Law’s ‘inflexibility’ forces $251m extra borrowing

FINANCIAL Secretary Simon Wilson.

FINANCIAL Secretary Simon Wilson.


Tribune Business Reporter


The Ministry of Finance’s top official yesterday hit out at the “inflexibility” of the Government’s own financial management laws for forcing it to seek parliamentary approval to borrow an extra $251.4m.

Simon Wilson, the financial secretary, told the weekly media briefing given by the Prime Minister’s Office that the Public Financial Management Act as presently written prevents the Government from reallocating the $208m-plus revenue surplus it expects to earn this 2021-2022 fiscal year to settling unpaid bills.

He explained that the Act limits such “reallocations” to 3 percent, or around $60m. While this means the Davis administration will likely only use 75 percent of the sum it is seeking approval to borrow, he added that the restrictions imposed by the Act prevent the Government from using the resources it has available to pay-off these debts.

“The Public Financial Management Act does not allow the Government to put in place or use contingencies,” Mr Wilson said. “The Act is very inflexible. We have the resources to make the payment but don’t have the authority. We have $200m available that we can use to make the payments, but unfortunately we don’t have the authority.”

The Davis administration has already signalled its intention to bring reforms to the Public Financial Management Act and other financial-related laws to Parliament during the 2022 second half. Besides the supplemental Budget’s borrowing resolution, Mr Wilson said the only other way the Government can pay-off the arrears is via the reallocation of monies from one ministry or department to another.

“The only way we can make payments according to the Act is through a mechanism called reallocation. Reallocation means I can move money from one ministry to the next ministry to make a payment. The Act limits reallocation to 3 percent, so roughly $60m,” he explained. “Even though we have the benefit of improved revenue flows we’re constrained in how we can spend that money, hence the need for a supplementary Budget.”

This latest supplemental Budget will be the second one presented to Parliament in the eight-and-a-half months since the Davis administration took office following the September 16, 2021, general election. The first one was designed to reflect, as best it could, the new government’s policy priorities and adjustments to changed circumstances such as the evolving COVID-19 pandemic.

“The way the supplementary Budget is presented, we have to ask for the full borrowing authority. Even though 25 percent of the supplementary Budget has already been paid through reallocations, we have to ask for the full authority, the full borrowing amount,” Mr Wilson explained. “So the total amount that has been requested is probably not going to be the amount needed. We asked for $240m for the supplementary and we already paid around $60m through reallocation.”

Prime Minister Philip Davis QC, unveiling the 2022-2023 Budget in the House of Assembly, said that an additional $251.4m in borrowing will raise this year’s fiscal deficit to $758.6m - a sum equivalent to 6 percent of Bahamian gross domestic product (GDP).

“We still have a number of inherited arrears which we believe it is important to liquidate,” he added. “In this regard, we will be seeking parliamentary approval for a supplementary Budget for additional recurrent expenditure of $216.928m and capital expenditure of $34.49m

“These balances are owed to hard-working women and men, who have given their time, energy and resources to contribute to the development of this nation, and months later still haven’t been paid. This harmful practice cannot be allowed to continue.... Just as our recently-established Credit Bureau encourages citizens to make timely payments, so too must we in government be timely in paying our bills.”

Apart from the $45m owed to the Water & Sewerage Corporation, this $251.4m also includes some $56.7m owed in insurance premium payments for public servants. Mr Wilson revealed that the latter liability “popped up four weeks ago” as the insurance agreement was “not completely in place” prior to that time.

The Government has also chosen the final remaining month of the 2021-2022 fiscal year as the time to raise $30m for completing the Andre Rodgers Baseball Stadium, while another $19m represents outstanding payments owed to Doctor’s Hospital for COVID-19 emergency support.

Breaking down how the borrowed sum will be employed further, Mr Davis said $6.4m will cover outstanding rent payments; another $6m will finance outstanding legal claims owed by the Government; and $4m will be dedicated to the restoration and refurbishment of public clinics.

Mr Wilson, meanwhile, also yesterday pointed to the minor primary surplus that the Government expects to generate this year as a sign that it will no longer be borrowing to service interest payments on its existing debt. The Budget forecasts estimate a 0.2 percent surplus for the 2022-2023 fiscal year, and a 2.9 percent surplus in 2023-2024, for an indicator that measures how much revenue exceeds spending when debt servicing costs are stripped out of the latter.

“The second point, which is equally important, is that when we look at he upcoming Budget and the forward years there is a measure called the primary deficit, which in essence is the amount that we borrow to pay interest charges. If you are borrowing to pay interest, your debt is growing at a much faster rate,” Mr Wilson said.

“Next year the primary deficit will be approximately zero percent in the upcoming Budget forecast and, in the following year, it is forecast to be 2 percent positive, which means that the trajectory for our debt is moving in a positive way at a much faster rate than anticipated because of the economic expansion.”

Explaining why the Government had not released its 2021-2022 third quarter “fiscal snapshot”, and public sector debt bulletin, by April 30 as required by law, Mr Wilson said the Government’s financial reporting systems were simply inadequate for meeting that deadline.

“I can tell you one of the challenges that we have is the Public Financial Management Act speaks to a timetable of reports. A timetable which, if you understand the system that we operate under, can’t be met if you are serious about doing it properly. That is the challenge,” he added.

“As we revise the Public Financial Managementr Act we will try to remove the rigidity with respect to that, because the systems that we have, our main system is 30 years-old and, for us to close accounts, requires a lot of work and that’s a challenge. So we have to try and adjust that, and it is a lot of work trying to keep pace with all of these various reports because the systems are out-dated, unfortunately.”


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