The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday warned not to use an IMF affiliate’s report to delay moving on Fiscal Responsibility-type legislation, a top private sector executive saying the document provided a damning “indictment” of its financial reporting systems.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, said the report by the International Monetary Fund’s (IMF) CARTAC body effectively called into question the Government’s 2015-2016 Budget calculations.

The Caribbean Regional Technical Assistance Centre (CARTAC), in a March 2015 ‘discussion paper’ on implementing a ‘fiscal rule’ in the Bahamas, lambasted the “lack of quality data” produced by the Government’s own financial management and reporting systems.

While CARTAC suggested these deficiencies would prevent the successful implementation of any so-called Fiscal Rules or similar legislation now, Mr Bowe said its assertions raised questions over whether the Budget should be treated as mere “firewood for the barbecue”.

“I would be very careful if I was the Government in using that as a rationale for deferral of Fiscal Responsibility legislation,” the Chamber chief told Tribune Business.

“It is actually an indictment on the state of the Government’s financial reporting functions; that they are not capable of utilising information reporting to line up with a Fiscal Responsibilities Act.”

Mr Bowe also queried why there appeared to be no funds allocated in the 2015-2016 Budget to improve the Government’s financial management and reporting systems.

“If you’re trying to demonstrate sincerity in getting to some form of Fiscal Responsibilities legislation, I would have expected to see an allocation” in the Budget, he added.

CARTAC, as revealed by Tribune Business last week, had warned that the Bahamas would see its credibility “quickly destroyed” if it attempted to impose so-called ‘fiscal rules’ in the near term because the Government’s financial management systems will be unable to cope.

It added that “the slow pace of reform” in government accounting and information systems would stymie such an initiative for now.

Mr Bowe added that CARTAC’s findings were “certainly not something that breeds confidence” in the financial reporting used to put together the 2015-2016 Budget and its projections.

He added that it raised questions as to why Bahamians “should place faith in these numbers”, suggesting that CARTAC’s report was more about asking whether this nation was truly ready for fiscal rules and Fiscal Responsibilities legislation

“Successful adoption and application of fiscal rules requires a number of essential pre-conditions to be in place, without which, the rules are unlikely to be sustained and may end up undermining policy credibility,” CARTAC’s report said.

“These pre-conditions include a high level of institutional capacity, information systems that support sound macroeconomic and fiscal forecasts and financial reporting, and a high level of transparency in fiscal policy making and operations.”

CARTAC said the Ministry of Finance had begun to address these issues with its help, but much more remained to be done.

Support for “greater transparency and accountability” was vital, the report said, adding: “In general, the pace of reform has been slow, and significant further work is required to complete these necessary pre-conditions for fiscal rules.

“In particular, access to accurate and reliable financial information will be critical for monitoring adherence to fiscal rules, as well as providing an early warning if policy changes are needed.

“Indeed, the lack of quality data will quickly destroy the credibility of fiscal rules. Internal and external audit systems also need to ensure that public resource utilisation is fully accounted for,” CARTAC added.

“It is also important that fiscal data consistent with the budget reporting system is publicly released in line with a pre-announced calendar to allow external monitoring of the rule.

“The ability to comply with any targets set by the fiscal rules will, at the same time, require the continued application of rolling multi-year Budget ceilings in order to effectively control expenditure.”

‘Fiscal rules’ commonly set numerical targets and restraints on government spending, “so as to ensure fiscal responsibility and debt sustainability”. Such rules often seek to limit the government’s debt to a certain percentage of GDP, or involve ‘balanced budget’ requirements that prevent or restrain deficit spending.

The Government previously rejected advice from its own US consultants, Compass Lexecon, that it should adopt such a ‘fiscal rule’ to boost credibility with the international rating agencies and capital markets.

However, demands from the private sector and the Bahamian public for greater accountability and transparency in the public finances have not abated, especially since the Government started extracting more money from the economy via Value-Added Tax (VAT).

The Chamber via the Coalition for Responsible Taxation, in particular, and its members have focused on this issue as a way to keep public spending in check, and view it as the Government’s side of the ‘fiscal bargain’ that needs to be implemented in return for the private sector agreeing to VAT.