The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Chamber of Commerce's chief executive yesterday said Moody's was "being a bit trigger happy" over its threatened 'junk' downgrade, and should give the Government more time.

Edison Sumner told Tribune Business that with the Minnis administration having been in office for just two months, it would "be more reasonable" for the credit rating agency to allow it time to set out - and execute - its economic and fiscal revival plans.

However, he conceded that revising the Government's fiscal projections by nine-figure sums within just two months - the key factor cited by Moody's in placing the Bahamas on downgrade review - would "have spooked anyone".

As a result, Mr Sumner and the Chamber are backing calls to shift the Government's finances to an accrual-based accounting system, both as a means to "get a better handle" on its fiscal position and avoid the 'blame game' over which administration is responsible for incurring certain liabilities.

"Having been in office less than three months, talk that there may be a further downgrade is, I think, being a bit trigger happy," Mr Sumner said of the new government and Moody's.

"They [the Minnis administration] must be given some time to implement strategies and policies, and get buy-in from the private sector. Give the Government a chance to get its feet wet. The real work has yet to be started."

The Chamber chief executive argued that it would be "prudent and reasonable" for Moody's to hold-off, and wait between six months to a year before assessing the effectiveness of the Minnis administration's economic growth and turnaround strategy.

Moody's, having already placed the Bahamas under 'downgrade review', is unlikely to accede to this, although Mr Sumner indicated the Chamber will seek to persuade the rating agency when the two sides meet next week.

The Chamber, in a formal statement on Moody's action yesterday, said it was "imperative" that the Minnis administration lay out - and execute "plans to arrest the deterioration in its fiscal performance and position".

It added that the Government also needed to regain trust and credibility in the accuracy of its Budget projections, given the huge swings between the revised 2017-2017 Budget forecasts and the former Christie administration's projections of just two months earlier.

This was immediately picked up by Moody's, which said in its 'downgrade review' statement: "The new government now expects the deficit in fiscal 2017 to reach $500 million (5.5 per cent of GDP).

"This contrasts with the PLP's mid-year performance report, presented in March, which estimated a deficit of $350 million (3.8 per cent of GDP), and an estimated deficit of $100 million (1.1 per cent of GDP) in the original fiscal 2017 Budget."

The new government also revealed that the 2017-2018 deficit is projected to be $323 million - an almost $300 million increase from the $28 million in 'red ink' that was forecast by the Christie administration just 12 months before.

The Chamber yesterday agreed that Moody's had identified "the requirement for improved credibility in financial reporting, with recent data presented in the 2017-2018 Budget significantly differing from projections set out in the mid-year Budget exercise completed only two months prior".

It added that this could only be achieved through the Government adopting modern International Public Sector Accounting Standards (IPSAS) and, in particular, accrual-based accounting that would capture all liabilities and spending commitments even if they have not fallen due.

The Chamber added that such reforms would also prevent the five-yearly 'blame game', where every newly-elected administration blames its predecessor for saddling it with unbudgeted spending commitments.

Mr Sumner told Tribune Business that accrual-based accounting, which the Chamber "strongly recommends", was likely to be part of the Inter-American Development Bank (IDB) funded project to overhaul public sector financial management.

He explained that such accounting would enable Bahamians to "get a better handle not only on the position the Government is facing, but to get more consistent projections out of the Government".

"In a matter of a few months we saw very different projections put up by the current government compared to the previous government," Mr Sumner said. "It's a bit concerning, as the same system was involved in both Budgets.

"The question is why there was such a disparity in the numbers when the same resources were used to build both Budgets. That would spook anyone. If you're dealing with an institution such as the Government, to come out with a very divergent position on its financial status in such a short time - we're not talking about a three-year period and a few million, but a a few months and hundreds of millions of dollars - that would spook anyone."

Mr Sumner also suggested that the Government would "get better returns on its investment" by focusing a greater share of its capital expenditure towards workforce development, equipping young Bahamians with the necessary skills to become productive workers or even entrepreneurs.

He and the Chamber also agreed that higher GDP growth rates were the most critical element for resolving the Bahamas' double digit unemployment and fiscal crisis, combined with spending controls.

"The [Chamber] holds the position that such plans must focus on tax reforms, including the improved effectiveness of tax collection, and expenditure reform," the Chamber statement said. "Further, the most important component of fiscal consolidation plans must be the growth of the economy.

"Economic expansion is the rising tide that can float all boats, as it will contribute to increased employment and higher salaries and wages; increased revenues for the Government, without increasing the effective tax rate imposed on businesses and citizens; reduced fiscal deficits and debt accumulation, provided expenditure is controlled; and the necessary resources to provide appropriate social benefits and implement programmes to address the social ills impacting progress in the country."