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Deficit shrinks with ‘broad-based’ revenue hike

Further cutbacks heavily dependent on ongoing recovery, says Central Bank
Guardian Business Editor

Published: Oct 07, 2013

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The government’s overall deficit for the first month of the new fiscal year shrank by almost 40 percent, by $9.4 million, to $15 million, in light of “broad-based gains” in revenues, the Central Bank of The Bahamas has reported.

The Central Bank of The Bahamas’ Monthly Economic and Financial Developments report for August describes a 4.8 percent rise in total revenue and a reduction of 3.3 percent in overall expenditure, led by a 68 percent decline in capital spending.

The picture is a turnaround from successive previous months, which had seen expansions in the fiscal deficit, accompanied by reductions in revenue and rising spending, and would appear to suggest some enhancements to the government financial position from the implementation of new revenue raising measures and cut backs in spending implemented in the 2013/2014 budget.

However, the Central Bank states that the potential for a reduction in the overall deficit and associated debt indicators will continue to depend heavily on the extent of the economic recovery, as well as the ongoing success of government’s measures to increase revenues and curtail expenditure growth.

The August status update said the government experienced a “modest” increase in tax receipts by $2.3 million (2.3 percent) to $102.0 million, including a $9.5 million (24.4 percent) advance in “other” taxes and a $1.3 million rise in selective taxes on services, which outweighed the $7.7 million contraction in taxes on international trade.

“Further, the $2.8 million (37.3 percent) gain in non-tax revenue to $10.4 million was primarily explained by a $3.4 million hike in income from fines, forfeitures and administrative fees, which offset broad-based declines in the other components.”

The report states that there was a 67.4 percent decline in capital outlays ($9.3 million), which led the contraction in aggregate expenditure.

“This reflected reduced spending on infrastructure developments and asset acquisitions, by $7.7 million and $1.1 million, respectively. In contrast, recurrent spending expanded by $4.6 million (3.9 percent) to $121.9 million, as the $5.5 million increase in debt-related transfer payments, outstripped a $0.9 million fall in consumption outlays,” said the report.

The deficit picture improvement comes as the Central Bank also reported “subdued” economic activity for August, in light of ongoing softness in tourism, and notwithstanding foreign investment related construction activity.

Hotel room revenues in New Providence and Paradise Island fell by a further eight percent, on top of a seven percent contraction in the previous month.

Meanwhile, the occupancy rate fell to 71.3 percent, “eclipsing” a 1.3 percent gain in daily average room rates, to $206.61.

“In addition, over the eight-month period, revenues from the properties surveyed contracted by seven percent, owing to a broad-based decrease in the occupancy rate by 4.9 percentage points to 69.8 percent, which outweighed the three percent rise in the average daily room rate to $245.76.

Banks saw no respite from the high levels of loans in arrears during August, as total private sector loan arrears increased by $13.1 million, or one percent, to $1,273.1 million, for a 29 basis points hike to 20.66 percent of total loans.

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