By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamas and other Caribbean nations “cannot escape their debt challenges” without implementing so-called fiscal rules, an Inter-American Development Bank (IDB) study recommending this nation impose spending controls.
An IDB paper on developing fiscal sustainability in small states argued that limiting the Government’s recurrent (fixed cost) and total spending, in order to bring the Budget back in line with a target debt-to-GDP ratio, would generate “higher consumer welfare in the Bahamas” than any other option.
The paper’s authors, Allan Wright, Kari Granade and Ankie Scott-Joseph, effectively warned that the Bahamas will be unable to effectively tackle its $7 billion national debt burden unless it imposes discipline on successive governments through binding rules.
“This study contends that Caribbean countries cannot adequately surmount their fiscal and debt challenges in the absence of binding rules that are geared toward entrenching fiscal discipline, curbing fiscal procyclicality, and improving budget transparency and credibility,” the IDB paper’s authors wrote.
“Given the persistence and scale of the fiscal and debt problem in many Caribbean countries, the authors view the urgent adoption of fiscal rules as a critical development priority for the Caribbean.
“Improving fiscal governance and strengthening institutions are imperative not only to curb fiscal procyclicality and reduce indebtedness, but also to restore medium-term fiscal sustainability to better support socioeconomic development.”
The IDB study said ‘fiscal rules’ are intended to promote sustainable economic growth, while at the same time limiting government budget deficits and the growth of the national debt.
It added that there were several types of fiscal rules, most involving set debt-to-GDP ratio or balanced Budget targets - both of which, if adhered to, contain the fiscal deficit and national debt.
Other methods identified by the IDB paper included spending rules that limit the Government’s total, recurrent and spending, something it said was used to “control the size of government”.
Finally, revenue rules were used to boost or reduce tax burdens by setting “revenue ceilings or rules”.
The IDB paper used two yardsticks to measure the impact of these so-called fiscal rules in the Bahamas and other Caribbean state, namely the impact on consumer welfare (change in household consumption) and affect on key economic variables such as employment, investment and GDP.
“Expenditure rules, which simulate adjustments in public spending based on deviations from the targeted debt-to-GDP ratio, provide higher consumer welfare in the Bahamas (0.18 difference) relative to discretionary fiscal policy than any other rules,” the IDB paper found.
“In the Bahamas and Barbados, a revenue rule (which simulate adjustments in revenue based on deviations from the targeted debt-to-GDP ratio) was considered the second-best rule for improving welfare.”
When it came to the key economic indicators, the IDB found that so-called ‘revenue rules’ produced the least volatility for the Bahamas.
The IDB study’s conclusions were yesterday seized upon as backing calls, made continuously by the private sector and others over the past three years, for the Bahamas to pass a Fiscal Responsibility Act and other reforms to make the Government more transparent and accountable over its taxation/spending plans.
Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that he “100 per cent agreed” with the IDB authors’ conclusions.
He added that their findings mirrored calls made by the likes of ORG for Fiscal Responsibility and Freedom of Information Acts, a government ombudsman and a State Services Act “to improve the management and efficiency of government”.
Mr Myers said the Bahamas lacked a culture of fiscal responsibility and accountability, both within the public sector and the major political parties.
“It mimicks what we’ve been saying,” he added of the IDB report. “To that I would add the culture in the Government; they don’t seem to want to do it. So we have this real culture that is adverse to being fiscally accountable and responsible.”
The Christie administration failed to deliver on promises, made in the February 2015 mid-year Budget presentation, to initiate a public consultation on introducing a Fiscal Responsibility Act.
Such an Act would force the Government to be more accountable and transparent in the management of the public finances, and require it to return to Parliament for approval to raise more money if it had to exceed the limits approved in the annual Budget.
Some have argued that ‘fiscal rules’, which go further than this by setting targets the Government cannot exceed, would lock or ‘box in’ the administration such that it would not be able to effectively respond to emergencies, such as Hurricane Matthew.
However, given the Government’s inability to control its spending, and concerns expressed by RBC’s chief Caribbean economist that it is squandering the region’s best VAT, many observers believe there is no choice but to impose discipline on it.
The IDB study noted that the Bahamas’ gross public debt, as a percentage of GDP, had almost tripled between 2000 and 2015, jumping from 24.5 per cent to 65.7 per cent.
Over the same period, this nation’s overall fiscal balance had deteriorated from -0.5 per cent of GDP to a 4.4 per cent deficit come 2015.
The study added that many Caribbean countries, as the Bahamas has done with Value-Added Tax (VAT), initiated fiscal consolidation programmes “amid acute economic weaknesses” to tackle this.
But it added that “political and socioeconomic realities thwart large-scale fiscal consolidation in downturns”, and pointed to difficulties in aligning revenues with government spending.
“The Caribbean has been unable to link development strategies and plans to medium-term fiscal planning and current year appropriations and execution,” the IDB study said.
“There are also significant gaps in budget credibility, as several countries consistently execute budgets that differ significantly from approved budgets. Comprehensiveness and transparency are also problematic areas.
“Moreover, there exist challenges in procurement planning and execution, and poor linkages between budget preparation, procurement planning, and execution systems. Oversight and governance of procurement, weak monitoring of contract compliance, non-compliance with bidding processes by procurement agencies, and non-transparent bidding processes are additional areas where most countries face challenges.”
Comments
Well_mudda_take_sic 7 years ago
Never mind that it was the IDB in cahoots with the IMF and World Bank that conned and hooked our governments (PLP and FNM alike) on the easy taking on of unsustainable debt! True to form they now want to start calling the shots when it comes to our country's financial affairs so that they can cause crippling economic upheavals designed to force us into selling all of our valuable natural resources, our utility enterprises, etc., to their favoured foreign corporate interests for pennies on the dollar.
concernedcitizen 7 years ago
You keep saying this nonsense ,for god sake can,t we take some responsibility ..The IMF or IDB never enter our house of parliament and voted to borrow one red cent ,,we did that all on our own .Stafford Sands left us a country w/ no debt , a thriving banking industry , a growing tourism product , low crime and clean .We all on our own went out and borrowed 7 billion dollars and put 1 in 4 people on the government payroll .No country in the history of civilization can afford one in four on the government payroll with out borrowing like crazed lunatics ,,3 people can not pay enough tax to afford one government employee .We put them on the payroll to gain votes ,employ our sweethearts ,both straight and gay etc etc Christ we have 1 MP for every 9000 people ,,England is about 1 for every 100,000 ..I,m amazed we have pulled it off for so long and lets no even get into our low productivity corruption and theefin
Well_mudda_take_sic 7 years ago
Your ignorance is beyond bliss. Our politicians, PLP and FNM alike, have made out like bandits from the international lending agencies for saddling our country with unsustainable debt. We voted in the corrupt politicians and they found it all too easy to suck on the external public debt teat very deliberately put to their mouths by the international lending agencies like the IMF, IDB and World Bank.
sheeprunner12 7 years ago
Concerned is correct in his assertions about HOW we have gotten to this point in our governance ......... What we need to hear from the 150 candidates who will be soon making their house calls is HOW will their future policies solve that huge $7Billion fiscal debt challenge, the recurrent expenditure wastage (30%), the "no bid " government contracts system, lack of government accountability, the unsustainable public pensions system and the bloated, unproductive civil service.
Well_mudda_take_sic 7 years ago
At least we already know what Minnis says he would do to pay down our national debt....he said if need be he would simply refill that bountiful trough known as the public purse with more taxpayer dollars by doubling the VAT rate from 7.5% to 15%.
Economist 7 years ago
If the spending is not controlled we will see a 20% VAT, a cut in Civil Service Pensions of 10% to 15%, the introduction of Income Tax, Real Property Tax on all land owned by Bahamains, and that is just for starters.
The IDB and IMF are there to help a country improve it economy and standard of living for it people. Loans are made on the proposals put forward by the Country applying.
The IMF nor the IDB force a country to borrow, nor do they try to find reasons just so a country will borrow from them.
Bahamians, in general, do not have a good credit rating, at home or in other countries.
Soon the government will bring us a national disgrace unless we get the spending under control.
Perry and his government can't even tell us where they have spent $1.5 billion dollars. That is out of control spending.
Well_mudda_take_sic 7 years ago
To Economist: Your paymaster must in some way be one or more of the international lending agencies (ILAs). You have lost all credibility in my books if you truly believe what you've said in the second paragraph of your comments posted immediately above. Anyone with a scintilla of knowledge about the fundamental underlying purpose and inner workings of the ILAs knows full well that these institutions are only too willing to conduct reviews, surveys and examinations on a gratis basis because they are designed to promote the taking on of unsustainable levels of national debt. The ILAs represent the foreign corporate interests domiciled in the countries that control them, mainly the U.S. and OECD block of countries. By causing third world and developing nations to be hocked in debt, the fragile economies of these nations, like the Bahamas and other countries in our region (e.g. Jamaica and Trinidad), become destabilized. This all sets up a situation where the foreign lenders are then able to pressure the debt ridden countries into selling their more valuable natural resources, utility enterprises, etc., to foreign corporate interests for mere pennies on the dollar. Corrupt or corruptible governments allow the ILAs to much more easily accomplishing their hideous mission. THIS IS ALL WELL ESTABLISHED COMMON KNOWLEDGE TODAY!
sheeprunner12 7 years ago
Mudda ........... you have some serious axes to grind with those of us who are anti-PLP ............. but the PLP has gotten us in the fiscal situation(since 2012) that we are in presently ............ you cannot deny that at all
Well_mudda_take_sic 7 years ago
Re-post: As I've said countless times before : "THINK, THINK, THINK!!!" But I suspect many registered voters are still much too blinded by party loyalty to do just that. Weak minded voters have been severely blinded as a result of four decades of brainwashing by political party leaders (Pindling, Ingraham, Christie, McCartney and now Minnis) that has left them wrongly believing that political party loyalty matters to the exclusion of all else. But under our Westminster parliamentary system of government, we are all much better served when the best candidate in each constituency in terms of their integrity, intellect and common sense gets elected no matter what his or her party affiliation may be. We already have a four decade old track record that proves just voting along party lines for the more popular party of the day is a sure fire recipe for disaster. Corrupt politicians come to the front and thrive in settings where party loyalty is all that matters, relegating integrity, intellect and common sense to very low places on the totem pole. We need as many good qualified people sitting as MPs in the HOA as we can possibly get irrespective of their party affiliation....let the chips fall wherever they may when it comes to which party ends up with the most seats....we need the best MPs available for both good governance and good opposition. I therefore once again implore registered voters to THINK, THINK, THINK!!! And please encourage your family members and friends who are registered voters to do likewise. On a much more pleasant note this Holy Day, Happy Easter to all.
Reality_Check 7 years ago
Repost - @Mudda you are so right about what you say here. At the risk of being accused of using the good Lord's name in vain, most registered voters would not vote for Jesus Christ himself if he were running as an independent candidate in their constituency without being affiliated with either the PLP, DNA or FNM. And just think how many times we have all heard the ridiculous sentiment that a vote for the DNA may as well be a vote for the PLP because it would split the total vote in may constituencies leaving the FNM the loser. In other words, registered voters are being told time and time again to vote along party lines without any consideration of who in fact may be the best candidate for the job in terms of their honest character, smarts and good judgement. For Bahamian voters, it's all about the political party and it's precisely this wrong mindset that corrupt politicians encourage whether they be of the FNM, PLP or DNA variety. It's the kind of demented thinking that prevents us from ever having good governance through a robust government and equally robust opposition. I truly fear that we may be locked in a vicious cycle of corrupt rotating governments, whether FNM, PLP or DNA, all because most registered voters seem unable to do what you have been so strongly recommending: THINK, THINK THINK!!!
Well_mudda_take_sic 7 years ago
How are you able to get such timely alerts on my comment postings? Does The Tribune have alert settings that allow you to automatically receive alerts for my postings? You have a lot of commenters to this website thinking you and I are one and the same!
Reality_Check 7 years ago
Do you mean "commenters" as in "commentators"?
DDK 7 years ago
Well Mudda, there you go again in your response to Economist, talking GOOD SENSE. EVERY WORD IN THIS CASE!!!!
Also your appendix to post idea does have merit, ideologically, but practically, I don't see a sufficient slate of viable candidates or the ability to elect them under the current system of boundaries and politicking. After all, the party with the majority of elected candidates does have the power for governance, good or bad. Therefore I would have to conclude that the idea is fanciful.
sheeprunner12 7 years ago
Mudda and Reality really need to "take a time-out" from commenting on this blog ............... you all are becoming incoherent like PGC ......... Just chill !!!!!!! ........ It's the People's Time!!!!!!!!!
Well_mudda_take_sic 7 years ago
My friend, if we are ever so foolish as to allow Minnis to become PM you could be rest assured it would be "Minnis and his cronies time" and not the People's Time! Please do your best to THINK, THINK, THINK!!!
Economist 7 years ago
Well_mudda-take-sic please take a read of the Bretton Woods Conference of 1944 and also the thoughts of John Maynard Keyens and Harry Dexter White. These explain much of how the IMF, World Bank and the WTO were created and why.
They set out to try to ensure that the world did not experience the catastrophic economic problems that played a big part in the Second World War and the violent death of over 60 million people.
DDK 7 years ago
That was 1944. This is the age of mega greed and corruption.
SP 7 years ago
................................ Well_mudda-take-sic Opinion Deserves Research ..............................
There are any number of theories out there supporting Well_mudda-take-sic thoughts, and where there's smoke, there's usually fire! (ask Leslie Miller)
A quick search instead of personal opinions empower individuals to come to an "informed" trend of thought. The following link is an interesting read on this subject:
http://www.bibliotecapleyades.net/soc...">http://www.bibliotecapleyades.net/soc...
Economist 7 years ago
Thanks, I will read.
DDK 7 years ago
A good read, thank you! That's the .001(?)% now! The world is f----d!
concernedcitizen 7 years ago
I get so friggin tired of us blaming our problems on others and not taking responsibility ,its all most like a slave mentality .its as absurd as @John claiming the CIA put something in the black mans marijuana that makes them murderous thugs ..How does the CIA make sure only black guys get that smoke lmao .Safford Sands left us w/ a country w a growing tourism product , good banking and insurance industry , and no debt ,and visitors throwing money at us and Cuba closed to the biggest tourism market in the region . We completely on our own went out and borrowed 7 billion to put one in four people on the government payroll .We put them there for votes ,b/c they are family b/c they are our straight and gay lovers .No country can tax enough for 3 low/middle class workers to pay and pension one government employee w/ out borrowing like drunken lunatics .Thank god for FDI or it would of collapse along time ago . B/C we are so arrogant and our service sucks the FDI is going elsewhere and people are staying in houses ,arbnb ,home away All that nation building is BS ,,Pindling was backed by the mob and jews out of NY that lost Cuba and wanting large scale gambling and money laundering here . Now its the Chinese who want our vote in the united nations ,the trick is to make them spend enough ,in the treasury not in the ploticians yes ploticians,, pockets Really w/ our lack of productivity .corruption and teefin I,m surprised we are not Haiti or Jamaica sooner .
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