The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

THE Government is mulling the imposition of a deficit 'ceiling' and 'cap' on recurrent spending growth, the Deputy Prime Minister revealed yesterday.

K Peter Turnquest said temporary hiring freezes, together with limits on capital projects above a certain threshold, were among other measures being considered as fiscal constraints during the run-up to general elections. Mr Turnquest, addressing a 'State of the Economy Report' conference hosted by the Bahamas Chamber of Commerce, said: "The Government is giving consideration to establishing a ceiling on the deficit and a cap on recurrent expenditure growth - one that is consistent with keeping the public debt-to-GDP ratio on a downward trajectory.

"Our recent fiscal experiences show a tendency to borrow to cover current expenditures, when best practice should have these outlays covered by operating revenues. Consequently, we will seek to include a medium-term objective that government's operating expenditure does not exceed operating revenues or are contained within the ceiling."

Mr Turnquest added: "Another important guard rail will be the requirement for fiscal constraints during electoral periods. What is being contemplated are the imposition of temporary hiring freezes, limits to increases in short-term debt, limits on new capital projects above a certain threshold or any policy that commits the Government to fiscal or quasi-fiscal expenditure above a threshold.

"Importantly, the Fiscal Responsibility framework will also have sanctions when compliance with the legislation is violated - which could be an obligation to provide an explanation to the Parliament when the targets are not met."

Mr Turnquest said the Bahamas' fiscal performance was perhaps the worst on record in 2016-2017, as the overall deficit surged to $675.8 million - a sum equivalent to 6 per cent of GDP and "a marked deviation from the budget target of $100 million".

"This outcome was attributed to several one-off impacts on both revenue and outlays," he said. "There was, for instance, the disruption in revenue collections caused by Hurricane Matthew, which necessitated the grant of temporary tax reliefs, and then the corresponding boost in expenditures associated with post-hurricane clean-up and reconstruction activities.

"This had some impact on the fiscal situation to be sure. But the primary culprit was the pre-election spending, which included a sharp increase in the wage bill, the engagement of any number of small and large contractual arrangements for goods and services, and the subsequent accumulation of payment arrears, which your tax dollars are continuing to address well past the election date.

"That this unparalleled ramp-up in expenditure was allowed to happen unchecked, and hidden from public sight, was - and is - clear evidence that the mechanism for transparency and fiscal prudence were either non-existent or ineffectual."

Mr Turnquest said the Minnis administration undertook spending control measures that included a targeted 10 per cent cut in certain spending categories against approved budgets, and a freeze on non-essential hiring.

"We also launched an expenditure review and rationalisation exercise to determine the merits and appropriateness of existing programmes and projects," he added. "In the medium-term policy space, the Government also disclosed its intent to utilise more public-private partnerships for select capital projects; to pursue greater cost recovery and enhanced corporate governance at the state-owned enterprises; and to transform the existing defined benefit pension scheme into a contributory regime."

"The Government has had to make some very tough calls when it came to employment in the public sector, to address the pre-election build-up in temporary workers. This continues to be part of the rationalisation of excessive costs needed to create fiscal space for priority expenditures and key public investments. While the Government is always concerned about unemployment, its role is to create the enabling environment for private sector growth and job creation, and not use the public purse in this irresponsible manner."

Still, Mr Turnquest said that based on the performance in the first half of the 2017-2018 fiscal year, the Bahamas is moving in the right direction.

"Compared with the first six months of fiscal year 2016-2017, the fiscal performance has turned in a $92.3 million or 38.6 per cent reduction in the overall deficit - to $198 million from $290.3 million in fiscal year 2016-2017," he said.

"Gains in revenues of $24.8 million are supported by a $67.5 million or 43.6 per cent reduction in spending. Comparisons with the Budget show revenues running at some 41 per cent of the target, and adjusted recurrent and capital spending, at 44.7 per cent and 33 per cent, of their respective targets.

"We believe that the measures taken, and those in the pipeline, have the ability to help restore fiscal discipline and place the finances on a sustainable path for the benefit of all Bahamians. However, we would acknowledge that these measures alone will not get us to where we want and need to be," he added.

"Most importantly, we must grow our economy and do so in a sustained way. Additionally, if our fiscal plans are to be sustainable, they need to be reinforced by other administrative and legislative initiatives designed to bolster credibility in a transparent and accountable manner."

On the issue of public financial management reform, Mr Turnquest said: "An important element of the public financial management reform agenda focuses on bringing greater transparency, fairness and efficiency to bear on public procurement activities.

"Public procurement is big business for governments, and equally as big are the temptations and opportunities for corruption, collusion, fraud and manipulation.

"For the Bahamas, more than $1.475 billion or an estimated 13 per cent of GDP was spent in fiscal year 2016-2017 to acquire goods and services - underscoring the imperative for the Government to obtain value for monies spent."

He continued: "The first stage in these reform efforts was marked by the recently-launched pilot phase of the Government eProcurement portal - a single access point - where all announcements and documents and information about tender participants, summary of bid evaluation reports and notice of procurement awards will be published. All suppliers interested in doing business with the Government have been invited to register their businesses by uploading all of the requisite documents via the portal."

"Work is also well advanced on finalising the draft public procurement legislation that will bring the regulatory framework closer in line with international standards and best practices. Some of the areas covered in the legislation are the establishment of a public procurement department; a public procurement board, and a public review tribunal to provide persons with an avenue for recourse. The most critical element of this procurement reform will be the requirement that all tenders and bid offers be published publicly online, and that all successful bid offers accepted by government also be awarded."