Softened revenue intake is expected to continue for the government as taxable economic activity is expected to remain below capacity, The Central Bank of The Bahamas (CBOB) states in its Monthly Economic Financial Developments (MEFD) report for October, adding that the government’s financing needs are expected to remain high as a result of the COVID-19 pandemic and Hurricane Dorian.
The CBOB explained that improvements in tax revenue will likely come in lockstep with improvements in the country’s tourism gains.
The government revealed in its supplementary budget that it expects to pick up just under $100 million in additional tax revenue, the lion’s share of which will come from value-added tax (VAT), despite its plan to reduce that rate from 12 to 10 percent.
The supplementary budget also includes additional recurrent expenditure in the neighborhood of $53 million.
According to the MEFD report, the government’s expenditure will continue to be strained by social outlays due to the COVID-19 pandemic and continued infrastructure improvements across Abaco and Grand Bahama as a result of the devastation caused by Hurricane Dorian in 2019.
“On the fiscal front, attributed to constrained revenue collections and higher outlays for health and social welfare related to COVID-19, along with costs still associated with the reconstruction of key infrastructure following the major 2019 storm, government’s net financing needs are forecasted to remain elevated,” the MEFD report states.
“Projected revenue shortfall should continue, with expectations that taxable economic activity should remain below capacity, improving mostly in line with tourism recovery.”
The report states that the government’s 2021/2022 fiscal year is expected to be funded through an increase in the use of domestic sources of finance, as the country’s foreign currency borrowing options continue to be eroded by credit rating agency downgrades, two of which occurred over the past two months.
The government began debating its supplemental budget in the House of Assembly yesterday.
Part of the government’s plan to improve revenue collection apart from reducing VAT to 10 percent, is to remove zero-rated items put in place by the Free National Movement administration.
The government hopes the decrease in VAT will spur spending in the local economy.
The government has also vowed to improve revenue collection.