Bahamian Mid-Year Budget Report Published

by Mary Swire, for LawAndTax-News.com, Hong Kong

28 February 2008

The Bahaman Minister of Finance, Hubert A. Ingraham has this week presented the 2007/2008 Mid-Year Budget Statement to the House of Assembly.

Mr Ingraham began by stating that:

"The introduction of this Mid-Year Budget Statement into the Budgetary process of Government represents the establishment of a level of transparency and accountability which is, without doubt, a noteworthy enhancement in the process of governance."

"Up to this point, the budgetary process as involved in the annual Budget Communication and supporting documents primarily concerned itself with a consideration of the economic context of the fiscal period, the articulation of the Government’s expenditure plans and programmes for the fiscal year, and with the issues relative to the raising of necessary revenue and finances for the Budget."

"The Mid-Year Budget Statement on the other hand, is concerned primarily with how the current fiscal budget is actually performing in relation to the plans and projections put forward as the Government’s goals and objectives in the Budget Communication."

The Prime Minister then went on to talk about the global economic outlook, stating that:

"Fears of a US recession, and a general deterioration in credit and severe strains in financial markets are definitely moderating the outlook for global economic growth in 2008. The International Monetary Fund projects solid growth for the year, but sees the overall balance of risks to the global growth outlook as being on the downside. Projections for global growth for 2008 have been reduced from 4.8% to 4.1%."

"The projections for growth in the advanced economies have been reduced significantly. In the United States projected growth has been lowered to 1.5% for 2008, down from the 2.2% in 2007."

"What began as a test of credit markets related to the sub-prime sector has clearly extended well beyond this sector to bring pressure on the balance sheets of major financial institutions. This has put severe strain on credit markets and is perceived by some as threatening a deeper economic down-turn in the United States and elsewhere."

On the subject of domestic economic developments, Ingraham explained:

"As regards the Bahamian economy, it is important to bear in mind that as recently as January, 2008, when the Report of the 2007 Article IV Mission was published, the growth projections for the Bahamian economy for 2007 was 5.6% in nominal terms or 3.1% in real terms, and for 2008 it was 6.5% in nominal terms or 4.0% in real terms."

"Thus, even as late as January of this year, the IMF seemed to believe that the Bahamian economy could grow by 6.5% in nominal terms or 4.0% in real terms in 2008."

"I should also mention in this context the Standard & Poor’s report on the Bahamian economy. That report noted the downturn in tourism arrivals in the first 9 months of 2007, bearing in mind that tourism contributes 60% of GDP, suggested a shrinking in the construction sector which accounts for 10% of GDP, and also suggested that the financial services sector, which accounts for 20% of GDP, could be adversely affected by the global crisis in the financial markets."

"My Government has chosen to take a balanced view of the likely growth prospects of the Bahamian economy in 2008. The current outlook for strong capital inflows into productive projects already underway may not be seriously affected by global or US developments in 2008 and 2009. This could give rise to what we consider would be a certain element of ‘decoupling’ between the performance of the US and Bahamian economies in 2008."

"By this I mean that while normally the health of our tourism sector, and therefore our economy, is heavily connected to prevailing conditions in North America, in 2008 matters might be a little different. This is because even if there is a more severe recession in the US in 2008, the capital inflows and the momentum of some of the major investment projects in The Bahamas will partially compensate."

"Turning to other economic indicators, despite the surge in crude oil prices during the year, inflation remained relatively low at 2.5%, up from the 1.8% of the previous year."

"The ease in credit growth, particularly in the latter half of the year, permitted liquidity conditions to remain relatively buoyant as the banking system’s excess reserves expanded by USD105.5m to USD241.7m, compared to a contraction of USD59.2m the previous year. Excess liquid assets also improved by USD145.4m to USD154.8m, compared to a contraction of USD103.0m in the previous year."

The Prime Minister concluded his speech by announcing that:

"In this Mid-Year Budget Statement, we remain committed to the limit of 1.8% for the GFS Deficit in the 2007/08 Budget Communication and we are not departing from it. In this Statement we are making adjustments to Recurrent and Capital Expenditures but, crucially, we are remaining within the total limits already approved for these Expenditures."

"Furthermore, we are not making any adjustments to Revenue. Therefore, there will be no increases in taxes and there will be no new taxes. I will elaborate on these points as we progress."

"The documentation being circulated with this Mid-Year Budget Statement shows the progress for the first 6 months of the 2007/08 fiscal year, that is for the period July to December 2007, of Recurrent and Capital Expenditure and Recurrent Revenue. The purpose of the data is to enable this Honourable House to assess the progress being made through the 2007/08 Budget across the whole field of government expenditure and revenue."

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