Deputy Prime Minister and Minister of Finance the Hon. K. Peter Turnquest explained that real Gross Domestic Product (GDP) is expected to decline by an unprecedented 12 percent this year — representing the largest single year economic contraction since these statistics have been kept.
“Our economy is expected to be a lot smaller at the end of December than it was in January. That means fewer business imports, lower sales revenue for businesses, and therefore lower revenue for the Government,” DPM Turnquest said as he presented the 2020/21 Budget Debate Opening Statement in the House of Assembly, Monday, June 8, 2020.
He noted that the 2020 outlook for the global economy is in a worse state than that of the 2008/09 global financial crisis. Despite the slight improvement in unemployment rates and recent rallying of stock markets, real GDP in the United States is projected to decline by 5.9 per cent in 2020, which will have a direct impact on the pace of the country’s tourism recovery.
The DPM added that the public outcry on display in the United States, as a result of racial injustice, will also no doubt add further strain to the recovery of the US economy.
He stated that the global and domestic economic environment is having a significant impact on The Bahamas’ fiscal situation, especially revenue performance.
“The projections for fiscal year 2020/21 put total Government revenue at $1.7 billion. We are projecting a shortfall of $900 million compared to our annual projection for last year,” DPM Turnquest stated.
“Although concerning, given our performance just 3 months ago, the Government is not broke, and we caution against any fear mongering that relies on such claims. Faced with this scenario, we have put in place arrangements to ensure we can adequately meet our obligations, as any responsible Government would.”
He said in this “treacherous climate”, the Government had two choices: it could reduce public spending and shrink the economy even further or it could invest in public health, economic and social relief measures to mitigate the impact of the pandemic and ensure the viability of our key economic base for the recovery.
“These two choices are not unique to The Bahamas. Governments around the world are facing the same decisions, and the most prudent Governments are making the appropriate shift to providing economic relief and expanded social welfare spending, even though these temporary measures will cause some deterioration to their fiscal positions.
“For example, we saw the United States’ Government recently pass $3 trillion in economic relief packages to aid in their fight against COVID-19, while Canada provided up to $82 billion in support via tax incentives and direct support for consumers and businesses.”
The DPM added, “Right here in the region, Jamaica injected over US$170 million into their economy in response to the crisis, while Barbados injected some US$40 million.”
He noted that like The Bahamas’ leading regional and international counterparts, the Government recognizes that its contributions to the economy are a vital lifeline, so drastic cuts would do more damage to the already weakened economy. “Instead, we chose to curtail non-essential spending, while focusing on targeted investments in priority areas. Because of these necessary investments, we are projecting to run a fiscal deficit of $1.3 billion, or some 11.6 percent of GDP.” DPM Turnquest said, “As one meme being circulated says, this is ‘the largest deficit ever incurred in the history of The Bahamas.’ But it is also in response to the largest revenue drop in the history of The Bahamas as a result of a one-two catastrophic sucker-punch to the heart of our economy.”
He added, “The unprecedented level of borrowing is to fund this unpreceded deficit. It is as simple as that. We are acting responsibly to adequately fund the Government and ensure that our people do not suffer.”
Written By Llonella Gilbert/BIS
Bahamas Information Services