The Rt. Hon. Hubert A. Ingraham, Prime Minister and Minister of Finance, presented the 2010-2011 Budget Communication in Parliament today. He noted that the Budget being presented seeks to position The Bahamas to maximize the gains from the emerging modest recovery through sacrifice, service and reform. He also acknowledged his duty and earnest commitment as Prime Minister and Minister of Finance, “to so provide for the use of the public funds that the essentials are accounted for, priorities are attended to and the future is not put at unnecessary risk.”
The Prime Minister observed that the 2010-2011 Budget contains the most significant structural fiscal action of any Budget in recent years, with the overriding objective of enhancing the nation’s economic prospects by putting its fiscal house in order on a sustained basis. “Accordingly,” he said, “this Budget begins to aggressively redress public finances now, by containing the growth of Government debt this coming year and beginning to move the debt-to-GDP ratio back to more prudent and desirable levels over the medium term.“ In this connection, the Budget sets explicit debt targets for the two succeeding years beyond 2010/11, clearly indicating reductions in the debt-to-GDP ratio over that period.
“When the economic crisis hit, like other governments around the world, we were required to execute an economic and fiscal strategy that was appropriate for Bahamians and the Bahamian economy. As a result, we are emerging out of that crisis with an economy nurtured by our extraordinary efforts though badly bruised; a financial system that is sound; and a society with a greatly enhanced social safety net.“ The necessary efforts in the crisis did not come without a price, according to the Prime Minister, who maintained nonetheless that the Government knew what it would take to get the country through the crisis and it knows what it will take to advance the country’s circumstances beyond it. This Budget, he said, is the beginning of the latter effort.
A MEDIUM-TERM FISCAL STRATEGY FOR THE TIMES
The fundamental problem confronting Government is that the fiscal structure of 2009/10, brought on by the crisis, is unsustainable, and the Prime Minister underscored the vital need to set early and realistic objectives for debt reduction. In this context, the fundamental objectives of the medium-term fiscal strategy of the 2010/11 Budget are to:
• Contain the debt-to-GDP ratio immediately; and
• Reduce over the medium-term the debt ratio to 40 per cent, as promptly as possible and as economic conditions permit.
As part of the Budget Presentation the Prime Minister provided an overview of both the global and Bahamian economies. On the latter, he projected a less marked decline in 2010 and a more positive result in 2011, based on a number of factors, including improved tourism performance, the restart of a number of tourism-related developments, continued aggressive public sector capital spending and a modest general improvement in the overall economy. He cautioned, nevertheless, that gains will be modest and conditions in the global economy remain fragile, warranting vigilance as the country moves forward.
FISCAL POLICY 2010/11 AND BEYOND
Prime Minister Ingraham pointed out that the current environment requires a fiscal policy that calls for expenditure restraint as well as enhanced revenue measures in order to put the public debt on the proper downward trajectory. Recurrent Expenditure will be maintained at 2009-2010 levels, and the near term objective is to get the ratio of Recurrent Revenue to GDP up to 19.7 per cent in 2010/11, and then, at a minimum, to increase it to 20 per cent of GDP in the years beyond 2010/11. To that end, he said, ongoing efforts to enhance revenue administration and collections will be redoubled and further strengthened; and, to further secure the anticipated and critical increase in revenues, the Government is implementing a number of new measures that are expected to contribute additional revenue.
In line with commitments and the need to provide ongoing support to the economy, Capital Expenditures will rise modestly in 2010/11, to 3.5 per cent of GDP; however, beyond the next fiscal year, it is the Government’s intention to hold Capital Expenditure to 3 per cent of GDP.
GROWING THE ECONOMY
While noting that much of the country’s economic fortunes depend on the pace of recovery of the world economy, and the need to be watchful of the pace of recovery externally, the Prime Minister spoke to the mindset on steps The Bahamas can take to promote its own economic wellbeing as well as optimize the gains from improving external conditions. Accordingly, Budget provisions include (a) an aggressive Foreign Direct Investment promotion thrust and (b) a new Small and Medium Size Business Development Framework.
He expressed confidence that the economic fortunes of The Bahamas will rebound. “It is for us to do what is necessary now to ensure that when it does, we are in the best position to benefit. Our efforts today are geared toward ensuring that we are able to do just that.” Gains from that recovery, he said, will be maximised through sacrifice, service and social reform.
• Sacrifice will allow The Bahamas to make adjustments today that will put it in a better position tomorrow.
• Service excellence will allow The Bahamas to increase its competitive edge and gain accelerated economic benefits therefrom.
• Social Reform will enable The Bahamas to change its behaviour as a society to improve its quality of life and its attractiveness as a place to visit and in which to conduct business and live.
The pivotal Budget Communication has set out a carefully balanced medium-term strategy, designed to bring order to the nation’s public finances and set it on a sustainable course for the future, and to bring forward much-needed structural reforms that will vastly enhance the domestic business environment.