery in economic activity, staggered rates of revenue losses were assumed for the three fiscal years through 2022/23 – decreasing from 70 percent to 10 percent for Abaco, and from 50 percent to 10 percent for Grand Bahama. Across the medium-term forecast years, cumulative Hurricane Dorian estimated revenue losses are in the region of just over $333 million, for an average 0.8 percent of GDP,” the report notes.
While the government will focus its capital expenditure over the medium term on hurricane-related rebuilding and initiatives to address the state of healthcare infrastructure on New Providence, and to support transformation initiatives in the area of indigenous renewable energy sources, it is still targeting 2.5 percent of GDP for its capital expenditure growth.
The government estimates new capital outlays will peak to three percent this fiscal period, before settling to 1.9 percent of GDP in FY 2023/2024.
Regarding recurrent expenditure, the government anticipates benefits from the ongoing rationalization initiatives with the state-owned enterprises (SOEs) to deliver cost savings.