SOE reforms critical to economic revival


Hubert Edwards

For those who pay attention to The Bahamas’ affairs, it is clear the challenges we face today could be with us for a while yet. Further, if our efforts are limited only to solutions that require significant cash resources, then the problems are going to become even more entrenched, will harm sustained recovery and stymie performance when the “good times” next emerge. There is not much that can be done to radically overhaul The Bahamas’ finances in the short-term, but the country is in need of such far-reaching change. How will this be realised? By a commitment to true reform; creativity in execution; boldness in confronting the issues; and a willingness to challenge the status quo. These all hold great value in shifting the country’s path towards fundamental change. Given where we are, this approach represents a viable foundation on which a new level of economic vibrancy and resiliency can be built.

In a previous article, I noted: “The circumstances regarding The Bahamas’ fiscal affairs are much too important, and the issues far too critical, for us not to be actively looking for insights on how to move forward.” I ended it thus: “The credit rating does not reflect the country’s ability to afford debt but, rather, the ability of the Government, given its current policies…” The message I sought to convey is that we have to become more deliberate in how we approach the future, and that current circumstances are highly influenced by our national arrangements, state of our institutions and “normalised” behaviours that are inconsistent with sound standards.

This thinking informs another statement carried in a much earlier article, which read: “In order for the current administration to be successful, it must implement the greatest suite of reforms this country has ever seen.” This would hold true for any administration overseeing The Bahamas in its current state. The statement is broad and embodies a challenge. Objectively assessed, we should accept there is much truth to it, and our attitude therefore should be: ‘Game on’. The problems faced by The Bahamas are not only significant; they are prolonged and effectively endemic. Only proper implementation and enforcement of high standards will cause a fundamental and sustainable shift in the country’s affairs. A careful review will show the major issues have been captured in ten main categories outlined in the current administration’s general election manifesto, Blueprint for Change. However, when strategy meets limited resources, adjustments often become necessary. This is why creativity must rule the day. We must pick all the low hanging fruit, and start trying to reach those at a higher level. Waiting is not an option.

Understand the context

The Bahamas’ economic make-up is not as flexible as suggested. Zhivargo Laing, a former Cabinet minister, has previously said: “Anyone who understands the structure of the government’s budget should manage their expectations in such a way that they know that any new things happening will probably not represent more than 15 percent of the overall budget, because the balance is essentially fixed or committed.” The fiscal space thus simply does not exist. The Bahamas’ economic fortunes will not change overnight, and therefore the Government must consistently seek to find ways of “drilling the tunnel at both ends” to create a more viable path moving forward. In the face of limited financial resources, properly targeted reforms are the only other instruments and mechanics with which this can be achieved. We should move urgently and creatively.

The former administration’s Economic Recovery Committee, in its conclusions, said: “Some of our recommendations address structural issues our economy has faced for some time now, even before the onset of the pandemic. Some concern issues brought to the fore as a result of the pandemic. Some touch upon barriers to economic growth that can be overcome with moderate effort. Some will require far more effort and the capacity to convince Bahamians that strategic changes to the way things are done could reap significant benefits.” Without specifically addressing the recommendations, this statement captures the essence of how the Government can move the needle forward on reforms given limited resources.

Consider this. Approximately $700m in the upcoming 2021-2022 Budget will be spent on remuneration, meaning public sector salaries and benefits. Our current debt stock carries annual interest payments of more than $500m.There are known, and urgent, infrastructure needs in the areas of energy, education and healthcare. Given the high inflationary environment, there is the real possibility that social services spending must increase. The recent downturn may demand continued higher subsidies for poorly-performing state-owned enterprises (SOEs), a number that climbed to more than $400m. These three categories alone easily account for more than 50 percent of total spending. There is thus very little room for fiscal manoevere.

Start with state-owned enterprises

The changes must come via a suite of policy and practical shifts that do not require additional spending, but will result in cost savings and facilitate future growth through more efficient and productive service delivery. State-owned enterprises (SOEs) and agencies are a critical starting point. Think about it this way. Where we are today is in no small part because of the inefficiencies of a number of these agencies and corporations. Ineffective governance, boards and directors lacking the ability and/or commitment to cause productive changes, plus management who are not held accountable with sufficient consistency, help create and sustain poor working environments. Therefore, even if The Bahamas corrects its fiscal trajectory to levels envisioned, these institutions and their history of underdeveloped institutional practices will create a drag on progress. Many of these SOEs and agencies are central to the Government’s growth policies, which will, at best, be sub-optimal and, at worst, very ineffective, without change.

SOEs corporate governance

As The Bahamas pursues public financial management and fiscal reforms, it must also embark on an aggressive campaign of risk management and enhanced corporate governance. Starting with semi-autonomous entities, the objective is to infuse a new culture of accountability across all government corporations. These will have to adopt internationally-recognised public sector standards; improve operational effectiveness; and reduce losses. Key SOEs, such as Bahamasair, the Public Hospitals Authority (PHA), the Water & Sewerage Corporation, ZNS, Bahamas Power & Light (BPL), and the Hotel Corporation, must ensure best practices become commonplace. There should be a concerted effort to cause the experience and practices of well-run entities, such as the Nassau Airport Development Company (NAD), to be transferred to the others, improving corporate cultures and discipline.

Those who enjoy the privilege of appointment to provide oversight must develop sound institutional knowledge; strive to operate at best practices; and gain practical experience in corporate governance. This administration has the opportunity to institute changes that will halt the prevailing practices of wholesale board appointments/dismissals when the government changes hands. Such a change would create some level of continuity at the governance level in these organisations, and arguably facilitate better transfer of institutional knowledge and strategic planning. I do not pretend that this will be easy, but considering changes such as these is very necessary. As part of a broader public sector corporate governance framework, revisiting the proposed State-Owned Enterprises Bill - which was designed to impose corporate governance and risk management requirements - should prove useful. The ultimate objective is to realise more effective entities that optimise earnings, risk management and sustainable operations, leading to a reduced dependency on government.

Other key areas

The state of public sector pensions poses a serious long-term challenge for The Bahamas and demands urgent attention. A ranking of 119 out of 190 countries on the World Bank’s “ease of doing business” index calls attention to the urgent need to fix structural impediments to “starting a business”, “getting credit” and “getting electricity”. Regarding the latter, the cost and reliability of electricity must be priorities.

Other areas do not require significant spend but could be major game changers. These include early and consistent focus on Bahamas Invest by refining the decision-making, and creating greater transparency in the approval process, together with a rethink of the way the country employs tax concessions to attract investment. Done effectively, these can definitely bear dividends. Facilitating the redevelopment of Abaco and Grand Bahama by devolving autonomy to local government-style entities could accelerate the recovery from Hurricane Dorian. A refining, or redefining, of the relationship with the Grand Bahama Port Authority could make a major difference in unleashing the potential of Freeport and what the Hawksbill Creek Agreement was expected to deliver. Reprioritising educational spending to diversify and upskill the labour pool will position the country for improved national productivity.

There is significant work ahead with very limited resources and fiscal headroom. By creatively tackling known areas of deficiencies, government can advance the country and prepare it for growth and resiliency. Reforms are the only viable path to achieving this.

NB: Hubert Edwards is the principal of Next Level Solutions (NLS), a management consultancy firm. He can be reached at info@nlsolustionsbahamas.com. He specialises in governance, risk and compliance (GRC), accounting and finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning. Hubert also chairs the Organisation for Responsible Governance’s (ORG) Economic Development Committee. This and other articles are available at www.nlsolutionsbahamas.com.


sheeprunner12 9 months, 1 week ago

Watch what is going on in Sri Lanka ..... That may be the same road we are on if we don't get serious about governance, corruption and tax reform.


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