COMMONWEALTH OF THE BAHAMAS
2016/17
BUDGET COMMUNICATION
AN AGENDA FOR A MODERN BAHAMAS
Presented to the Honourable House of Assembly
By
The Rt. Hon. Perry G. Christie, M.P.
Prime Minister and Minister of Finance
on
Wednesday, 25th May 2016
2016/17 BUDGET COMMUNICATION
It is my honour to present the 2016/17 Budget Communication.
I. INTRODUCTION
Mr. Speaker,
This is the fifth Budget Communication that my Government has presented to this Honourable House during our current mandate. Significantly, since the first, each succeeding Communication has shown a reduction in the Government’s GFS Deficit. This Budget Communication continues our track record in this regard, with a further reduction in the GFS Deficit in the 2016/17 fiscal year.
As we committed to do when we set out an unprecedented and rigorous Medium-Term Fiscal Consolidation Plan, we have not wavered from that plan. The plan is targeted and balanced and it has yielded concrete improvements in the public finances of our nation and that, in turn, sets a solid foundation for stronger growth and job creation.
Mr. Speaker,
I am pleased to report that we have been successful in containing fiscal pressures this fiscal year and thereby keeping the projected GFS Deficit to a level of $150 million, broadly in line with the Budget target of $141 million. This variance reflected the payouts for the CLICO Bahamas liquidation that, for their part, were funded by extraordinary revenue.
Mr. Speaker,
For general information with respect to the CLICO interim payments, as at 29th April 2016, 3,078 cheques totaling some $10.2 million in payments have been collected and 1,649 cheques totaling $2.1 million remain uncollected. This demonstrates the Government’s commitment to making whole everyone negatively impacted by CLICO.
Mr. Speaker,
In the 2016/17 fiscal year, we will build further on our fiscal success with a projected GFS Deficit of $100 million.
Mr. Speaker,
Since the first year of our mandate and by the end of the 2016/17 fiscal year, we will have reduced the Deficit by $439 million, or by over 80 per cent.
While the burden of Public Debt remains unacceptably high, I am pleased to note that, through our fiscal plan, we will have arrested the rise in that burden in the 2016/17 fiscal year with its first reduction in many years. Thereafter, the ratio of Debt to GDP will decline steadily.
Mr. Speaker, viewed in its proper context, this is no small feat. The ongoing struggles and associated economic and social upheaval of other nations around the globe, in the face of daunting structural fiscal challenges, are instructive in this regard, especially in those cases where consolidation has been delayed. My Government boldly rejected the short-term and shortsighted expediency of delay. Indeed, we acknowledged the fundamental necessity to redress the nation’s public finances at the very outset of our mandate, through the Medium-Term Plan that we presaged in the 2012/13 Budget Communication and that we formally and explicitly announced in February 2013. As I mentioned, this action plan is targeted and balanced, with a focus on all of the major components of the public finances, that is, reform and restraint of Recurrent and Capital Expenditure, enhanced Recurrent Revenue through modernized administration and new sources of revenue and the promotion of economic growth potential. And we are doing so in the face of the burgeoning demands on Government from a yet developing archipelagic nation.
Mr. Speaker,
As I have explained previously, we have sought to bring order to our public finances, not merely for the sake of doing so, but because healthy public finances are a crucial prerequisite to maintaining and enhancing confidence in The Bahamas as a desirable and attractive location for investment, growth and job creation. Strong finances are also vital to the viability and continuity of the public programmes and services that Bahamians need and demand of a modern Government.
II. THE GLOBAL ECONOMY
Mr. Speaker,
As I explained in the Mid-Year Budget Statement, the global economic environment continues to be very challenging. Indeed, in its latest World Economic Outlook of April 2016, the IMF suggests that the world economy is, in its words, “faltering from too slow growth for too long” and that the recovery remains fragile and still vulnerable to a number of risks.
On that basis, the IMF has yet again downgraded its forecast for world output growth to 3.2 per cent in 2016, down a further 0.2 percentage points from only three months ago. More significantly, the Fund asserts that we now face a risk that persistent slow growth could lead to damaging longer term effects on the social and political fabric of nations, to lower potential economic expansion and to weak prospects for employment growth around the globe.
I would note, in particular, that the IMF is concerned that the consecutive and persistent downgrades to growth prospects run the risk of the world economy reaching so-called “stalling speed” and falling into secular stagnation. The Fund therefore calls on governments to pursue aggressive actions to support the recovery and enact the critically needed structural reforms to bolster the potential growth of their economies.
For The Bahamas, the implications are clear. We must, on the one hand, protect the hard-won improvements in our public finances that have to date been secured and persevere with the further improvements that are planned. That is critical to maintaining confidence in our nation as a very attractive locale for investment. We must also address the various structural reforms that are necessary to boost productivity and enhance the competitiveness of our economy. As I explained in last year’s Budget Communication, in the Mid-Year Budget Statement and again in brief review earlier, we have begun to implement reforms to that end. The development and effective implementation of the National Development Plan will also be vital in this regard.
The IMF now projects the world economy to grow by 3.2 per cent this year and 3.5 per cent in 2017. The advanced economies are forecast to grow by a more modest 2 per cent in 2016, on the basis of relatively weak demand conditions, unfavourable demographics and low productivity growth.
On a somewhat more positive note, growth in the United States, our major trading partner, is expected to be slightly more buoyant, expanding by 2.4 per cent in 2016, with a further modest strengthening in 2017. Domestic demand is expected to be supported by improved public finances, as well as stronger housing and labour markets. Following its most recent meeting, the Federal Reserve noted these areas of strength, in addition to the solid rate of growth of household real incomes and the high level of consumer sentiment. The Fed agreed, dependent on future economic developments, to maintain its accommodative monetary policy stance, with interest rates expected to remain at relatively low levels for some time. These factors and the general outlook in the U.S. economy augur well for the further expansion of our key tourism sector this year and beyond.
Elsewhere, the Euro economy is forecast to experience ongoing modest growth, at around 1.5 per cent this year and next, as a result of persistently high unemployment, weak balance sheets and low investment. Modest economic expansion is also expected in both Canada and the U.K.
One critical factor for global prospects is the outlook for the Chinese economy which is presently transitioning from a focus on investment and manufacturing to a more sustainable path based on consumption and services, While down somewhat from recent experience, real growth in China is still forecast at just in excess of 6 per cent per annum.
III. THE BAHAMIAN ECONOMY
Mr. Speaker,
I now turn to recent domestic economic developments and prospects for the future.
In its latest release of the National Accounts data a few weeks ago, the Department of Statistics estimated that the performance of our domestic economy was somewhat weaker in real terms in 2014 than it had previously estimated at this time last year. According to these latest data, the real economy is now estimated to have contracted by 0.5 per cent in 2014, in contrast to the estimated positive growth of 1 per cent presented twelve months ago.
In addition, the DOS also presented its first estimate of real economic growth for 2015. These data suggest that the contraction in real economic activity widened further last year, to the tune of -1.7 per cent. This estimate stands in contrast to the projected positive rate of real growth of 2.3 per cent presented in last year’s Budget Communication, which had been developed by the Ministry of Finance in conjunction with the staff of the IMF. The estimates of real growth in the Bahamian economy presented by the major ratings agencies at various times following the May Budget also featured positive rates of growth for 2015.
I would note that these new data from the DOS have direct and important implications for the fiscal ratios that are presented in the Budget Communication and which are key features of the Government’s Medium Term Fiscal Consolidation Plan. For instance, the value of nominal GDP, which is used as the denominator in our fiscal ratios, is now estimated at $8,736 million in fiscal year 2014/15, down $35 million from last year’s Budget forecast.
More significantly, the value of nominal GDP in the 2015/16 fiscal year is now estimated at $8,944 million, down considerably from $9,220 million in last year’s Budget.
The weakness in real economic activity in 2015 was due primarily to softer output in the construction sector. Positive growth was, however, registered by a number of industries, including wholesale and retail trade, banking, real estate, business services and public administration, health and education and community, social and personal services.
The softness in the construction sector reflected a significant fall-off in foreign investment-led construction output, as activity at the Baha Mar project wound down.
Our key tourism sector recorded ongoing, though still modest, improved performance in 2015, primarily reflecting continuing gains in the high value-added stopover segment of the industry. This development reflects further improvements in our key tourist source markets, as well as improved airlift and hotel capacity. Total air arrivals expanded by 3.6 per cent last year, on the heels of the 4.9 per cent growth registered in 2014.
Activity in the domestic construction sector posted mixed signals in 2015. Mortgage loan disbursements for new construction and repairs in the residential segment grew by an appreciable 35 per cent last year, a reversal from the 8 per cent decline in the previous year. This performance contrasts to that in the smaller commercial segment, where disbursements fell to roughly $10 million from $15 million in 2014.
On the labour market front, developments were impacted by the softness in economic activity registered in 2015. As reported by the Department of Statistics, the national rate of unemployment in November 2015 stood at 14.8 per cent. That represented an increase of 2.8 percentage points from the rate of 12 per cent reported six months earlier, though the latest rate was still 0.9 percentage points lower than it had been in November 2014. The rise in the unemployment rate last year reflected a number of factors, including seasonal effects such as the entry into the labour force of new high school and university graduates, a fall in the number of discouraged workers and the layoff of over 2000 workers at the Baha Mar project.
Of particular concern, the rate of unemployment for the youth of our nation, aged 15 to 24 years, continued at the unacceptably high level of 30 per cent and this is an issue that we are committed to addressing aggressively through both the growth strategy that we are pursuing and the apprenticeship and training programmes that I discussed earlier.
Consumer price inflation continued at a moderate pace of 1.9 per cent in 2015, up slightly from the previous year. While the introduction of VAT contributed some measure of one-time upward pressure, overall inflation was tempered significantly by the sharp drop in international oil prices. With ongoing excess supply and weak consumer demand globally, the average price of crude oil declined by 47 per cent in 2015 to $52.61 per barrel. By end December, the price stood yet lower at $36.53 per barrel. The IMF projects ongoing relative weakness in oil prices in 2016, on the basis of high inventory levels and buoyant supplies from the major producers. The weakness in oil prices translated into significantly lower domestic gasoline prices and BEC fuel charge. The latter declined by over 34 per cent in 2015 and by a further 12 per cent in the first quarter of this year.
External reserves expanded significantly in the first quarter of 2016 to stand at $980.5 million, representing an increase of some $172 million from December 2015.
As for the economic outlook, the Ministry of Finance and the Central Bank expect some degree of firming in economic activity this year on the basis of ongoing modest growth in the tourism sector and foreign investment led activity in the construction sector. On that basis, real GDP is expected to grow by some 0.5 per cent in 2016, following the 1.7 per cent contraction last year. That rate of expansion in economic activity is projected to strengthen further in 2017, to an annual rate of 1 per cent in real terms. Of course, it is to be borne in mind that, when the Baha Mar project restarts, it will provide an important boost to our economic growth prospects and to near-term employment opportunities.
IV. FISCAL PERFORMANCE IN 2014/15 AND 2015/16
Mr. Speaker,
I now turn to fiscal performance in the 2014/15 and 2015/16 fiscal years.
The 2014/15 Fiscal Year
Mr. Speaker,
The fiscal outturn in the 2014/15 fiscal year featured a somewhat more elevated GFS Deficit than had originally been projected in the Budget Communication for that year. The Deficit, at $381 million, was some $95 million higher than the forecast of $286 million. This was the result of a number of factors, including:
· An increase in Recurrent Expenditure of $100 million due primarily to a higher level of Debt Redemption that year, to the tune of $84 million, which I would note affects the level of Recurrent Expenditure but not the GFS Deficit;
· A further $14 million of the increase of Recurrent Expenditure reflected a reconciliation exercise with BTC involving payments by the Government for services received which were offset, on the Recurrent Revenue side, by the payment by BTC of Business Licence fees and real property tax and site rental payments;
· An increase in Capital Expenditure of $41 million as a result of an acceleration of the procurement project for new RBDF vessels, with four vessels being completed and delivered in the 2014/15 fiscal year, at a cost of $66 million; and
· A lower level of Recurrent Revenue than projected, by some $42 million, reflecting the somewhat weaker than expected growth in nominal GDP during the fiscal year.
The 2015/16 Fiscal Year
Mr. Speaker,
In the 2015/16 fiscal year, the GFS Deficit is estimated at $150 million, broadly in line with the Budget projection of $141 million. This $9 million increase reflected a number of factors, including:
· A $57 million increase in Recurrent Expenditure primarily associated with higher levels of expenditure in respect of both Debt Redemption and Interest payments, to the tune of $33 million and $35 million, respectively;
· An additional allocation of $32 million to the Ministry of Tourism for concession payments under agreements with the cruise ship companies, as was set out in the Mid-Year Budget Statement;
· There were also the payments made by the Government in respect of the CLICO Bahamas liquidation, in the amount of $13 million, that were announced in the Mid-Year Budget Statement in early March of this year;
· The Water and Sewerage Corporation was allocated an additional $13 million to cover shortfalls;
· Recurrent Revenue is expected to be down by an estimated $37 million during the fiscal year and this despite a significant reduction in the level of nominal GDP as compared to the Budget forecast, primarily reflecting the relative buoyancy of VAT revenues; and
· Capital Expenditure during the 2015/16 fiscal is expected to be lower than projected, by some $52 million, partly reflecting the timing of RBDF vessel deliveries.
As I mentioned at the outset of the Communication, the Government confronted various fiscal pressures during the current fiscal year, primarily in respect of Recurrent Expenditure. But we were successful in managing these pressures and containing the increase in Total Recurrent Expenditure, net of Debt Redemption, such that the rise in the GFS Deficit above the projected level was minimized to the extent possible.
V. FISCAL POLICY 2016/17 AND BEYOND:
THE MEDIUM-TERM FISCAL CONSOLIDATION PLAN
Mr. Speaker,
As I stated earlier, the Government remains firmly committed to staying the course with its Medium-Term Fiscal Consolidation Plan. The plan comprises a multi-year strategy whose overarching objective is to secure durable structural reform of the principal components of the public finances. As such, we are moving decisively to transform Recurrent Expenditure, Capital Expenditure and Recurrent Revenue in a manner that is phased, measured and balanced.
Recurrent Revenue
Mr. Speaker,
The various reform and modernization measures that we have implemented in respect of Recurrent Revenue have borne fruit and produced the targeted, significant increase in the revenue yield of our tax system. From a low of 16.3 per cent of GDP the year that we took office, the revenue yield has risen to 22.5 per cent of GDP this fiscal year. This primarily reflects the impact of the Value Added Tax that we implemented in January of 2015. Also important have been the comprehensive reform and modernization exercises that we launched in our major revenue areas, including Customs, Real Property Tax and Business License. The further development of the new Central Revenue Administration will also contribute importantly to revenue compliance and enhanced collections going forward.
The improved revenue yield of our tax system that we have achieved during this mandate has brought it into the range of such yields among countries in the region, but I would stress that it still remains at the lower end of that range.
With the ongoing revenue reforms that are in process and the further maturation of our VAT system, I expect the yield of our revenue system to improve again somewhat in the 2016/17 fiscal year, to a level of 23.7 per cent of GDP. In combination with the forecast growth in nominal GDP, that will result in estimated Recurrent Revenue collections of $2,176 million in 2016/17. The medium term projection assumes that the revenue yield will remain in the area of its 2016/17 level through 2018/19.
Recurrent Expenditure
Mr. Speaker,
As for Recurrent Expenditure, I would reiterate that we are moving forward with the reforms and measures that are targeted at restraining the growth of spending and to make that spending more efficient and effective such that, through the medium-term, Recurrent Expenditure shows a decline relative to the size of the economy.
In the 2016/17 fiscal year, Recurrent Expenditure is estimated at $2,321 million, an increase of $166 million from its projected level this year. The bulk of that increase corresponds to a higher level of Debt Redemption payments, by some $102 million as compared to its level in 2015/16. However, I will stress again that the higher level of Debt Redemption will have no bearing on the GFS Deficit in 2016/17.
Going forward and, in line with the commitments contained in our Medium Tern Fiscal Consolidation Plan, we are asserting that Recurrent Expenditure will be further constrained and projecting that it will decline as a percentage of GDP beyond the coming fiscal year, by 1 percentage point or more per year.
Capital Expenditure
Mr. Speaker,
On the Capital Expenditure front, we are also remaining faithful to our commitment to restraining its weight relative to the size of the economy over the medium term, to a level in the range 2.5 per cent of GDP. In dollar terms, that amounts to a total level of Capital Expenditure of some $242 million per year.
This constraint does not reflect a lack of commitment to modernizing and upgrading the public infrastructure in The Bahamas. In this regard, as I mentioned earlier, we have provided significant new investments for National Security with funding to provide the RBDF with three modern bases of operations throughout the archipelago. In addition, we have included funds to provide more vehicles and motorcycles for the Royal Bahamas Defence Force as well as our agencies that operate in the Family Islands.
We have also included funding to continue the very ambitious Family Island Road Programme, with roadworks in North Andros, Acklins and Abaco. In addition, we have included funding for the road paving programme in New Providence.
Furthermore, funding is also available for Family Island airport development as we continue to modernize the civil aviation regime in The Bahamas. This process, when completed, will see the present Civil Aviation Department as a standalone regulator with the Airport Authority assuming operations for Family Island airports.
Mr. Speaker,
It is important for Bahamians to note that my Government completed an assessment of airports throughout The Bahamas in which it was indicated that recommended improvements could amount to $150 million.
In consequence, we are in the process of completing major improvements to the airport in San Salvador and expect to engage in major improvements in Exuma, North Eleuthera, Berry Islands, Inagua, Cat Island and other airports as well.
The Government has also reached an agreement in principle to acquire new accommodations for the Post Office Department and this will pave the way also for the complete renovation of the Post Office Building. Funding for the acquisition and outfitting of the new home of the Post Office is included in the budget.
VI. PROJECTED FISCAL RESULTS
Mr. Speaker,
As a consequence of the fiscal measures that we are implementing and, barring unforeseen developments, we expect to adhere to the fiscal objectives of our medium-term plan, namely:
• the GFS Deficit will post a further decline in 2016/17 to a level of $100 million, or 1.1 per cent of GDP;
• the primary balance will post a second consecutive surplus in 2016/17, to the tune of $172 million;
• on the current fiscal track, the GFS Deficit will be eliminated in 2018/19 and a small surplus will be posted;
• the ongoing rise of the Government Debt burden will be arrested and the ratio of Debt to GDP will decline to 64.1 per cent in 2016/17, down from the peak of 64.6 per cent in 2015/16. It will fall steadily, thereafter, to stand in the area of 59 per cent in 2018/19.
VII. OUR AGENDA FOR A MODERN BAHAMAS
Mr. Speaker,
My Government’s efforts and successes over the past four years do not begin and end on the fiscal front, for we have clearly understood – from prior to the last election – that our nation confronts a multitude of challenges that stand in the way of a better future for all of our citizens. Accordingly, we have been driven over the past four years by a mission to effect fundamental transformation in the pursuit of a modern Bahamas. Significant problems plague our society and economy and we simply cannot continue to accept the status quo. Bahamians are demanding a better future for themselves and their children and it is my Government that has taken up the mantle and begun to move us toward a decidedly better future. Ours is an agenda for a modern Bahamas, with modern governance, a modern and more prosperous economy, as well as modern social programs and public infrastructure.
We began that process with the comprehensive change agenda of the Charter for Governance that we shared with our fellow citizens prior to the 2012 election. Since taking office, we have doggedly implemented a number of reforms in the various areas of that agenda, as I explained in the last Budget Communication as well as in this year’s Mid-Year Budget Statement. While I will not repeat all of the details at this time, it is nonetheless important to remind this House and Bahamians of the major reform measures that we have implemented. I will group these under the four key pillars of future economic and social development that were identified in the recent State of the Nation Report. This Report represents the first stage in the preparation of a National Development Plan, to which I will return shortly. The four pillars of development are:
· Human Capital
· Governance
· The Natural and Built Environment, and
· The Economy.
Human Capital
In the area of human capital, we have effected healthcare reform with significant investments in both Princess Margaret Hospital and Rand Memorial, as well as in new and renovated facilities in the major Family Islands; we have also worked toward the introduction of a National Health Insurance scheme.
Modernizing Health Care and National Health Insurance
Mr. Speaker,
The provision of practical and cost effective Universal Health Care to Bahamians remains a key priority of my Government. The subject of National Health Insurance continues to attract healthy debate among medical practitioners and others; however, my commitment, and that of the Government, to the accessibility and affordability of basic medical services and the improvement of the quality of life for Bahamians, is unequivocal and together with the involvement of leadership from the NHI Bahamas Secretariat, the Ministry of Health, the Public Hospitals Authority and our global partner in healthcare, KPMG Bahamas, we are committed to delivering health care that is modern, affordable and accessible for all legal residents of The Bahamas.
Mr. Speaker,
The implementation of NHI Bahamas is reflected in our continual assessment and evaluation of our medical professionals, health care facilities, allocation of resources and effective delivery of services. All of these elements are of vital importance to the core of health systems strengthening and an essential aspect of the successful implementation of NHI Bahamas.
We have made significant investments in the evaluation and assessment of our public health sector. We have evaluated our public healthcare facilities, taken account of the need for additional doctors, nurses and other healthcare professionals, analyzed the distribution of financial and material resources and determined the deficit in terms of availability, accessibility and the quality of services in our public sector.
Mr. Speaker,
Strategic Health Systems Strengthening plans have been developed and are being implemented to bridge the gaps in all areas to support the implementation of National Health Insurance for The Bahamas.
Mr. Speaker,
It is also unacceptable that, today, 70% of Bahamians still do not have health insurance. Not being able to afford health care can result in illnesses that are preventable; that can be avoided through access to primary care, which will be the first phase of coverage. It is also unacceptable that 32% of Bahamians who needed medical treatment at some point did not seek it because of cost. It cannot be underscored enough that in a modern Bahamas this is our opportunity to provide all Bahamians with the means and wherewithal to obtain routine medical services for themselves and their families.
The Ministry of Health, including the Department of Public Health and the Public Hospitals Authority, have introduced extended clinic hours and increased administrative capacity and availability of services in recent months.
Mr. Speaker,
Since the beginning of this year, the NHI Secretariat has engaged in meaningful dialogue to educate all Bahamians about NHI. This has included presentations to civic, corporate, religious, government and non-government entities. The Secretariat consistently makes itself available to any and all organizations which request their presence for a presentation and discussion around NHI. They have traveled across The Bahamas, meeting local residents and speaking at town hall meetings in most islands. Before the end of this budget year every island would have been engaged in discussions on the National Health Insurance Programme. I am advised that these presentations are being well received and that the general public is calling for the implementation of NHI Bahamas without further delay.
Additionally, over the last twelve months, the NHI Secretariat has consistently and assiduously collaborated with stakeholders to improve the manner in which we can collaborate regarding NHI Bahamas.
Although public consultation regarding the NHI legislation has concluded, stakeholder engagements will continue in order to further develop the roadmap towards the phased implementation of NHI Bahamas.
Mr. Speaker,
These stakeholder groups have included:
· The Bahamas Association of Physiotherapists
· The Bahamas Chamber of Commerce and Employer’s Confederation
· The Bahamas Chiropractic Association
· The Bahamas Dental Association
· The Bahamas Doctors Union
· The Bahamas Insurance Association
· The Bahamas Nurses’ Association
· The Medical Association of The Bahamas and
· The Pharmacy Association of The Bahamas
Mr. Speaker,
My Cabinet has approved a single governance model that will accelerate the implementation of Universal Health Coverage while providing effective oversight of the Programme. The approved, integrated Universal Health Coverage governance structure will allow for quick and effective decision making with transparency and accountability, as well as the alignment of health systems, and will result in greater efficiency, continuity of care and the seamless delivery of patient-centered services in the Government health sector.
The accepted Integrated Universal Health Coverage governance model that my Government has adopted, following the recommendations of KPMG, is in keeping with our commitment to work with stakeholders to shape the design and implementation of Universal Health Coverage and support the advancement of health system-strengthening goals. Additionally, the Universal Health Care (UHC) Stakeholder Advisory Committee is being formed to improve the health of Bahamians through ongoing stakeholder engagement and continuous collaboration.
Mr. Speaker,
The budget allocation for the Ministry of Health reflects an investment in primary care coverage and health systems’ strengthening that will significantly improve the quality of life for Bahamians. This will reveal itself in shorter wait times, improved facilities, more doctors and Bahamians living longer and healthier lives in a modern Bahamas.
In any event, when we are advised that Bahamians are generally the worst off in the region and some say in the world with respect to the incidence of diabetes – a most debilitating and life changing disease.
Then, we must readily accept that there is a compelling urgency to launch a National Lifestyle improvement Programme for all Bahamians with special emphasis on our school population.
Improving Human Capital Development in Agriculture and Marine Sciences
Mr. Speaker,
The low academic level of human capital in the Agricultural Sector of The Bahamas is a major impediment to growth, poverty reduction and food security in the Family Islands and in the inner communities of urban Nassau, and to some extent, Freeport. The establishment in September 2013 of the Bahamas Agriculture and Marine Science Institute (BAMSI) served to create a tertiary level academic curriculum which would offer Associates degrees, Diplomas, Certificates and a Skills Training programme to students training in the technologies associated with crop and livestock production and marine and fisheries resource development. Several weeks ago, the College of The Bahamas (COB) and BAMSI negotiated a collaborative agreement where the qualifications to enter BAMSI are the same as those for entering COB. There will be student exchanges and collaboration with facilities on teaching and research assignments.
In addition to the COB agreement, there are also agreements with the University of Miami, University of Florida, Ocean University of China and one pending with the University of the West Indies School of Agriculture in St. Augustine, Trinidad. BAMSI is about knowledge-driven development of our agriculture and marine resources and the Institute is now a member of the Caribbean Council of Higher education in Agriculture (CCHE). The Bahamas was accepted as a member of the Caribbean Agricultural Research and Development Institute (CARDI), the premier agricultural research entity in CARICOM, and CARDI will have its offices on the BAMSI site in North Andros and will add a new dimension to its research programme by giving it regional credibility. Bahamians working as counterparts to CARDI professionals will be able to undertake research on The Bahamas and earn UWI postgraduate qualifications at both the Masters and Doctoral degree levels.
Mr. Speaker,
The Caribbean Farmers’ Network (CaFAN) is the leading small farmer organization in CARICOM and has invited the Institute to have its Associated Farmers’ Programme as a member. It is also notable that BAMSI is the only marine institute in CARICOM, and possibly the region as a whole and a number of CARICOM states have announced their intention to send their students for training in order to more efficiently manage their marine resources.
BAMSI is an investment in human capital development, and in the food and nutrition security infrastructure of our country. BAMSI will continue to transform the Agricultural Sector and provide a more secure marine environment for Bahamians.
As for reforms in the education and training areas, we have introduced new standards for high school graduation and established the National Training Agency, as well as the STAR Academy for the most vulnerable in our society. In the last Budget, we provided $20 million for training and apprenticeship programmes aimed at the at-risk unemployed youth in our country.
The provision of effective social services is also vital to the well-being of our citizens in need. To that end, we have modernized our programmes in this area with the introduction of modern debit cards to improve the delivery of social assistance and we have implemented the RISE programme to tie assistance to positive behaviour.
In the period ahead, we will undertake a nationwide survey of vulnerable areas of the country, to be conducted by Urban Renewal using, as field workers, employees of the job and apprenticeship/training programme that I am announcing today. This survey will, over a three-month period, perform a detailed examination of households to assess the challenges that they confront — be they in respect of health issues, housing, employment and so forth.
The concrete results of the survey will be made available to the Bahamian public and will serve to supplement the other data that are currently available to policymakers. That, in turn, will assist in the formulation of effective socio-economic interventions by the Government to the major challenges confronting the citizens of our nation.
Governance
Mr. Speaker,
The Governance pillar is about the institutions that serve the vital needs of citizens and underpin their rights and freedoms in a stable and secure environment. We have thus embarked on a process to transform the way in which strategic planning is implemented at the centre of Government. Our view of planning has evolved to more fully encompass strategic thinking as we prepare for today and the future.
In a nutshell, we have placed planning and results-based management at the forefront of the activities of Government so that we can achieve the very best opportunities for the people that we serve. Indeed, strategic planning will allow us to successfully take ideas from conception to execution, considering all of the known available options and alternatives and recommending the best approach.
This represents a sea-change in our public policy formulation procedures built around a “Centre of Government” approach to planning within the Office of the Prime Minister, including the development and institution of an effective planning and monitoring tool and a governance mechanism to ensure that planning and execution are properly implemented.
We have also launched a wide-ranging reform of our Public Financial Management System that will have a positive impact on the performance of the public sector, including a more transparent and efficient public procurement system.
The implementation of the new Chart of Accounts by the end of the next fiscal year will allow tracking of expenditure at the level of projects and programs. It will also allow expenditure to be tracked by geographic location. This is especially important given the obligations under the Hawksbill Creek Agreement.
To facilitate this implementation, the Government will upgrade its IT infrastructure to will allow for the modernization of the existing systems. However, I wish to stress that this investment does not mean that the Government will not pursue the complete overhaul of its public finance system that is still slated to commence in the upcoming fiscal period.
In the area of citizen security, we have sought to modernize our law enforcement system through the provision of additional officers and equipment to the Royal Bahamas Police Force; to modernize our prison system with legislation to address recidivism and improve rehabilitation; to reform our judicial system with the addition of ten new courts and additional legal officers to reduce system backlogs; to modernize our national defence system with investments of over $250 million on new fleet and bases for the Royal Bahamas Defence Force; and to modernize our immigration system with investments of over $20 million.
Mr. Speaker,
My Government’s Swift Justice initiative is bearing fruit. Conviction rates have more than doubled — from 31% in 2012 to 63% in 2015. One hundred and ten more cases were tried in 2015 compared to 2012. Seven murder cases were tried within one year of charge. And the backlog continues to steadily decrease. 21st century technology is being used to link witnesses from the Family Islands and internationally by video, saving time and money, and new witness anonymity protections allow for witnesses to testify by disguising their voices and obscuring their faces over video link.
As well, the Office of the Attorney-General had a most productive year in 2015. Tracking and monitoring improvements and inadequacies have enabled strategic response and planning. In addition to providing for the 10 criminal courts to sit concurrently, resources have been provided for a revamped court reporting unit to improve the timely provision of transcripts as well as to establish an Office of the Public Defender.
The public can expect continued improvement in outcomes as we all work together to eliminate inefficiencies in the system.
The Government of The Bahamas has also expended significant sums of money to acquire and install cutting edge technologies in our fight against crime. These investments were made in Ballistics, Digital Biometrics, Long Term Evolution Communication Technologies, Collaborative Enterprise Solutions, Integrated Justice Solutions, Electronic Monitoring Solutions, and Closed Circuit Television Solutions (CCTV), and other cutting edge technology.
To date, the new technology includes a state-of-the-art, multi-agency Smart-Net Integrated Trunking Communication System, which is designed for Public Safety. The system is shared among eighteen (18) government agencies and also serves as an emergency communication system for the National Emergency Management Agency (NEMA).
In 2014, the ASTRO Digital Trunking System was further upgraded at a cost of $6.1 million. This allowed for a significant decrease in power consumption as well as the proper tracking and updating of one of our most important crime fighting tools, the patrol cars.
With all the upgrades and enhancements, further investments to maintain safety and security were necessary. There is now the ability to text to 919, and send videos directly to the Police Control Room. Currently, the systems are segmented and are standalones. The new system will integrate the Automatic Vehicle Location (AVL), Dispatch and 919 platforms for use and operation from a single point.
The Government has also invested $4.5 million to install two hundred and forty-three (243) cameras, mainly in the downtown area and hot crime spots of New Providence. All video feeds are sent either wirelessly or via fiber optics to a secure server located at the Police Headquarters. The camera feeds are integrated with other incoming data sources, such as behavioral analytics systems and computer-aided dispatch (CAD), creating a common real-time operational dashboard.
This offers the ability to easily integrate with third-party data and camera systems (public or private). These additional systems can enhance law enforcement’s visibility into key areas of the city without large investments in additional assets. The base platform can be expanded and has the ability to add multiple smart function items, including Facial Recognition, Gun Shot Detection/location and License Plate Recognition.
There has been much success thus far with the CCTV system. The Government is currently in discussions to expand the system to over one thousand cameras, which is expected to cover essentially all the exit/entry points in Nassau.
To further protect the borders of The Bahamas and enhance national security, the Government is actively pursuing the use of Unmanned Aerial Vehicles (UAVs) with high-resolution imagery. This technology is intended to improve upon the interdiction of drug traffickers, poachers, smugglers, human traffickers and illegal migrants. It will also improve upon the search and rescue missions.
As well, a state of the art Police and Fire Station is well on its way to completion in Freeport, Grand Bahama. Expanded and newly refurbished facilities are being made available for a Police Station in Lower Deadman’s Cay, Long Island.
An Agreement has also been reached with the New Providence Development Company Limited for the purchase, by the Government, of properties at a cost of $2.1million to establish a Police Station in southwestern New Providence.
In addition, the number of Police Reservist Officers for which they are paid has been increased by 200. And the maximum number of hours worked by Police Reserve Officers, for which they are paid, has been increased from 150 to 200 hours per month.
We expect that the additions of the expanded use of technology by our law enforcement officers will significantly improve their crime fighting capacity as well as prove to a determent to crime.
As for the Royal Bahamas Defence Force, the Government, in 2013, earmarked some $232 million under the Sandy Bottom Project towards equipping and decentralizing the Defence Force to increase its overall efficacy.
This investment — the largest capital outlay of its kind in the history of The Bahamas — was necessary in light of the myriad of threats confronting our nation. These security threats are compounded by an aging fleet, shortage of personnel, and limited bases, to name but a few. To resolve these issues that dilute the effectiveness of the Force’s efforts, major changes are being implemented within the Defence Force. These changes include:
· the decentralization of the Defence Force;
· the augmentation and modernization of the Force’s fleet and bases under the Sandy Bottom Project; and
· and the accelerated rate of recruitment of personnel.
The final two (2) of nine (9) patrol crafts are slated to arrive in The Bahamas in August of this year, and the agreed completion date for all civil works, including the construction of buildings and quay walls in Coral Harbour, Inagua and Ragged Island, is scheduled for October 2016.
Mr. Speaker
The people of The Bahamas are reaping positive returns on this sizeable investment. HMBS Lignum Vitae and HMBS Lawrence Major have both intercepted and apprehended undocumented migrants and have provided vital assistance in bringing relief to persons affected by Hurricane Joaquin in the Family Islands.
More specifically, Her Majesty’s Bahamian Ship Lawrence Major, for example, apprehended over forty undocumented migrants in February of this year. This 185-foot vessel has also assisted with disaster management efforts in delivering relief supplies and reconstruction materials to islands that were adversely impacted by Hurricane Joaquin. The 17- container Mobile Base with disaster relief equipment was also deployed to Crooked Island where it provided food, water, technical and medical support to residents on that island for a four-month period.
The strategic deployment of the new patrol crafts has seen the significant reduction in poaching incidents. Indeed, our fishermen have reported increases in their catch/ harvesting.
Finally, the Defence Force has implemented Operation Secure Shores with increased patrols of the borders of New Providence such that there has been the detection and apprehension of persons suspected of planning criminal activities and / or criminals have been apprehended with the assistance of the Police Force.
Natural and Built Environment
Mr. Speaker,
I now turn to the third key pillar of development, namely the Natural and Built Environment. The health and sustainability of the natural environment are critical to the physical well-being of individuals and the support system for a modern economy. Of a number of initiatives in this area, I would signal efforts to reserve Marine Protected Areas which have resulted in our meeting the target of 10 per cent reservation of the marine and coastal areas as protected zones. Efforts continue to identify the near shore and marine areas for the next 10 per cent of the 2020 Challenge for The Bahamas to protect 20 per cent of its near shore and marine environment. We are as well developing an Environmental Youth Corps that will employ our youth and prepare them for so-called green jobs within the National Park and protected area system.
In the area of oil exploration, the new Petroleum Regulations include an expanded emphasis on environmental protection.
As for the built environment, I have of course spoken at length in the recent past about the important role to be played in the area of Public-Private Sector Partnerships. In the last Budget, we provided seed capital to support up to $200 million in such new projects across the breadth of the nation. These will cover roads and bridges; airports; new and refurbished Government buildings and repairs of existing Government buildings; and health care infrastructure and schools.
In this vein, I would note that Grand Bahama Power Company Mr. Speaker has embarked on an ambitious programme to switch all of their streetlights to LED bulbs. This both saves in power consumption and improves road and public safety. The Government will seek to do the same within this fiscal year for public buildings and all streetlights in New Providence, through a public-private partnership. The financial savings from lower power consumption will be used to expand street lighting in major Family Island thoroughfares through the fiscal year.
We have also endeavoured to modernize our nation’s aviation system with significant investments in the upgrading of our aviation infrastructure in both New Providence and the Family Islands and with an investment of over $100 million in the re-fleeting of Bahamasair.
The Economy
Mr. Speaker,
As for the fourth pillar of development, a dynamic and vibrant economy supports the creation of employment opportunities and the generation of wealth for our citizens. To that end, my Government has, as I mentioned earlier, implemented significant budgetary and fiscal reforms to redress the nation’s public finances and enhance confidence in The Bahamas as an attractive location for investment. The myriad new foreign investment projects, of all sizes and locations across the nation, attest to the success of our strategy in this area. I will return to a fuller discussion of these projects shortly.
Modernizing Tax Administration
Mr. Speaker,
We have also implemented the most important tax reform exercise in the history of our nation, with the introduction last year of a Value Added Tax, in combination with the reduction and elimination of other taxes. As well, we have launched major reform exercises in respect of the administration of our major taxes. Not only will these measures lead to an enhanced revenue yield from our tax system but they will also lead to enhanced efficiency and growth of our economy.
The Customs Modernization Programme is continuing, with Customs committed to processing all entries electronically as of July of this year. In addition, Customs aims to have the online payment of entries by September, using the same payment methods utilized for VAT.
Customs enforcement will commence operations of a canine unit in both New Providence and Grand Bahama this summer. This complements the recently established Marine Unit and improves the ability of the Department to address law enforcement challenges. In addition, the number of X-ray machines will be expanded to all major ports of entry, to increase the ability of Customs to conduct more non-intrusive searches for contraband.
To comply with FATF and CFATF requirements, Customs will also commence currency declaration procedures in June for individuals leaving the Bahamas with more than $10,000 in cash.
As well, a vendor for the Electronic Single Window system will be selected by the end of this year. This will make the entire Customs process automated and create a one-stop shop for importers. Like many of the reform initiatives, this is being funded through an IDB loan.
Mr. Speaker
In July 2015, the Department of Inland Revenue (DIR), which previously comprised the Real Property Tax and Business Licence Units, merged with the VAT Project Unit. The DIR also relocated to new modern facilities located at the Shops at Carmichael Plaza, Carmichael Road.
The Department has modernized Real Property Tax by implementing a Property Tax Computer-Assisted Mass Appraisal (CAMA) software. The new Tyler is a World software was launched in December 2015; and shortly, also in conjunction with Tyler Technologies, the Department will embark on a programme to update its data collections and imaging. The aim is to increase the number of registered properties and bring greater equity in both the assessment of properties and the overall Real Property Tax System. Currently Mr. Speaker, there are 99,556 properties on the property tax register, with 12.6 per cent classified as residential, some 57.2 per cent as owner-occupied, 23.6 per cent as vacant land and roughly 6.5 per cent as commercial properties.
A total of 43,003 properties are now fully exempted from the payment of property taxes. During this fiscal year, 42.5% or 24,008 of taxable properties have paid taxes amounting to just over $100 million.
There were several property tax initiatives introduced in July 2015 which included a 10% discount for property owners who pay their taxes in full by March 31 and a fifty percent discount for Senior Citizens on their Owner Occupied property bills. The reform of the property tax system is an extended process, made complex by historical underinvestment, but the Government is committed to delivering to the public a fairer tax, one with a broadened base that will allow all taxpayers to benefit from a lower tax rate.
Mr. Speaker
The Business Licence was first implemented in The Bahamas in September 1980. Over the past thirty plus years, the processing system has remained virtually the same. In 2015, a determined effort was made to modernize the Business Licence process by having it converted from manual to fully automated. In this regard, significant progress has been made. Applications for new licences and renewals of existing licences are now processed online and this is supported by either online payment or direct payment through the banking system.
Additionally, communication with clients is conducted online and customers can now print their own licence upon paying the prescribed fees. This can all be achieved without the customer having to physically visit the Business Licence office. Licences are also now issued with a barcode that allows for easier verification of authenticity. While there have been some growing pains, it is acknowledged that there have been marked improvements over the manual system previously operated.
From January 2016 to the present, the department has approved 10,430 licences, almost 70 per cent of which are for businesses with turnover of $50,000 or less. Another roughly 20 per cent are for those with turnover from $50,000 to $500,000 and some 12 per cent or so for those with turnover from $500,000 to $5 million. Licencees with turnover in excess of $5 million number 265.
Business Licence revenue collected, thus far for the current fiscal year, is just under $92 million. The focus is now on education to allow businesses to improve compliance, as there is still a significant amount of businesses that are not meeting their legal obligations.
Mr. Speaker,
VAT performance continues to be strong. There are 6,361 VAT registrants, of which 653 file monthly and 5,708 file quarterly. Almost 80 per cent of the monthly filers and two-thirds of the quarterly filers do file on time. And, of those registrants that filed, 75 per cent of the monthly filers and two-thirds of the quarterly filers paid on time. Although not all VAT registrants paid on time, over 90 per cent eventually settle their obligations. The DIR processes refunds weekly and has received 1,661 applications, of which $6.2 million have been paid. The Department is now focusing much attention on improving taxpayer services in areas of refund management and policy responses.
As for the VAT on property transactions and the first home exemption, it is anticipated that applicants for the exemption will be able to apply electronically in the upcoming fiscal year. This development will lead to an integrated administration of taxes on conveyances and leases.
Modernizing Public Services
Mr. Speaker,
The Government has also implemented a significant reform of our energy system in the form of a modernized BEC with private sector management. This will result in a more secure supply of electricity, as well as lower prices for both consumers and businesses.
As well, we have implemented communications reform Mr. Speaker with majority economic ownership of BTC and the award of a second cellular license.
Cellular Liberalization
Mr. Speaker,
It will be recalled that, in October 2015, Cable Bahamas Limited (CBL) emerged as the successful bidder in the two-phased selection process to liberalize the cellular mobile market in The Bahamas. This process was initiated by my Government back in November 2014, with a Request for Proposals (RFP) to operate a second cellular mobile network.
By way of reminder, the RFP stipulated that a new Bahamian company (NewCo) would be formed to hold the cellular licences, and that the successful applicant of the process would be a minority shareholder of NewCo. Another Bahamian company (HoldingCo) would be formed as the entity that will hold the majority equity ownership interest in NewCo on behalf of the Bahamian public.
Immediately following the conclusion of the Phase II spectrum auction in October, the Cellular Liberalization Task Force commenced discussions with CBL on the ownership arrangement of NewCo. These discussions have led to the conclusion of a Shareholder’s Agreement (SHA) that will govern the relationship between CBL and HoldingCo.
In line with CBL’s Phase I commitments, HoldingCo will hold 51.75% of the shares in NewCo and CBL will hold the remaining 48.75%.
Licensing of NewCo
In light of CBL having met the remaining requirements of the Request For Proposal (RFP), I am pleased to advise that the Government will notified the Utilities Regulation and Competition Authority (URCA) to proceed with the licensing of NewCo. Although CBL will have management and board control of NewCo, HoldingCo will have certain standard market veto rights in order to protect its investment.
The first Board Meeting of NewCo is expected to take place in the coming weeks.
Mr. Speaker
The licence will be awarded to NewCo for a fifteen year period and NewCo’s trade name will be disclosed just prior to its launch date later this year.
HoldingCo
In order to facilitate the timely formation and licensing of NewCo, the Government has incorporated HoldingCo with itself as the sole and initial shareholder. Government’s shareholding in HoldingCo, however, is intended to be temporary in nature and a Caretaker Board will be appointed until such time as HoldingCo’s shares have been divested.
In the meantime, the focus of the Task Force and its advisor, PricewaterhouseCoopers, will shift to soliciting eligible investors. This process however, will not interfere with the timing of NewCo’s launch once the relevant licences have been granted by URCA.
It is proposed that HoldingCo’s shares will be offered to institutional investors (e.g. local pension/mutual funds, co-operative credit unions) within the next few months. Such an offering will ensure that the equity ownership in HoldingCo is as widely distributed as possible so that there will be broad Bahamian ownership.
Cellular competition is imminent
The licensing of NewCo within the next few weeks will mark yet another significant milestone of this Government’s commitment to introducing competition in the cellular mobile market.
Under the licences to be awarded by URCA, and from the time that the licences are awarded, NewCo will be required, on a phased basis, to satisfy the following coverage public obligations:
Within 3 months: 99% in New
Providence and 80% in Grand
Bahama;
Within 6 months: 75% in each of
Eleuthera, Abaco, Bimini, Andros and
Exuma (including Black Point, Little
Farmers Cay, Staniel Cay and
Stocking Island);
Within 8 months: 85% in Andros and
99% in each of Grand Bahama,
Eleuthera, Abaco, Bimini and Exuma[1];
Within 12 months: 99% in each of
Andros, Cat Island, Long Island, San
Salvador, Berry Islands, Inagua and
Ragged Island;
Within 18 months: 99% in each of
Acklins, Crooked Island, Long Cay,
Rum Cay and Mayaguana; and
Within 24 months: 80% in each of the
remaining Exuma Cays.
Mr. Speaker
I wish to emphasize what the coverage obligation under the licences will entail. A 99% coverage requirement, for example, means that NewCo will have to ensure that reliable service is available in 99% of the places where persons habitually live and traverse.
It should be noted that NewCo’s performance with respect to its licence obligations will be secured by a Performance Bond to be submitted to URCA within fourteen (14) days of the licences being granted.
Over and above the roll-out obligations in the licences, the Government will also enter into a Deed of Undertaking with CBL to facilitate accelerated roll-out, if needed, in the context of contemplated development on specific Family Islands in the southern Bahamas.
Mr. Speaker
The benefits expected from cellular liberalization will support the broader sustainable development goals of our country’s National Development Plan.
Modernizing Other Sectors
Mr. Speaker,
We have also endeavoured to modernize and enhance the sports and cultural sector, as well as the agricultural sector, through the establishment of the Bahamas Agriculture and Marine Institute.
In addition, legislation has now been completed for the establishment of the University of The Bahamas.
Mr. Speaker
It is important for me to say that the Government recognizes the magnificent contributions of our sports heroes and heroines at home and abroad. In further support of sports development at all levels and in all disciplines, the Government will continue with the development of facilities at the Queen Elizabeth Sports Centre through the construction of a new National Baseball Stadium and through the construction of sports complexes in our islands, commencing with Moores Island, Abaco, Eleuthera, Exuma and Andros.
We have also regularized the domestic gaming sector with the introduction of regulation and appropriate taxation.
And we have introduced a modern regulatory framework for the financial services sector, in line with international standards.
Mr. Speaker,
Mr. Speaker
This is but a brief snapshot of the many actions that my Government has taken over the past four years to address the significant challenges that our nation faces and thereby steer us onto a path toward a better future for all Bahamians.
These are not mere palliative, short-term and thus inevitably ineffective measures focused only on the span of our current five-year mandate. They represent a bold and aggressive agenda of deep and fundamental structural reform that addresses several of the grave challenges that confront our nation. They will bear fruit in the form of significant and durable improvements in the performance of our economy and the welfare of our citizens.
Mr. Speaker,
I dare to suggest that this is an impressive record of achievement. Going forward, my Government remains firmly committed to building on these reforms with the action plans that will be identified in the forthcoming National Development Plan that will set out a National Vision and Objectives for the next 25 years. As I mentioned earlier Mr. Speaker, the recent State of The Nation Report represents the initial diagnostic phase of the NDP process. That is now being followed by an extensive process of national consultations, through which Bahamians are being given an opportunity to provide their input into the development of the NDP. In the third stage, we will be developing the Plan through the identification of a National Vision and Goals, along with Strategies to meet each of the Goals and action plans for each of the Strategies.
The State of the Nation Report has identified our strengths and weaknesses in respect of each of the four key pillars of the NDP. Going forward, it will be critical to aggressively address the weaknesses identified, in order to achieve the overriding economic and social goals of our National Vision for the next 25 years.
One area that requires immediate attention and action relates to the vital improvements that are needed in our domestic business environment, as identified in the State of the Nation Report. Quite strikingly Mr Speaker, The Bahamas ranks 106th of 189 nations in the World Bank Ease of Doing Business Index.
Some of the areas of particular concern are: registering property, access to