The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund’s (IMF) was last night backed as “spot on” in its call for the Government to implement ‘a fiscal rule’, arguing that this would “enhance the predictability and credibility” of its annual Budgets.

Robert Myers, co-chair of the private sector’s Coalition for Responsible Taxation, told Tribune Business that the Fund’s recommendation was “fully in line” with its own demand for budget caps to be imposed at all levels of government within three-five years.

The IMF made the demand in yesterday’s release on the Article IV consultations with the Bahamas, in which it said bluntly: “The introduction of a fiscal rule would enhance the predictability and credibility of Budget policies.

“This would notably help ensure that the authorities’ public finance reforms are implemented within a well articulated and durable medium-term fiscal framework. The reform’s details and implementation timeframe authorities should be fleshed out.”

Fiscal rules are numerical targets and limits, often placed into legislation, which control the level of debts, deficits and spending a government can incur within a particular timeframe.

They are commitments designed to create ‘anchors’ for fiscal policy, giving the public, investors and the private sector an idea of what to expect, and are often linked to the maintenance of specific debt and spending ratios.

While ‘fiscal rules’ have been used in other countries, such as the UK, they have never been utilised in the Bahamas. While some observers have argued this creates fiscal policy uncertainty, others have suggested it would bind the Government’s hands too tightly, given how often the Bahamas is impacted by hurricanes.

However, backing the IMF’s call, Mr Myers said: “I like that. That’s good advice and spot on. That’s one of the things among our objectives. That’s absolutely fully in line with what we’ve been talking about - a top down Budget, budget caps, accountability etc...”

The Coalition for Responsible Taxation, in a draft letter setting out its strategy for dealing with the non-revenue side of the Bahamas’ fiscal imbalances, had called for Budget caps “to be imposed at all levels of government” within the next three-five years.

This was part of a 13-pronged strategy to rein in public spending, which also included a long-term capital expenditure plan and an assessment of all social security programme costs.

The letter, entitled ‘Paramount Factors required to effect fiscal reform in the Bahamas’, also called for improvements in government productivity. And it suggested outsourcing some responsibilities to the private sector, urging that the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) becomes the Business Licensing authority.

Mr Myers yesterday said that implementing ‘fiscal rules’ in the Bahamas would commit the Government to “holding the line” on spending, something that would give comfort to lending agencies.

He suggested that issues such as transparency and a Freedom of Information Act also be included in ‘fiscal rules’, so that “everything is on the table” and no changes are made without proper sign-off.

Elsewhere, though, the IMF effectively backed the Government’s fiscal reform plans, calling Value-Added Tax (VAT) the “cornerstone” and urging that it have a “timely and successful launch”.

This again indicates the likely pressure the Government is under to introduce VAT, and the international expectations it has to meet when it comes to fiscal reform.

On the spending side, the IMF was much more in tune with the Coalition, adding: “The efforts to reinforce expenditure controls and monitoring should be accelerated, especially as regards goods and services spending and transfers.

“Reforms to improve the weak financial position of key public corporations and rein in transfers and subsidies should be given high priority.”

Little else of what the IMF said was new, although it agreed that the Bahamas’ economic recovery from the recession was occurring at “a painfully slow pace”.

The IMF is projecting that real GDP growth will accelerate from 1.9 per cent last year to 2.3 per cent in 2014, and then hit 2.8 per cent next year - spurred by Baha Mar and growth in the US, which is anticipated to reduce the high unemployment rate.

“Growth performance over the medium term will also depend on success in addressing a number of challenges going forward, including diversifying tourist source markets and the tourism experience and expanding incoming airlift capacity; advancing efforts to close infrastructure bottlenecks and workforce skills shortages; and strengthening non-tourism sectors. Steadfast and timely execution of needed reforms will be crucial,” the IMF said.

It added that prudent fiscal policies were needed to support the Bahamas’ one:one peg with the US dollar, and rebuild “depleting policy buffers”.

And, while calling for the monitoring of non-performing bank loans to be “intensified”, the Fund added: “The establishment of a Systemic Risk Surveillance Committee, creation of a credit bureau, and strengthening of the deposit insurance system should further strengthen the resilience of the financial system, and improve its already generally favourable standing.”

And, completing its sweeping overview of the Bahamian economy, the IMF added: “The authorities’ efforts to craft a comprehensive national development plan (NDP) in 2014 to guide development efforts over the long-run, and insulate policies from the political cycle, are welcome.

“It would be important to ensure that the plan is completed in a timely fashion and backed by a broad cross-section of society to maximise its probability of success.

“Sustained efforts will be needed to enhance structural competitiveness by strengthening the business environment, improving educational standards to foster human capital development, and identifying clear strategies for the development of islands and key sectors such as tourism, agriculture, financial services, and port activities.”