The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Moody's yesterday delivered a major boost for the Government by hailing the launch of its quarterly fiscal reports as a move that will help regain lost "policy credibility".

The international credit rating agency, in an update to the capital markets, said such enhanced fiscal transparency and performance reporting will help restore confidence among global investors who were rattled by the Minnis administration's recent revelation of $760m in unfunded spending arrears.

It also praised the Government's "timeliness" in releasing the data within four weeks of the 2018-2019 fiscal first quarter's September end, adding that this will enable "better understanding" of the reasons for any "deviation" from Budget projections.

Moody's, though, warned that it was "particularly important" for the Government to deliver on its promises of switching the public sector to accrual-based accounting by 2022, a method that should provide a more accurate picture of its financial position because - unlike the existing cash-based system - it will account for spending commitments when they are made, not when funds are released.

Describing the introduction of quarterly reporting as "a step forward" in returning the Government's finances to a sustainable path, through the elimination of $300m-plus annual deficits and reducing the $8bn national debt, Moody's said it would prevent the recent "shocks" caused by The Bahamas consistently missing fiscal projections by a wide margin.

"The Bahamas' fiscal framework has faced challenges in recent years given large revisions to fiscal outcomes that contributed to missed deficit targets and the uncovering of large arrears," Moody's said.

"Over the past few years, fiscal deficit outcomes tended to be revised after being presented in mid-year budget updates or budget speeches, which points to issues regarding fiscal data transparency and quality.

"A particular issue that weighed on the Bahamas' fiscal policy credibility involved the revelation by the Free National Movement (FNM) government, after it took office in May 2017, of large arrears. Arrears worth $205m were incorporated into the fiscal 2017 (which ended June 30, 2017) result, while another $195m were included in the fiscal 2018 outturn," Moody's continued.

"Additionally, as presented in the fiscal 2018-2019 budget, the remaining arrears amount to $360m and will be mainly covered by the Government between fiscal 2018-2019 and 2020-2021. These $760m in arrears constitute 6 percent of 2018 GDP. The arrears contributed to a continued deterioration in the government's debt metrics."

Having identified the problem the Government's more frequent updates are meant to cure, Moody's added: "The new quarterly reporting will provide increased transparency and allow for more timely monitoring of fiscal performance.

"Increased periodicity (releasing quarterly data rather than annual data) and timeliness (releasing the data within four weeks after the end of the referenced quarter) will strengthen transparency and accountability of fiscal policies, and support evidence-based policymaking.

"From a monitoring perspective, it will allow for a better understanding of the effect of in-year fiscal developments that may lead to deviations from the budget. This is particularly relevant for The Bahamas given its exposure to climate-related events, mainly in the form of hurricanes."

Moody's announcement suggests that The Bahamas has improved its chances of retaining its 'investment grade' credit rating, which currently lies one level above so-called 'junk' status with this agency.

It also gives the Minnis administration a badly-needed endorsement of its fiscal consolidation reforms and strategy, providing it with a defence against political opponents and critics who are arguing that the first quarterly report has produced nothing meaningful in terms of trends.

Chester Cooper, the Opposition's deputy leader and finance spokesman, on Wednesday described the Ministry of Finance's first quarter "snapshot" as "a commendable effort at timely reporting" while cautioning against reading too much into the figures.

He then added: "In the interim, the Government has released a colorful narrative that does nothing to create a discernible picture of a pathway to anything of note."

Moody's note, though, suggests the quarterly reporting introduction may produce more than Mr Cooper gives it credit for. The rating agency suggested it would complement the Fiscal Responsibility Act, and the achievement of the deficit, debt and spending targets it lays out, together with other planned reforms.

"The FNM administration has presented a fiscal consolidation plan to reduce the deficit, and presented a Fiscal Responsibility Bill in September 2018 to serve as an anchor for future fiscal policy. The new quarterly reporting complements these efforts by improving transparency," Moody's said.

It emphasised, though, the need for the Government to fulfill promises to move to accrual-based accounting and provide a more accurate position of its finances.

"The budgetary data included in the new quarterly reports will be prepared using a modified cash basis of accounting, and guided by international public sector accounting standards (IPSAS)," Moody's said.

"Moreover, under the current cash accounting methodology, issues related to expenditure commitments that have not yet been paid as of the time of publication of the new quarterly reports will not be reflected in the fiscal outcomes. Thus the Government's commitment to its eventual adoption of IPSAS accrual-basis accounting is particularly important.

"Overall, the publication of quarterly public finance statistics is a step forward in improving the transparency of the Bahamas' public accounts. Furthermore, the expected approval of the Fiscal Responsibility Bill and other legislative measures will support the strengthening of the country's fiscal framework."

The Ministry of Finance's "first quarter snapshot" revealed that a $60.1m year-over-year revenue increase, more than half of which came from VAT, drove the 52 percent reduction in the fiscal deficit for the July to September 2018 period.

The deficit, which measures the amount by which Government spending exceeds revenue, was itself slashed by $56.6m compared to the 2017 fiscal first quarter performance - falling from $108.6m to $52m year-over-year.

VAT revenues increased by $32m or 19.1 percent, jumping to $199.4m compared to $167.4m in the prior year, with the Government's income also further boosted by an 89.6 percent rise in stamp tax. That revenue item grew from $30.8m to $58.4 year-over-year.