The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s bank reconciliations are “ineffective” because just 25 per cent of Public Treasury payments are made electronically, creating major difficulties in making public funds available.

This and other revelations were contained in a new Inter-American Development Bank (IDB) report, which scored the Bahamas’ public financial management at 2.5 out of five using a methodology it has developed.

This nation’s score was well below the 3.3 out of five average the IDB obtained for a seven-country control sample the Bahamas was benchmarked against, leading the Bank to conclude that the Government’s weak institutional management capacity was adding to “fiscal deterioration”.

The IDB report, obtained and analysed by Tribune Business, suggests the Bahamian government’s antiquated financial management systems are a significant contributor to the $400-$500 million annual fiscal deficits this nation has been running.

It revealed that some 18,000 different public tenders were launched by different government ministries and agencies in 2013, with virtually no co-ordination between any of them.

This acts against efficiency and getting value-for-money for the Bahamian taxpayer, the IDB also finding that these tenders were carried out without a “unified price list” that could ensure the Government’s costs were the same as those obtained in the private sector.

The IDB report highlighted the impact this is all having on the Government’s financial position, as well as providing evidence to back private sector concerns about the level of public spending and inability to align this with revenues.

The Bahamas suffered five years of consecutive fiscal deficits between 2009-2013, averaging between 1.15 to 2.26 per cent of GDP, with revenues falling by a sum equivalent to 2 per cent of GDP between 2011-2013.

Yet, over roughly the same period, recurrent spending, “especially on wages and goods and services”, increased by 1.87 per cent of GDP between 2010-2013.

This highlights the rationale behind the Coalition for Responsible Taxation’s call for reduced government spending, and greater transparency and accountability over how taxpayer funds are used, given that expenditure was increasing as income fell.

“The budget formulation is mainly incremental, based on the previous year’s execution, and does not consider Line Ministries’ sectorial plans, reducing the effectiveness of the additional expenditure,” the IDB said.

“Central government debt stock increased by 79.4 per cent (from 36.9 per cent to 66.2 per cent of the GDP, 2007-2013), representing an annual average growth of 10 per cent. Interest paid on public debt grew from 1.53 per cent to 2.34 per cent of GDP in the same period.”

Addressing how much ground this nation has to make up, the IDB report said: “The Bahamas faces important low institutional and management capacity challenges that contribute to the current fiscal and economic deterioration.

“An ex ante evaluation carried out by the project team, using approximately 50 indicators, resulted in an average score of 0.9 out of 5.0, while seven countries averaged a score of 2.5......

“The main challenge to be addressed is the Bahamas’ low institutional and management capacity to better allocate, manage and monitor resources, which ultimately contributes to the fiscal deterioration.”

Breaking down the challenges facing the Bahamas and its government, the study found: “Only 25 per cent of the Treasury payments are made electronically, due to the absence of an automated interface linking the Treasury system and the bank network.

“The cash management process is neither automated nor proactive. The Budget Department is in charge of setting the quarterly funds appropriation ceiling for the line ministries, without the participation of any key stakeholders in this process, including the Treasury.

“Bank reconciliation is ineffective, which generates difficulties in the timely availability of funds. Finally, the current financial management system is obsolete and lacks the flexibility to include new functions,as well as integrate with all other sub-systems, ultimately generating obstacles to improve public financial management performance.

“The system is currently two-maintenance upgrades behind, and does not include active use of all modules or full use of the budget and procurement module functionality.”

The IDB report, part of a $33 million project designed to improve the Government’s public financial management and procurement systems, also reveals that its spending reports are not consistent with international best practices.

As for procurement, the IDB found: “The current procurement system faces the challenge of improving transparency and promoting efficient market competition.

“Line Ministries carry out their purchasing processes in a decentralised way without the guidance of a unified list of reference providing prices compatible with the private sector.

“In 2013, Line Ministries’ procurement units carried out approximately 18,000 individual tendering processes.”

The study added: “Although manual records and information regarding value and method of selection for procurement exist, there is no consolidated information of the commitments by category of goods and services.

“Finally, procurement processes are carried out manually with records kept on paper. The existing electronic system for public procurement is more of a payment authorisation system than a platform for tendering.”

The IDB cited the Marsh Harbour International Airport and government building complex on JFK Drive as examples where poor project management by government had led to cost overruns that bled the taxpayers of millions of dollars.

“The insufficient capacity to monitor implementation of government priorities in the Bahamas has been a key factor undermining government effectiveness and has contributed to underperformance in the public sector,” the report said.

“The lack of an efficient monitoring system has also had a negative impact on the completion of public works, causing important delays and cost overruns.

“These practices also contrast with how most countries in the Latin America and the Caribbean region, and in the Organisation for Economic Co-operation and Development, have centralised and strengthened the performance monitoring function in the last 15 years.”

The IDB also suggested that the absence of timely and reliable data was undermining “evidence-based policy making”.