'Skeleton In Closet' Fear Over Debt Fall


Robert Myers


Tribune Business Editor


A governance reformer yesterday expressed fears that “a skeleton in the closet” could yet derail the government’s achievement of the first quarterly national debt reduction for years.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, while hailing the $30.1m fall during the first three months of 2019 as “a good sign” added that he would be “happier” if accrual-based accounting was in place across the government and public sector.

This accounting method would expose the government’s true financial position by capturing all future spending commitments, and Mr Myers expressed concern that in its absence not all public sector liabilities are reflected in the financials figures for the first quarter in the 2019 calendar year.

“It’s hard to say until we get to accrual-based accounting,” he told this newspaper. “We have no idea what the liabilities were, and whether they were all included. If they had accrual-based accounting I’d feel a lot better about it. Without accrual-based accounting its fairly opaque; it doesn’t reflect reality.

“It’s a great sign but is there a skeleton in the close that could throw that off? I’m not saying the Government is intentionally hiding something, but it’s a big issue. Who knows what ministry, department has not reported something.

“The $30m fall in the national debt is a good sign, but I’d be happier if there was accrual-based accounting and everything was in and accounted for. They haven’t closed the accounts for the year yet, and look at what happened when they tried to close the accounts for the last administration’s final year.”

Mr Myers’ last comment refers to the 2016-2017 fiscal year, when the projected $330m deficit for the final year of the Christie administration became $661m worth of “red ink”. Its successor blamed this on a combination of pre-election spending and unfunded liabilities that it had to cover through borrowing.

The Minnis administration has committed to rolling-out accrual-based accounting throughout the public sector by 2022 to replace the existing cash-based method, which only captures revenues and expenditure as they occur.

Most observers believe this fails to capture the Government’s true financial position, with such weaknesses highlighted by the $360m worth of unfunded arrears that the current administration has partially blamed for the VAT rate increase to 12 percent as it bids to pay this off over a three-year period.

Meanwhile Carey Leonard, the Callenders & Co attorney, told Tribune Business yesterday he felt the Government had received too little credit for the $30m quarterly fall in The Bahamas’ national debt.

Suggesting that too little public and media attention had been given to this, he said: “I thought: ‘Gee, whizz’. That’s no easy feat given where the finances were going when this government took over. I think they really deserve credit for that.”

The Central Bank’s quarterly review for the three months to end-March 2019, published this week, disclosed: “At end-March, the national debt - inclusive of contingent liabilities - declined by $30.1m (0.4 percent) over the prior quarter to $8.186bn, but strengthened by $277.3m (3.5 percent) vis-à-vis March 2018.”

One quarterly decline does not represent a trend, and the level of increase over the prior year indicates much more work remains to be done, but the quarterly reduction in The Bahamas’ “red ink” is a potential sign that the Government is beginning to arrest the rate of growth in the $8bn-plus national debt.

The size of the national debt, as a percentage of Bahamian economic output, also remains some distance away from the Fiscal Responsibility Act’s 50 percent debt-to-GDP target. “As a ratio, the direct charge [on government] fell by an estimated 20 basis points on a quarterly basis, but rose by 2.2 percentage points year-on-year to 60.2 percent at end-March,” the Central Bank said.

“In addition, the national debt-to-GDP ratio narrowed to an estimated 65.9 percent from 66.1 percent in the previous three-month period, while in comparison to the prior year the ratio firmed by 2.2 percentage points.”

Mr Myers told Tribune Business that the Government had three ways to achieve the 50 percent debt-to-GDP ratio - grow the economy; reduce the national debt through increasing revenue or “cutting” spending, or a combination of both.

“It’s got to be a mixture of those for sure, and that’s got to be the focus,” he added. “People’s confidence will only be higher when we see that attained. We don’t want to see lip service; we want to see action. We need to deliver on that.

“If GDP is not increasing then the Government has to focus on getting its costs down. It’s the same balance we all have in our businesses. If you’re not increasing revenues the only alternative is to cut costs.

“If we can improve tax compliance that’s an easy win. If we cut costs that’s a win. If we have a 5 percent swing on growth, and 5-10 percent increase in compliance and freeze spending we’re going to start to win. All these things help. Every little bit helps. It’s a bit here, a but there, and soon enough we will make it, but we have to remain extremely vigilant.”

Mr Myers described The Bahamas’ high energy costs as “a killer because it hurts GDP”, repeating calls to reduce rates to as low as 21-25 cents per kilowatt hour. He also urged the Government to speed up the building permitting process given the economic activity and revenues bound up with such approvals.

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