The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has admitted that project management and execution restrictions are preventing it from following the IMF’s call for greater investment in “growth enhancing infrastructure” developments.

The admission is contained in the Fund’s recent Article IV report on the Bahamas, where it calls on the Christie administration to re-purpose its spending from its recurrent (fixed costs) to the capital budget.

“To support near-term economic activity, staff sees room for shifting spending away from current spending and towards more productive and growth-friendly infrastructure spending,” the IMF said.

“Priorities include efficient investment in information and communication technology, transportation, public utilities, as well as projects that support economic diversification, increase domestic value added in the dominant tourism sector and enhance resilience to natural disasters.

“Using responsible public-private partnerships, where relevant, can help reduce the burden of higher investment on government finances.”

However, noting the Government’s response, the IMF said the Christie administration admitted that insufficient resources and expertise in project management and implementation would inhibit its ability to increase infrastructure investments.

“They argued that room for increasing capital spending in the near term was constrained by project execution capacity,” the Fund said of the Government, which has budgeted $242 million, or around 3 per cent of GDP, for capital projects over the next three fiscal years.

The Article IV report also acknowledged that the Government’s fiscal reform and consolidation focus had been almost entirely on the revenue side, with its fixed-cost spending continuing to “drift upwards”.

As a result, the Fund called for recurrent spending restraint to be combined with public sector financial management reforms.

“Fiscal consolidation has so far focused on the revenue side, while government expenditure has been drifting upwards after the great financial crisis (of 2008-2009),” the IMF said.

“Staff reiterated that rationalisation of current expenditure in the context of a medium–term budget framework would help preserve the hard-won benefits of the VAT, enhance policy credibility in the low growth environment and strengthen fiscal sustainability.

“Such a framework should seek to contain further growth in current spending and gradually unwinding crisis related spending increases,” its Article IV report added.

“The authorities should resist pressure to increase public wages and employment, especially in view of low labour productivity growth, while also strengthening payroll management. Furthermore, services and transfers and subsidies would generate fiscal savings.”

The Fund also warned that an “out-of-date accounting system and chart of accounts undermine the integrity of financial reporting and spending quality”

“Capital budgeting is not fully integrated into the annual budget planning process,”the Article IV report said. “Staff emphasised that improving fiscal reporting, introducing procedural rules to support expenditure discipline and preparing a medium-term fiscal framework document, submitted to the Parliament, are important immediate steps towards adopting a fiscal rule.

“To strengthen their commitment to fiscal responsibility, the authorities should consider further intermediate steps towards a fully-fledged framework, such as introducing a simple rule to contain volatility in spending growth.”