The Budget: Part I
By Philip C. Galanis
On Wednesday past, May 30, the prime minister and minister of finance presented his much-anticipated first budget of the new administration that was elected only two weeks ago. This week, we would like to Consider This… does the national budget for fiscal year 2012/13 address the important promises that were made during the recently completed general election campaign?
The short answer is that it begins to do so. However, the extent to which it does is severely constrained by the distressing state of public finances that the Christie administration inherited from the former administration. In addition, there is a time constraint challenge that significantly factors into what was contained in Prime Minister Christie’s recent Budget Communication.
For the past few terms, when general elections were held in early May of 2002, 2007 and 2012, the usual mid-May budgetary process has been punctuated by a change of government which imposed severe restrictions on the victor because of the very narrow time line between the elections and the required presentation of the national budget. Therefore, in the absence of a predetermined fixed election date, successive governments should make a deliberate effort to avoid holding general elections in May because of the constraints that this event places on the implementation of a national budget designed to address the victor’s national agenda. More about that at another time.
The state of public finances
It is now becoming increasingly evident that the former FNM administration that has always claimed to be a government of accountability and transparency has been neither. An early indication of this was first observed in the Ingraham Administration’s deliberate negligence to submit its customary and much anticipated mid-year budget report earlier this year. It can be reasonably surmised that the former prime minister and minister of finance consciously decided to forego this practice in 2012, which he himself introduced with much fanfare and consistent conformity, for purely political reasons.
The former prime minister and his Cabinet clearly realized that if they honestly reported the state of public finances at mid-year, their deplorable financial performance would have been received with shock and awe by the Bahamian citizenry. In the run up to elections, an honest report would likely have brought about an even more devastating outcome at the polls, and therefore, presumably, the FNM government took a conscious decision to withhold such reporting from the public, hoping that the public would place the lack of a report in the “no news is good news” category.
Another example of the FNM government’s willful refusal to report on the true state of public finances pertained to the New Providence road works, which the Public Accounts Committee, under the chairmanship of the Hon. Dr. Bernard Nottage, revealed had incurred a budget overrun of nearly $100 million.
A third instance of the FNM government’s lack of accountability regarding public finances was exposed in the current prime minister’s communication last week when the latter reported the horrendously high and historically unprecedented total deficit for 2011/2012 which rose to a record level of $570 million versus an approved total deficit of $314 million, an increase of $256 million or 82 percent more than was originally anticipated. In line with the International Monetary Fund Government Finance Statistics (GFS) concept, the GFS deficit, which is the total deficit less debt redemption, for 2011/12 is projected to result in $504 million or 6.3 percent of gross domestic product (GDP). This is double the 3.0 percent that was presented by Mr. Ingraham as the forecast in last year’s Budget Communication.
Finally, the FNM government’s legacy to the national debt is equally disappointing and extraordinarily dismaying. The national debt increased from $3 billion to $4.3 billion during its term in office from 2007 to 2012, an increase of 40 percent in five years. This represents an historically high debt to GDP ratio of 56 percent. Because of this inherited unparalleled GFS budget deficit of $504 million for 2012, the Christie administration will have to borrow an additional $504 million in order to pay off the financial excesses of the Ingraham administration.
The national debt will therefore increase to $4.8 billion by the end of the next fiscal year. But it gets worse. Again, because of the excessive commitments and spending of the Ingraham administration, all things being equal, and barring any unforeseen catastrophic developments over the next two years, given a projected record GFS deficit of $550 million for fiscal year 2013/14, is anticipated that the national debt will increase to well over $5.4 billion by 2014. This will represent a disastrously high debt to GDP ratio in excess of 60 percent.
All these unmatched and unequalled negative performance measures that the government inherited were incurred by an FNM government that frequently and triumphantly trumpeted its commitment to good governance, fiscal prudence, sound financial management, accountability and transparency in public finances.
It is fair to say that so-called good governance, fiscal prudence, sound financial management, accountability and transparency in public finances notwithstanding, Mr. Ingraham and his FNM Government have unquestionably left Mr. Christie and his government in a financial pickle.
Promises to keep
In spite of the alarming news, the Christie administration is still very determined to implement its agenda as articulated in its 100 day promises, the Charter for Governance, the Speech from the Throne and the Budget Communication. While it will be enormously constrained by the fiscal realities that it has inherited, the new government has set about delivering on the social contract that serves as a basis of the mandate it was given on May 7.
It will be important for the new government to regularly give the Bahamian people an open and candid account of its stewardship over the next five years if it hopes to break the recent trend of one-term governments.
Next week, we will examine how the new administration’s budgetary provisions plan to remain true to its pledges to an impatient and hurting populace whose expectations for relief and renewal are extremely high and to what extent the national budget for 2012/13 will seek to meet those high expectations.
Philip C. Galanis is the managing partner of HLB Galanis & Co., Chartered Accountants, Forensic & Litigation Support Services. He served 15 years in Parliament. Please send your comments to: email@example.com
Jun 04, 2012