The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Fiscal Responsibility watchdog’s chairman last night revealed it had wanted to see more evidence to support the Government’s belief “of a rapid return to normalcy” following the COVID-19 pandemic.

Kevin Burrows, speaking after the Fiscal Responsibility Council released its first-ever evaluation, an assessment of the Government’s 2020 Fiscal Strategy Report, told Tribune Business it had wanted to see more metrics, timelines and “explicit reasons” on “the underlying drivers that will get us back to trend” so quickly post-pandemic.

However, he pointed out that the Council’s assessment was “not a scathing report”, and added that he would not want Bahamians to gain the impression that it was a “bad” outcome even though numerous deficiencies and areas for improvement were identified.

“It was a bit of a trek getting the website done and getting the report done,” Mr Burrows acknowledged to this newspaper. “We felt with this being the first of its kind in The Bahamas and, interestingly, we are the first Fiscal Responsibility Council not mandated by the IMF in this region, we felt particularly burdened to make sure we set the bar high for ourselves and other councils to follow in The Bahamas and the Caribbean.”

Suggesting that such Councils will become more common in the region, Mr Burrows agreed that the five-strong body - featuring himself; Gowon Bowe, Fidelity Bank (Bahamas) chief executive; Bar Association president, Quincy Parker; attorney Christel Sands-Feaste; and Dale McHardy from the University of The Bahamas - had wanted to see more evidence to back the Government’s quick rebound expectations.

“I think if you look at the Fiscal Strategy Report and the subsequent Budget, you see sort of a rapid return to normalcy after a few years of recovery,” Mr Burrows told Tribune Business. “We thought we would have hoped to have seen more explicit reasons behind why we get back to normal so quickly, the timing and the underlying drivers that would get us back to trend.

“Even if delayed, we wanted to see the metrics that would return us to trend. Some countries run on a parallel path to trend for decades before returning to trend. We thought that could have been better highlighted among the issues in the Fiscal Strategy Report.”

The Fiscal Strategy Report 2020 was released last December by the Minnis administration, so the evaluation does not cover any work by the present government. Mr Burrows was also quick to point out that the Council’s role was not to comment, or determine, whether the Government’s fiscal policy was bad, or revenue or spending estimates too optimistic, but instead to determine whether the data and its presentation comply with the Fiscal Responsibility Act.

Outlining the Fiscal Strategy Report’s weaknesses, the Council said: “Fiscal Strategy Report 2020 presents strategies and narratives that are not supported by metrics, and policies and actions to address specific issues, with no indication of the actual projected impact of these measures on the fiscal outlook.

“The assertion that ‘improved tax administration to increase revenue yield and continued tax policy reforms’, and the winding down of incentive schemes associated with external shocks, will fill gaps that cannot ‘be achieved by economic growth alone’, and still support achievement of stated objectives, is not supported by detail of how this will be achieved, and the expectant impact. 

“Fiscal Strategy Report 2020 does not frame reforms and projected activity into projected fiscal outcomes, lacking dimensions of time and dollar values. Timelines and impacts are non-specific and not supported by robust data. How stated public sector reforms, structural reforms and economic policy translate into measurable impacts should be presented, along with the mechanisms and timelines to achieve these ends.”

Giving a specific example to back its concerns, the Council said: “The Government’s revenue outlook projects improvements in government’s revenue in 2021-2022 to 17.5 percent of GDP. This is up from a projected 14.5 percent of GDP for 2020-2021, with further assumption of ‘little to no effect of the COVID-19 pandemic during 2022-2023’.

“Fiscal Strategy Report 2020 predicts revenue reaching 19.5 percent of GDP and trending higher to 20 percent and 20.5 percent in ensuing fiscal years. This scenario, Fiscal Strategy Report 2020 explains, ‘is predicated upon government continuing to address gaps in revenue administration and to secure progress on critical reform efforts to ensure fiscal sustainability’.

“The narrative, however, does not identify the specific gaps and reforms, or what their projected impact on the fiscal account is expected to be. There are no timelines and no measures provided to assess the extent that such initiatives are expected to drive the revenue outlook that the Government projects,” the Council continued. 

“Returns ‘from the ongoing real property tax rollout’ are mentioned, as are accumulating benefits ‘of the Click2Clear customs clearing arrangement’ and other areas. But none are associated with data projections or other means of interpreting and assessing the expected impact.”

The same issues were highlighted with the Government’s spending projections. “Fiscal Strategy 2020 explains that revenue forecasts for fiscal year 2021- 2022 to fiscal year 2024-2025 assume ‘the disruptive effects of COVID-19 on economic activity are mitigated by the roll out of the COVID-19 vaccine to support a rebound in nominal GDP growth to a forecasted 7.1 percent in 2021- 2022’,” the Council said.

“The projected 7.1 percent growth rate in nominal GDP, though critical, is not supported with an explanation of how the forecasted data was derived, and the summation of ‘disruptive effects’ being ‘mitigated by the roll out’ of the vaccine requires more detail on specific disruptions, strategies and projected impacts, timing and outcomes.

“On the expenditure side of the fiscal outlook, Government’s current expenditure reductions for forecasted fiscal years 2021-2022 through to 2024-2025 assume reductions in subventions to state-owned-enterprises ‘through activities aimed at making these entities more self- sufficient and efficient’. Supporting context however is not presented.”

Mr Burrows also said it was “a grey area” as to whether what the Government had presented met the requirement to produce a Fiscal Adjustment Plan, given that it had twice invoked the Fiscal Responsibility Act’s “exceptional circumstances” clause to deviate from the timelines for reducing The Bahamas’ debt-to-GDP ratio to 50 percent and narrowing the annual deficit to a maximum 0.5 percent of GDP.

He added that such an adjustment plan would “give a lot of details and assumptions on how we would get back on track, and we didn’t quite see that in the information presented”.