The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s bid to reform “deficiencies” in key public finance laws threatens to “absolutely decimate” fiscal transparency and accountability in The Bahamas, the Opposition charged yesterday.

Both sides used the mid-year Budget debate’s start to trade blows over the Davis administration’s move to repeal both the Fiscal Responsibility Act and Public Financial Management Act by consolidating them into one, large new law under the Public Finance Management Bill 2023.

Prime Minister Philip Davis KC reiterated arguments, first made in last week’s mid-year Budget presentation, that the existing Acts were “unworkable” in practice because their provisions are ill-suited to the practical on-ground realities in The Bahamas.

Including the Public Procurement Act and Public Debt Management Act in this analysis, he added that the effect had been to “severely hamper the legitimate operations of the Government”. Promising that the legislation’s intent of bringing greater fiscal transparency and accountability will not be watered down, Mr Davis cited weaknesses in the Public Finance Management Act for “undermining the efficient management of public finances”.

The new Public Finance Management Bill itself pledges to “incorporate the material provisions” of the two laws it is replacing, so that the ultimate goal of improved financial discipline within the Government is still attained. However, Kwasi Thompson, the Opposition’s finance spokesman, charged that the proposed Bill has “absolutely no teeth” for punishing wrongdoers while also eliminating the Fiscal Responsibility Council’s independence.

Arguing that it was “beyond reason for this government to attempt to bring massive new legislation to Parliament as part of a mid-term Budget debate”, he added that such “significant policy changes” must be afforded “ample” consultation with all affected stakeholders and MPs before they are debated and made law.

Questioning whether the new Bill has been provided to the likes of the Fiscal Responsibility Council, accountants, attorneys, the Bahamas Bar Association and Organisation for Responsible Governance (ORG), Mr Thompson said: “These critical pieces of fiscal reform sought to put in place a more responsible and accountable government with a modern fiscal framework that was appropriate for The Bahamas....

“It requires significant fiscal discipline. I submit that we don’t just change the law because it’s hard to comply with........ What is worse than all of this is the clear and deliberate aim to absolutely decimate key pieces of this legislation and move the country and the Government backward in terms of accountability and transparency.”

The former state finance minister in the Minnis administration then proceeded to unveil a comparison of the current fiscal responsibility legislation and the new Bill’s provision. For starters, he asserted that the new Bill eliminates the Public Financial Management Act’s existing section 11, which empowers the treasurer - currently called the accountant-general - to “conduct examinations” and demand all relevant records.

Questioning why “a significant part of what the treasurer has power to do” is being eliminated, Mr Thompson did the same over the removal of the Fiscal Responsibility Act’s sub-sections four and five in section five. This prohibits civil servants and “public office holders”, such as Cabinet ministers, from spending public money, adding to the national debt and government’s liabilities, and entering into expenditure commitments without lawful authority.

“What is the excuse for taking that out? I have no idea why you are taking that out?” the east Grand Bahama MP said. He added that the Public Finance Management Bill also “takes out the portion that provides for an independent review mechanism” for the Government’s pre-election spending report, which must be released between 20-30 days before a general election.

“You’ve completely changed the exceptional circumstances clause,” Mr Thompson said. This provision, currently set out in the Fiscal Responsibility Act’s section 13, sets out the specific situations when the Government can deviate from its fiscal targets such as an annual deficit no greater than 5 percent of gross domestic product (GDP) and a 50 percent debt-to-GDP ratio.

These situations involve unexpected “external shocks” such as natural disasters (hurricanes); economic downturns; and national security issues. However, Mr Thompson accused the Government of “watering down that section” such that the only thing required for a deviation from the fiscal targets is a “significant unforeseeable event” that is not spelled out.

“This should be a high standard which is not changing, or changed, on a willy nilly basis,” he added. Turning his attention to the Fiscal Responsibility Council, the Opposition’s finance spokesman said: “This is one that it’s amazing you would have read this through and decided to proceed with it.”

While the current Fiscal Responsibility Act allows the Council, a key fiscal watchdog, to hire “experts” to assist with its review of the Government’s Budget processes and financial circumstances, Mr Thompson said the new Bill requires them to first obtain the approval of the minister of finance to do this. And, while members of the five-strong Council are currently recommended by the House of Assembly speaker, in the new Bill they will be appointed by the same minister.

“They’re supposed to be independent, and need experts. They need permission from the minister of finance. Just explain why do that?” Mr Thompson said. “Instead of the House of Assembly, they’ve got to be the minister of finance for money. These are the same ones they have to judge.

“What possible independence could you have? That was the reason the funds were put in the House of Assembly so at least there was some semblance of independence..... They are appointed by the minister of finance. The minister of finance can appoint whoever he wants to judge himself.”

Mr Davis, while yesterday confirming some of these changes, argued that the Fiscal Responsibility Council will benefit from having its functions and “constitution” reorganised in the new Bill. “The Council, acting as an independent body corporate, will be comprised of five members elected by the minister of finance, who will be well-versed in domestic and international macroeconomic and fiscal matters,” he said.

“Strengthened rules of appointment will allow for constructive critique of public financial planning as well as continuity between council terms. By order of the Act, the Council shall have the responsibility to assess compliance with the general principles, fiscal responsibility principles and fiscal objectives, as well as to advise on fiscal and budgetary matters of the Government.”

The Council’s defined responsibilities will include reviewing the annual Fiscal Strategy Report; annual Budget; mid-year Budget review; pre-election economic and fiscal update; the Government’s annual accounts and deviation from the established fiscal targets.

“Furthermore, new legislation provides secretariat support to the council through the Ministry of Finance. Given the importance of the council’s review of government’s financial planning, it is imperative that this legislation provides tangible support,” the Prime Minister added.

Mr Thompson, though, was not finished. He argued that the new Bill strips the Budget’s reserve appropriation, which provides cover for unforeseen spending news, of oversight by the Auditor General to determine the funds have been used in accordance with the law. This reserve, presently in the Ministry of Finance’s Budget, has been cut from the original $54.25m to $49.33m for 2022-2023.

“You’ve specifically taken that section out,” he said. “I wonder how you all agreed to this. That’s what happens when you don’t consult.” And the east Grand Bahama MP argued that the new has “taken out all the offences” related to financial misconduct, and associated penalties, that were contained on the present legislation.

“You’ve taken the offences out, which means the Public Financial Management Act has no teeth. It has absolutely no teeth. Why take out every single offence?” Mr Thompson asked. The Prime Minister, though, countered that The Bahamas will end up with significantly enhanced fiscal laws.

“My administration’s amendments to public finance legislation support a more efficient collection and expenditure of funds by the Government,” Mr Davis said. “Deficiencies within the original Public Financial Management Act undermined the efficient management of public finances. This new Public Financial Management Act will facilitate timely reporting and effective fiscal planning, and will clarify the roles and responsibilities of relevant beneficiaries of government finances.”

Reiterating that his administration is moving to update the necessary government information systems and processes, the Prime Minister added: “In amending the Public Financial Management Act, we are demonstrating our dedication to responsible fiscal practices, and ensuring a legacy of financial prudence over the long term.

“In repealing the Fiscal Responsibility Act 2018 and the former Public Financial Management Act 2021, we are eliminating the confusion that arose from overlapping processes within the legislation..... It has been proven year over year that the current legislation is not feasible.

“We acknowledge the need for comprehensive fiscal planning, so we have no intention of discontinuing the reporting aspects of the Fiscal Responsibility Act. Instead, we are streamlining those processes to work in tandem with Budget planning and other reporting exercises.”