Mid-Year Budget Debate 2023 Opening Remarks
Thank you for recognizing me, Madam Speaker.
It is a very great honour that the resourceful and resilient people of Cat Island, Rum Cay and San Salvador have reposed their confidence in my leadership, and I am committed to proving myself worthy of their confidence – today and every day.
Cat Island, Rum Cay and San Sal are special – blessed with a breathtaking environment, a rich history, and extraordinary people.
The pristine beaches, the rolling hills, and the deep turquoise waters all add up to a very beautiful place to call home. Those same attributes mean these islands have the capacity to provide great entrepreneurial opportunities in both the green and blue economies.
Cat Island, Rum Cay and San Salvador also have rich histories, and a heritage greatly impacted by the Lucayan Indians, the landfall of Christopher Columbus, slavery, the occupation of the American Loyalists, the commercial exploits of piracy, and the strategic roles these islands played during the Prohibition Era. I look forward to sharing this extraordinary history with visitors; as we expand tourism’s links to the orange economy, there is no doubt the role that historical and cultural tourism can play in these islands.
As you can see, I am always ready to boldly proclaim the virtues of these beautiful islands.
The iconic Saint Mary’s Church in Old Bight, Cat Island holds special meaning for me. This was the sanctuary constructed by our ancestors, the newly freed slaves who, back in the 1800s, wanted a place to worship.
The courage of my ancestors, and their commitment to God, are an enduring source of inspiration to me.
So it is that I stand here today – as a proud Bahamian, but a humble public servant.
At the mid-year point of the first full-year budget crafted by my government, we continue to advance the nation’s recovery from multiple crises, at the same time as we are building an economy that will be more dynamic and more inclusive.
- Provided affordable housing: Pinecrest and Carmichael Renaissance are just the beginning.
- Launched a rent-to-own pilot to make homeownership accessible to more Bahamians.
- Introduced a number of additional measures to address the very significant impact of the global inflation crisis in The Bahamas, including raising the minimum wage, reducing or suspending import duties on a broad range of goods, expanding the list of items subject to price control – and now, increasing enforcement of those price controls, with dozens of new price control inspectors.
- Amended the NHI Act to provide for catastrophic health care and amended the Mental Health Act to transform and modernize the way this country deals with the issue of mental health.
Upgraded and continue to upgrade a number of health clinics throughout the country. In fact, we plan to upgrade all 91 of them, and we are finalizing plans to construct 2 new hospitals.
- Installed free WiFi in parks across the country, to ensure wider participation and access to information in this digital age.
- Recruited hundreds of new Police, Defence Force, and Immigration officers.
- Upgraded Family Island infrastructure, including polyclinics, airports, seaports, new roads, seawalls and government complexes. We recently opened a government complex in Bimini and a new passport office in Arthurs Town, Cat Island.
- Expanded the use of solar power generation, as we pursue broader energy sector reform.
- Opened the Andre Rodgers Stadium, a world class baseball stadium built to Major League standards, highlighting our commitment to “Sports in Paradise” and the orange economy where sports, creative arts and culture will become a significant pillar of the country’s national economy.
- Made historic investments in agriculture — stakeholders in the food production industry now say that thirty years of ‘BLOWING SMOKE’ (on farming) is over, and that self-sufficiency in egg production project is now achievable, thanks to the innovative Golden Yoke programme launched earlier this week. This is part of a major emphasis on food security. The pandemic and the global inflation crisis have only underscored the dangers of continuing to import so much of what we eat. I can’t wait to go to the market and see shelf after shelf with Bahamian-grown and produced food.
So you see, Madam Speaker, we did not come here to defend the status quo, we came here to change it.
These tangible advancements have been achieved even though we inherited billions in debt and a billion in unpaid bills, just 17 months ago.
We have made major progress in addressing this inherited fiscal crisis, and I want to begin my substantive contributions to this mid-year budget debate by describing the fiscal performance of the government during the first half of the current fiscal year.
To start the debate, I want to begin with important clarifications on the country’s fiscal position.
On February 23, 2023, a Nassau Guardian article was headlined — and I quote — “Revenue rises but deficit up”. This statement claims an increase in the fiscal deficit for the first six months of the fiscal year. However, this is inaccurate.
Here are the facts —
Government’s fiscal deficit for the first half of the fiscal year DECREASED by $5.3 million when compared to the previous year.
The deficit totaled $276.0 million for the first six-month of this fiscal year, compared to $281.3 million in the prior year.
In fact, for the first half of this fiscal year, the primary balance reflected a surplus equating $4.9 million, a major variance from the primary deficit of $41.2 million in the previous year.
This primary surplus is the first in a very long time. When analyzing over 10 years’ worth of data, it is evident that the Government had reoccurring primary deficits each year, for the same time period.
Government’s revenue performance during the first half of the fiscal year- 2022/2023 has improved significantly due to a vibrant, rebounding economy and strengthened collection efforts.
Macroeconomic indicators show persistent demand in the tourism sector with continued growth in visitor activity and occupancy rates in hotels and the home rental market.
These factors, and revenue policies and administration strategies, have produced results, with total revenue estimated at $1.3 billion for the first six months of the fiscal year.
Total revenue has surpassed the prior year by $124.6 million and stands at 44.9 percent of the budget forecast.
Compare that to the first six months of the fiscal year 2018/2019, which can be considered the last “normal” fiscal year, when the total revenue collected during this period accounted for 38.2 percent of the budget forecast.
This administration’s policies to restore the country’s fiscal health are working – and they are working alongside policies to invest in our people and in our future.
Tax revenue totaled $1.1 billion and strengthened by $130.6 million compared to the prior year, of the same period. Compared to the budget forecast, this represents 44.0 of the collection target.
Again, it’s worth comparing that to the first six months of the fiscal year 2018/2019 (the last “normal” fiscal year), during which the tax revenue collected accounted for 37.0 percent of the budget forecast.
There can be no doubt that improved collection of tax liabilities are contributing to these positive results.
Compared to total tax revenue, Value-Added Tax comprises 54.6 percent of this total. For the first six months of the fiscal year, value-added tax totaled $598.8 million, and grew by $54.2 million compared to the prior year.
To date, VAT accounts for 42.4 percent of the budget forecast. The value-added tax collections continue to improve despite the reduction in the nominal VAT rate from 12 percent to 10 percent, which meant that VAT was reduced across a very broad range of goods and services.
Despite the period-over-period improvement in the VAT collection, the VAT yield has not reached its full potential. In fact, I believe that this administration can further increase the VAT yield with more compliance efforts.
Analyzing historical VAT collections in comparison to the forecast, for the first six months of the fiscal year, reveals that in FY2021/2022 VAT equated 58.8 percent of the budget forecast; in FY2020/2021 VAT equated 43.0 percent of the forecast; and in FY2019/2020 VAT equated 52.9 percent of the forecast.
Thus, although VAT collections to-date increased over the prior year, the collection rate in comparison to the budget, for the first half of this fiscal year, is lower than in the last three fiscal years.
This same kind of trend was also seen with business license fee collections during the period, in which the actuals underperformed in comparison to the budget forecast.
However, this Administration continues to tighten the approach of tax collection via targeted compliance efforts that fall under the Government’s overall revenue strategy to enhance revenue collections, as stated it the FSR 2022.
With further enhancement to tax compliance measures, we are confident that we can boost tax collections by reducing revenue leakages and loss.
Taxes on international trade and transactions improved by $88.5 million relative to the previous year and totaled $314.3 million. This equated 61.8 percent of the budget target. Most notable under this tax component was an improvement in departure tax collection by $45.0 million compared to the prior year, totaling $71.5 million. To date, departure tax stands at 73.7 percent of the forecast. Also, excise duties grew by $37.4 million to total $119.0 million. At the half-year mark, this accounts for 73.7 percent of the budget forecast.
Another highlight is property tax collection, which increased to $59.5 million, an improvement of $22.7 million when compared to the prior year. This accounts for 35.1 percent of the budget target.
Property tax collection at end-December 2022 represents the highest amount collected when compared to collections over the last 9 years, for the same period.
Based on this trend, property tax collections, by the end of this fiscal year, can have the highest yield seen in a long time.
Non-tax revenue understandably had a modest contraction during the first six months of the fiscal year; as iterated in the mid-year statement, in the prior year, non-tax revenues were inflated due to dividend receipts from BTC, the first in a long time.
Nevertheless, non-tax revenue totaled $160.6 million during the first half of this fiscal year, and compared to the budget forecast, this accounts for 51.9 percent of the budget target. During the period, non-tax revenue improvements were seen in premiums, fees and current claims that increased by $25.2 million.
Total expenditure increased by $119.3 million, and totaled $1.5 billion during the first half of the fiscal year. This accounts for 45.6 percent of the total budget target.
In the recurrent expenditure component, spending increased by $105.3 million to total $1.4 billion, which accounts for 47.3 percent of the budget forecast.
Spending on compensation of employees increased by $42.2 million to total $399.4 million, and represents 47.2 percent of the budget target. This was necessitated by higher public-sector wage bill reflecting adjustments to salaries, staffing needs and promotions.
It is important to note that the increase in compensation of employees also reflects the following:
- The increase in the minimum wage rate from $210.00 per week to $260.00 per week for public sector workers.
- The industrial agreement signed by the Ministry of Education and Technical & Vocational Training and the Bahamas Union of Teachers, which permitted teachers to receive a retention bonus, salary increases and increments.
- The industrial agreement signed by the Bahamas Nurses Union and the Government via the Public Hospital Authority, which permitted nurses to receive a retention bonus, among other benefits.
- The salary adjustment for public officers (i.e. Police officers, Defence Force officers, and other orderly officers) that were paid in December 2022 retroactive to July 1, 2022.
Public debt interest payments increased by $41.1 million to total $280.9 million, and equated to 50.2 percent of the budget forecast. By currency, payments on foreign currency obligations totaled $153.6 million (54.7 percent) while payments on domestic debt obligations totaled $127.3 million (45.3 percent).
Spending on the use of goods and services increased by $24.1 million to total $274.5 million. To date, this accounts for 43.2 percent of the budget.
In line with Government’s key functions to society, key recurrent expenditure during the period included:
- Spending on education that totaled $153.3 million, representing an increase by $16.1 million compared to the prior year. This accounts for 47.5 percent of the budget target. Further investments of $15.1 million were made towards tertiary level and other levels of education, and $1.0 million towards subsidiary services to education.
In more specifics, during the period, transfers for scholarships and grants increased by 2.0 million and totaled $20.1 million; and subsidies to the University of The Bahamas increased by $1.1 million and totaled $15.5 million.
- Spending for environmental protection increased by $13.6 million to total $76.5 million compared to the previous year, and accounts for 59.4 percent of the budget target. This increase reflects additional spending of $7.4 million towards environmental protection, $4.6 million towards water waste management, and $1.6 million towards protection of biodiversity and landscape.
In the capital expenditure component, spending increased by $14.0 million over the prior year to total $117.7 million for the first half of the fiscal year. This represents 31.7 percent of the annual budget target.
Key investment highlights during the period includes:
An increase toward capital spending on education by $14.0 million to total $36.8 million, which accounts for 89.5 percent of budget. This reflects building maintenance of educational institutions and school ground improvements during the period.
It is important to note the poor physical conditions and structural issues faced by various schools, such as TA Thompson, whose students were consequently displaced due to structural challenges. As a result, rebuilding efforts and extensive improvements to schools were required. These efforts reflect the necessity to increase capital spending during the period.
An increase in capital expenditure toward health by $9.2 million to total $13.8 million, which represents 23.7 percent of budget. This reflects additional spending on general hospital services, inclusive of upgrades and maintenance for hospital & medical facilities.
Borrowing and Deficit
Central Government’s fiscal performance for the first six-months of the fiscal year show a deficit of $276.0 million, which accounts for 2.1 percent of nominal GDP. Compared to the budget forecast, the deficit equates to 48.9 percent of the budget target.
Compared to the prior year, the deficit to date represents a decrease of $5.3 million from the deficit of $281.3 million in the same period of the prior year. This deficit, at the time, accounted for 2.5 percent of nominal GDP.
As a result of net borrowing activities, central Government debt increased by $236.2 million to $11,036.0 million, which equated to 86.9 percent of GDP at the end of December 2022. This is equivalent to the ratio at end-June 2022.
At end-December 2022, domestic debt accounted for $5,863.0 million or 53.1 percent of total central Government debt.
Foreign debt accounted for $5,173 million or 46.9 percent of total central Government debt.
The Government’s supplementary budget for the fiscal year – 2022/2023 was tabled last week, which entailed amendments to the revenue and expenditure budget estimates laid out in the original Budget.
This supplementary budget aimed to reallocate funding so that projects that have already began can be sufficiently funded, and projects with a late start can now continue with appropriate funding.
In regard to revenue, the budget estimate for total revenue was revised upwards from $2.804 billion to $2.857 billion, a $53.0 million increase. This mainly reflects a net increase of $45.0 million to the tax revenue to account for higher collection of excise duty.
In the non-tax component, the budget estimate was revised upward from $309.4 million to $317.4 million, an $8.0 million increase for premiums, fees and claims. This mainly accounts $7.9 million in refunds to the Government for sustained inactive support program funding facilitated by the Department of Social Service.
In terms of total expenditure, the budget estimate was revised upward from $3.368 billion to $3.433 billion, a 64.4 million net increase.
The recurrent expenditure budget estimate for the fiscal year was revised upward from $2.997 billion to $3.073 billion, a $76.5 million net increase.
Key revisions included:
- An $18.5 million increase for service expense, mainly accounting for $11.0 million for consultancy services, and $8.7 million for operation of facility services.
- A $23.9 million increase for subsidies to public non-financial corporations, mostly comprised of $20.0 million to water and sewerage corporation development projects.
- A $23.4 million increase for current transfers not elsewhere classified, comprised mainly of $9.1 million for the Lucayan Renewal Holdings, $5.8 million for the Grand Bahama Beautification Initiative, $4.0 million to the Airport Authority, and $3.0 million to the Bahamas Public Parks and Beaches Authority.
The capital expenditure budget estimate for the fiscal year was revised downward from $371.1 million to $359.1 million, a $12.1 million net decrease.
Capital estimates were primarily revised downward to reflect lower capital transfers and acquisition of fixed assets. The capital budget for Ministry of Works and Utilities was revised downward by $20.0, Ministry of Finance by $18.1 million, and Ministry of Health and Wellness by $11.1 million.
However, this was offset by increased capital budgets, as follows:
- A $38.3 million increase for Ministry of Education and Technical & Vocational Training, mainly for $35.6 million towards government school building maintaince.
- A $6.2 million upward revision for Ministry of Tourism, Investment, and Aviation mostly attributed to $6.1 million for family island airports improvement.
These revisions lead to a revised fiscal deficit of $575.4 million, a modest 2.0 percent increase from the original deficit of $564.0 million.
The deficit as a percent of GDP remains stable at 4.3 percent.
PFM Act Amendments
At the end of my communication last week, I tabled a new Public Finance Management Bill.
That Bill, once tabled, repealed the Fiscal Responsibility Act 2021 and the existing Public Finance Management Act 2018, replacing them with a more workable, more effective set of rules.
As I have explained in some detail, the compendium of legislation which comprised the ‘Public Procurement Act’, the ‘Public Finance Management Act’, ‘Public Debt Management Act’ and the ‘Fiscal Responsibility Act’ had provisions which were not compatible with the way our country actually works; in fact, they had provisions which severely hampered the legitimate operations of the Government.
My administration’s amendments to public finance legislation support a more efficient collection and expenditure of funds by the Government.
The PFM Act dictates the legal and institutional framework for supervising all phases of the budget cycle, inclusive of budget preparation, budget execution, expenditure management, internal controls, as well as monitoring and reporting arrangements.
The broad objectives of public financial management are fiscal discipline, the allocation of resources to priority needs, and the efficient delivery of public services. Ensuring a solid and strong Public Finance Management system is essential to evading fiscal waste and to guaranteeing that taxpayers’ money is used wisely.
Deficiencies within the original PFM Act undermined the efficient management of public finances.
This new PFM Act will facilitate timely reporting and effective fiscal planning, and will clarify the roles and responsibilities of relevant beneficiaries of Government finances.
My administration has been in office for about 17 months, during which time we have begun updating information systems required to comply with public finance legislation. Strides to automate lacking government systems and processes are a priority. Those very updates will facilitate the Ministry of Finance’s mandate to achieve full compliance.
In amending the PFM Act, we are demonstrating our dedication to responsible fiscal practices, and ensuring a legacy of financial prudence over the long term. In repealing the Fiscal Responsibility Act 2018 and the former Public Finance Management Act 2021, we are eliminating the confusion that arose from overlapping processes within the legislation. Through consolidating the Acts, we have:
- streamlined the reporting processes,
- clearly outlined roles and responsibilities,
- effectively communicated sanction and provisions for recovery of losses, and
- demonstrated a practical timeline.
As it is important for the government to report on public spending and revenue collections, it is crucial to have functioning checks and balances. Therefore, the new PFM Act 2023 reorganizes the establishment, functions, and constitution of the Fiscal Responsibility Council.
The Council, acting as an independent body corporate, will be comprised of 5 members elected by the Minister of Finance, who will be well-versed in domestic and international macroeconomic and fiscal matters. Strengthened rules of appointment will allow for constructive critique of public financial planning as well as continuity between council terms.
By order of the Act, the Council shall have the responsibility to assess compliance with the general principles, fiscal responsibility principles, and fiscal objectives, as well as to advise on fiscal and budgetary matters of the Government. Such responsibilities are inclusive of reviewing the:
- fiscal strategy report;
- annual budget;
- mid-year review;
- pre-election economic and fiscal update;
- Government annual accounts; and
- reports on deviations from the fiscal responsibility requirements.
Furthermore, new legislation provides secretariat support to the council through the Ministry of Finance. Given the importance of the council’s review of Government’s financial planning, it is imperative that this legislation provides tangible support.
It has been proven year over year that current legislation is not feasible. We acknowledge the need for comprehensive fiscal planning, so we have no intention of discontinuing the reporting aspects of the Fiscal Responsibility Act; instead, we are streamlining those processes to work in tandem with budget planning and other reporting exercises.
Such an adjustment is essential, given that the Fiscal Strategy Report, the government’s plan for medium term financial goals, is meant to guide budgetary planning. Going forward, under provisions of this amendment, the Government shall ensure that the annual budget is consistent with the fiscal responsibility principles and the fiscal strategy report.
Under the prior legislation, the Ministry of Finance was to prepare the Fiscal Strategy Report to be tabled in November. As a result, forecasts and data within the report were based on data that occurred in July, August, September and October.
Therefore, having tabled a document in November 2021 that was meant to guide fiscal planning in May 2022 was immensely impractical. Within that seven-month timeframe, economic conditions, in domestic and international source markets, were subject to drastic shifts that needed to be reflected in the budget planning exercise.
It is important to note that in this new legislation, the Fiscal Strategy Report will align with the fiscal year so that it accompanies the annual budget. This allows for practical forecasts and underlining estimates based on the latest economic and financial indicators.
It would be remiss of me not to highlight our nation’s struggle with timely reporting in the past. History reveals that the Fiscal Strategy Report has been delayed for the past three years, that is, by this administration and the former.
In 2022, the report was delayed to capture Moody’s rating adjustment, to better guide interest estimates for the upcoming budget year. In 2021, the Government was in a transitionary period following the snap election in September. Given the change in government, time was needed to prepare the supplementary budget and recast the 2021 FSR to reflect the policies of the new administration. In 2020, the report was delayed due to insufficient data following a failed reopening of the Bahamian economy in July 2020 with an acute resurgence in COVID-19 cases. With a second planned reopening scheduled for November 2020, it was prudent to allow at least one month for observation before finalizing the 2020 FSR.
It is evident Madam Speaker that the current timeline is not pragmatic. By being realistic and intentional in our fiscal planning, the Government has constructed a lens that better reflects the situation which actually exists within The Bahamas.
Our budget forecasts have been labeled as unattainable. I would like to take this moment to assure the Bahamian people that our forecasts are perfectly realistic as outlined by policy measures defined in the recently published 2022 Fiscal Strategy Report.
This is, I should note, a report that has been lauded by international development agencies for its all-inclusive scope and analysis. Incredible efforts have gone into researching, and planning Government financial policies well before the budget exercise begins. The Fiscal Strategy Report sets goals for Government revenue receipts, guided by the revenue enhancement initiatives set forth in the Securing the Revenue Target of 25% of GDP report. Plans for public spending are guided through research to ensure that economic growth persists over the medium term.
By adopting innovative, practical approaches to revenue collection, revenue enhancement, and compliance — and through targeted spending — my administration has set in motion a blueprint that will strengthen the nation’s finances.
To ensure maximum efficiency in fiscal practices, it is imperative to ensure financial administration is carried out in the most effective manner. Aligning the Fiscal Strategy Report to capture timely data and provide viable economic forecasts will better inform budget targets and public finances going forward, which will keep public spending within the budgetary framework.
In order to reach our financial goals, we must be intentional in all of our actions.
The PFM Act 2018 and subsequent amendments were incomplete in outlining agencies and enterprises required to report finances to the government. The PFM Act 2023 captures all entities.
This new Public Finance Management Act has been structured to clearly outline the roles and responsibilities of all agents concerned with public finances. Responsible officers within central government, agencies, state owned enterprises and government business enterprises are plainly designated within this legislation, eliminating any prior confusion.
It is our intent to make the Public Finance Management Act of 2023 as comprehensive as possible. As an all-encompassing piece of legislation, the new act outlines a clear and concise schedule for public financial planning and reporting, to achieve overall fiscal discipline and the effective allocation of resources to priority needs.
That the Bahamian people have the capacity to overcome times of crisis and tragedy should never be doubted.
In our recent past alone, we have weathered the global financial meltdown of 2008, powerful hurricanes, including Matthew and Dorian, and a global pandemic that sealed us off from the world.
It is our faith in God and our NO-QUIT spirit that makes it possible for us to get up, dust ourselves off, and continue building our beautiful families, communities, and nation.
We have the confidence of people who know we can respond with resolve and ingenuity to our troubles and trials.
And so as I’m wrapping up, let me say this:
Climate change is perhaps the most formidable challenge we have faced yet, given the complexity of the problem, the imminent dangers it presents, and the need to persuade the wealthiest countries and companies in the world to change their ways. Yet we have shown that The Bahamas can lead on this issue – an issue that affects every country, everywhere, but is most immediately an existential crisis for small island nations like ours.
This is a challenge that demands ambition and seriousness of purpose from us. It is a challenge that requires us to build alliances with other nations – this is not something we can solve alone. It is a challenge that requires us to call out excuses for inaction or delay because we can’t afford either.
And, one hopes, it is a challenge that we face together as a nation, united in our determination, no matter what other differences we may have on other issues.
We have to look out for our own future; that’s our job, no one else’s.
But let me say this: I believe that our best days still lie ahead.
It is an extraordinary privilege at this juncture in our history and development – in our 50th year of national sovereignty – to lead our great nation.
My government and I humbly ask for the continued partnership and support of all Bahamians as we work together in faith to lift people up and to build a stronger, safer, more prosperous nation.
This 2022/2023 budget forms a firm and solid foundation for change and progress, and at the mid-year point, this ship of state is on the right course.
As I did at the beginning of the fiscal year, I again commend this budget to this Honourable House.