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Bermuda’s debt grows, but budget gap narrows

  • Getting closer: the gap between Government revenue and expenditure has narrowed, year-on-year. For the first six month’s of the 2017/18 fiscal year the deficit was $63.4 million

Bermuda is continuing its glide path towards budget equilibrium, but there is still some way to go as shown by the latest revenue and expenditure figures.

At the end of September the gross debt was $2.515 billion. The Bermuda Government aims to reach March 31, 2018 with a full-year budget deficit of $134.7 million.

At the halfway point in the fiscal year it is on target to hit that mark, although current expenditures excluding debt service are presently tracking 0.8 per cent, or $3.8 million, above budget estimates.

Interest payments on Bermuda’s debt equate to about $500,000 every day. The effect that has was shown in the first half of the 2017/18 fiscal year. During those six months, Government achieved a $57.6 million current account surplus, excluding debt service deductions. However, for the period, Government incurred a total deficit of $63.4 million.

That is down from the $100.2 million deficit incurred during the corresponding six-month period in 2016. The rate of debt growth is slowing as the gap between revenue and expenditure narrows. The Government is looking to balance the budget by 2019.

Figures released yesterday by the Ministry of Finance show that in the six months to the end of September there was stronger than expected Custom duty receipts and an uptick in payroll tax. Those, together with higher collection of stamp duty, led to a 6.3 per cent increase in revenue for the period, year-on-year.

In a statement, the Ministry of Finance said this revenue boost was offset by lower collections in passenger tax and civil aviation receipts “due to the privatisation of the airport and the transfer of the Department of Civil Aviation out of government”.

Under the previous One Bermuda Alliance administration, Bermuda entered into a public-private partnership agreement with Canadian Commercial Corporation to redevelop LF Wade International Airport. CCC’s subcontractor Aecon will finance, construct and operate the airport over a 30-year concession period through the PPP agreement.

Regarding yesterday’s financial statement, the Ministry of Finance said the economic data “is consistent with the expectation in the 2016 National Economic Report of Bermuda and the Ministry of Finance’s own macroeconomic forecasts”.

It noted that most of the island’s economic sectors are contributing moderate growth, led by construction, tourism, employment, and retail sales, which together with a low level of inflation, point to projected steady growth for Bermuda’s gross domestic product this year.

The statement added: “The Government’s efforts to create new economic pillars and enact policies to grow Bermuda’s economy, once fully realised, should provide sustained economic growth through the medium-term.”

The figures show Custom duty tracking 10 per cent above budget estimates and $10.9 million higher than 2016, while payroll tax is tracking 5.8 per cent above estimates, and $27.2 million up on a year ago.

Lower professional services costs were a factor in the decrease in current expenditures, excluding debt service, which were $6.4 million lower than at the same point in 2016. This was partially offset by increases in grants and contributions relating to the Bermuda Airport Authority and the America’s Cup.

The Ministry also released an update on economic indicators for the calendar year to the end of September. Key figures showed:

• Consumer Price Index at 2 per cent, with higher airfares and fuel prices the primary causes of inflation, together with more expensive electricity and increased school and college tuition fees locally and overseas.

• Air arrivals were up 10 per cent, while cruise passengers numbers improved 8.4 per cent. Total visitor arrivals were 9 per cent higher.

• Visitor spending for the nine months was $307 million, up by $55.3 million.

• Employment income grew to $1.78 billion, a rise of $54.2 million.

• Retail sales up $28.8 million, or 3.2 per cent, to $915.3 million.

In addition, economic indicators for the first six months of the year revealed:

• Employment income at $1.78 billion, up by $54.2 million.

• A $462 million balance of payments surplus on the current account, $149 million higher than the same period in 2016., with a $241 million increase in net investment income from non-residents.

• Imports up 25.7 per cent to $604 million, which included $61 million increase in imported finished equipment related to the America’s Cup. Other categories that contributed to the positive result were transport equipment and machinery.

• The total value of new construction projects started during the period increased sixfold, largely due to the initiation of the airport redevelopment and the St Regis hotel project in St George’s, which combined are worth more than $500 million.

At the end of September, Bermuda’s debt, net of the Sinking Fund debt, was $2.428 billion. The Government is obliged to pay 2.5 per cent of net debt into the Sinking Fund each year to help pay down debt.

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