Government deficit predicted to be $44m less than original forecast
A boost in Government revenue has caused a projected 2021/22 budget deficit to drop by 35 per cent, the Government announced yesterday morning.
David Burt, the Premier and the Minister of Finance, told the House of Assembly that based on numbers submitted for the audit of the Consolidated Fund, the deficit for the financial year is expected to be $81 million – $44 million below the original estimate of $125 million.
Government revenue is expected to reach $1.07 billion – $74 million more than the original estimate – due to increases in customs duties, stamp duty, civil aviation, payroll tax and increased revenue from the travel authorisation.
Mr Burt broke down the figures to reveal that customs duty had earned $23.9 million more than previously forecast, while stamp duty was up by $13 million, civil aviation by $10.8 million, payroll tax by $8.8 million and travel authorisation by $8.85 million.
Government expenses meanwhile are projected to have increased by $42 million to $945 million, with Covid-19 related expenditures projected to reach $37 million – $22 million more than previously forecast.
In addition there was a $20 million payment for the minimum revenue guarantee for the airport and $10 million for unemployment benefits.
Mr Burt said interest and guarantee management costs are projected to reach $133 million – $5 million more than originally budgeted – blaming the increase on the failed Morgan’s Point project.
However capital account expenditures are projected to be $76 million, $17 million less than originally budgeted.
“The continued strengthening of the economy is already evident in the first quarter numbers that the Ministry of Finance has received to date,” Mr Burt said.
“The actual revenues in 2021/22 in certain key areas were higher than originally projected for that year, resulting in the lower than forecasted 2021/2022 deficit.
“Therefore, it is expected that the loss in income from the aircraft register as a result of the Russian/Ukraine war will be offset by stronger payroll tax, land tax, stamp duty, customs duty and tourism related revenue from our stronger than expected tourism season.”
He added that the improved financial forecast would translate to greater relief measures for Bermudians, including a drop in duty rates for some essential goods and additional funding for the Bermuda Housing Corporation to address a shortage of affordable housing.
“Despite the relief that this Government is giving to working families, and the additional investment in housing that is needed after years of underinvestment, it is expected that the Government will meet the deficit target of $70 million,” he said.
“When this deficit is combined with the deficit figures from last year, this will see the Government’s net debt in a much stronger position than forecasted during February’s budget presentation.”
Mr Burt said that in August, the Government issued $390 million of additional senior notes, due in 2032.
“Honourable Members will recall that on July 11 the Government issued $500 million of new Senior Notes due 2032 which was used to pre-fund an upcoming private placement maturity in December 2022 and refinance the outstanding Senior Notes due in January 2023,” he said.
“Following the July offering, the Ministry of Finance continued to prudently monitor market conditions for opportunities to target the 2024 notes.
“Issuance markets continued to improve, US Treasuries and credit spreads narrowed significantly, and in early August Bermuda’s new 2032 senior notes, issued the month prior, were trading at a significant premium to par value.
“Consequently, on August 15, Bermuda reopened the initial offering and issued an additional $390 million of the same 5 per cent senior notes due in 2032, but at a placement yield of 4.54 per cent, or 54 basis points lower than in July.
“It also achieved a spread of 175 basis points over US Treasuries, equal to the second lowest spread ever achieved by Bermuda.”
Mr Burt said the transactions had allowed the Government to fully refinance all of its near-term external debt, with the next maturity not until January 2027.
He added: “As a result of our management of the country’s finances and the successful execution of Bermuda’s Economic Recovery Plan, we have not had to utilise the country’s sinking fund balance for management of ongoing cash needs, to the extent originally projected.
“Therefore, this gives the option for the Government to repay the $50 million in Bermuda dollar debt outstanding next year, without having to refinance this debt.
“This will allow for a further reduction in outstanding debt as is positive financial news.”
Mr Burt said the Government will unveil more public relief measures in the coming weeks, saying that Bermudians deserved to benefit from “shared success” after years of “shared sacrifice”.