The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas urgently needs “to identify where more fluid” is coming from following the ‘glass half full’ verdict on its economy delivered by the International Monetary Fund (IMF).

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business that the organisation’s encounter with the Fund’s Article IV team was “sober but not pessimistic”.

He said that while the IMF agreed that the “bottom is not falling out” of the Bahamas’ economic glass, it feared there was little immediate prospect of this nation generating sufficient momentum to cut a near-15 per cent jobless rate.

And, noting the Fund’s call for “spending restraint” by the Christie administration, Mr Bowe said it wanted the Bahamas to shift to programme-based spending as a way to assess whether taxpayers are getting value for money.

He added that the IMF had also backed the Chamber’s call for Fiscal Responsibility-type legislation, although it felt the Bahamas should only move to implement it once the Government’s accounting systems could cope.

“To me, it’s the glass being half full as opposed to half empty,” Mr Bowe told Tribune Business of the IMF’s statement on the Bahamas.

Agreeing that it was “absolutely in line” with the recent assessment by Moody’s, the credit rating agency, the Chamber chair added: “The sobering fact is the glass is half full.

“We have to identify where the fluid is coming from to fill the glass, as opposed to why fluid is leaking out and we’re losing the bottom.

“They’re [the IMF] not expressing concern about a weak bottom falling out, but in terms of being at the point where we have to focus on bringing monies in,” Mr Bowe continued.

“The concept of ‘glass half full’ is written throughout the remarks. However, there are several matters raised that require candid discussion and debate, and further require the collective brains of all Bahamians to develop strategies and actions to ensure that we fill the glass, as opposed to let the bottom fall out.”

The IMF’s verdict, following a two-week stay in Nassau to assemble information for its 2016 Article IV report on the Bahamas, was largely a regurgitation of previous assessments.

In a balanced evaluation, it gave the Government credit where it was due, particularly over Value-Added Tax’s (VAT) implementation and the BEC management contract with PowerSecure.

Yet the IMF did little to disguise the added urgency in its call for “a decisive shift in structural policies” that would unlock faster economic growth rates.

It warned that it was essential for the Bahamian economy to expand at a greater rate than the 1.5 per cent medium-term projection if it was to make significant inroads into structural unemployment.

“A decisive shift in structural policies is needed to raise potential growth, estimated at only 1.5 per cent over the medium term, to improve competitiveness and reduce high structural and youth unemployment,” the Fund said bluntly.

Describing the Chamber’s encounter with the IMF team, Mr Bowe told Tribune Business: “The meeting with them was what I would call a sober meeting, but not pessimistic

“I think the overall sense from them is that we have what they would term long-term challenges we need to overcome.

“Their view on that score is that in reality, what we don’t have on the horizon is growth prospects to consistently pick our growth up to 3-5 per cent.”

Mr Bowe reiterated that the $3.5 billion Baha Mar project, whenever it opened, would only provide a short-term boost to GDP growth, which would swiftly settle down to long-run averages.

As a result, the Bahamas needed to focus on eliminating structural ‘bottlenecks’ within its economy and to diversify into new industries.

Ryan Pinder, the former financial services minister, told his former Cabinet colleagues during the mid-year Budget debate that they needed to focus on economic growth as the most important element of their fiscal consolidation strategy.

He was backed by Mr Bowe, who told Tribune Business: “While several initiatives are in place to increase our effective tax levels relative to GDP, the continued depressed growth levels present significant challenges to our fiscal position (debt-to-GDP) and fiscal performance (deficits).

“The [IMF] concluding statement repeatedly refers to the anemic growth levels and the need to be innovative - to identify opportunities for growing the economy; increase productivity to maximise the return from existing economic activity; improve our balance of payments.

“All of these areas require mature discussion, non-partisan contributions and an open-mind from our policymakers and senior government officials.”

Suggesting that the Value-Added Tax (VAT) debate had provided the necessary framework for this, Mr Bowe added: “Policymakers must publicly support such actions, and continually remind the public sector of the benefits of such a collaborative approach, and the fact that resistance to dialogue and collaborate is counterproductive to progress.

“Tax and revenue initiatives must not damage the very vehicle necessary for development - the private sector that generates GDP.....

“in layman’s terms, the Government cannot weigh down the private sector and expect that there is growth in the economy,” he continued.

“There have to be directed plans for economic growth in a holistic and comprehensive manner. There must be initiatives to improve the ease of doing business, reduce the costs of operating business (utilities and taxes) and facilitate expansion. A rising tide floats all boats.”

Mr Bowe said the IMF team backed the eventual implementation of Fiscal Responsibility-type legislation in the Bahamas “over time”, and in a way best suited for this nation.

“While they expressed reservations about Fiscal Responsibility, they acknowledged that it was not the concept but about timing the implementation, given the weaknesses [of the Government’s] financial reporting and information management systems,” he explained.

“Once we revisit that, they will be supportive of Fiscal Responsibility.”

Many in the private sector view Fiscal Responsibility-type legislation as a tool that could force Governments to be more transparent and accountable for their fiscal stewardship, as it would force them to return to Parliament to explain, and get approval for, any spending increases beyond approved Budget amounts.

“On Government expenditure, their focus was programme-based budgeting, and getting to evaluate the success of your spending,” the Chamber chair told Tribune Business of the IMF.

“Right now, monies are allocated to Ministries and departments, and blocks. You don’t have an appreciation for the efficiency of your spending.”

Mr Bowe indicated that the IMF wants the Government to move to a system where it assesses the effectiveness of its spending on an initiative or programme-based basis.

The Budget is currently broken down into Ministries, departments and ‘type of spending’, making it difficult to assess whether each programme/initiative is delivering the desired results and taxpayer ‘value for money’.

“Their main focus was: Do you know if you’re spending the right amount?” Mr Bowe added of the IMF.

“If you have programme-based budgeting, the Government can evaluate if it’s successful with the monies spent, and be able to change course in a more timely manner.”

Mr Bowe said the Christie administration needed to give spending reforms equal priority to the revenue changes, which have been led by VAT’s introduction and efforts to improve administration.

He called on the Government to show the “testicular fortitude” necessary to dismiss under-performing civil servants, and warned it against using public/social demands as an excuse not to reform spending.

“There is a need to improve the productivity of our civil service to minimise the cost of Government administration, revolutionise our spending patterns to align with programme spending, and not the current disjointed approach of allocation to ministries and departments,” Mr Bowe reiterated.

“This will enable greater evaluation of the success of spending, and greater agility to redirect funds away from under-performing programmes.

“It would further enable accountability, and our policymakers must demonstrate the testicular fortitude to disengage under-performing public sector employees.”

The Chamber chair added: “In order to address our fiscal challenges, both position and performance, there must be expenditure reform, and this must not be silenced by the smoke screen of increased public demands.

“The [IMF’s] concluding statement acknowledges the need for social programmes (referring specifically to NHI), but balances this with the need to integrate funding considerations to ensure sustainability.

“It is important that our leaders speak clearly regarding our ability to provide social services - we can only provide what we can afford, and we get what we pay for. It is best to develop social programmes with proper economic and financial planning to ensure quality programmes that are sustainable, as opposed to slapdash initiatives that are unsustainable.”

The IMF’s Article IV statement said: “More emphasis on expenditure restraint would help preserve the hard-won benefits of the VAT. The authorities should contain increases in public wages and employment, especially in view of weak labour productivity growth.

“Efforts to streamline expenditures would also benefit from advancing on-going reforms to modernise the public financial management system, including strengthening internal controls, procurement practices, and Budget preparation and execution.

“A shift in composition towards growth-enhancing infrastructure spending, and further intermediate steps towards a medium-term Budget framework, would allow fiscal policy to better balance the need for continued consolidation and support for the recovery.”