The Tribune

By NEIL HARTNELL

and NATARIO McKENZIE

Tribune Business Reporters

The deputy prime minister has voiced optimism that “public outrage” will prevent future governments from abandoning the checks put in place to prevent reckless fiscal policies.

KP Turnquest told Tribune Business that the increased transparency created by the Fiscal Responsibility Act, and quarterly fiscal reporting, would “hold governments to account” if they departed from such safeguards through uncontrolled spending and borrowing.

“Hopefully it will be difficult for future administrations to depart from the framework we’re putting in place without the public being outraged and holding them to account,” he said, suggesting that the deficit and debt targets set by the Act - combined with the extra light shone on the government’s fiscal management by the quarterly reporting - should prove a sufficient deterrent.

Mr Turnquest added that the government’s medium-term fiscal consolidation plan, featuring tax rises and spending restraints in a bid to pay off $360m in unfunded arrears over a three-year period, was in The Bahamas’ best interests and not designed merely to appease the credit rating agencies.

“We don’t do what we’re doing for the ratings,” he told Tribune Business. “We do it because it’s the right thing to do. It’s based on experience and what we know, and we are acting in best interests and long-term stability of the Bahamian people.

“We can’t chase the ratings. It’s partly why we got where we are, being less than transparent in trying to protect the rating. That’s never a wise game. The chickens have come home to roost. Transparency is the only way to ensure stability in the ratings and fiscal balance.”

Mr Turnquest continued: “We’ve put out our mid-term consolidation plan. That has a very clear outline of what we’re trying to achieve and bring us down to a sustainable debt-to-GDP ratio of 50 percent, and bring the deficit-to-GDP ratio to 0.5 percent. That means we still have a lot of work to do to rationalise expenditure, rationalise the programmes we’re involved with.”

Tribune Business revealed on Tuesday how Moody’s, the international credit rating agency, had cast doubt on the Government’s ability to hit the 1.8 percent deficit-to-GDP target mandated by the Fiscal Responsibility Act for the current 2018-2019 fiscal year.

While agreeing that the Government’s goal is still “attainable”, it added that spending curbs will likely be needed to hit it, and projected that the deficit will instead come in slightly higher at between 2-2.5 percent of GDP- especially given that The Bahamas has a poor history of meeting its fiscal forecasts.

Mr Turnquest, in response, said Moody’s position was “consistent” with that taken by the Ministry of Finance. He acknowledged that the rating agency’s scepticism over the 2018-2019 target was justified, given that previous administrations had not established a good “track record” in meeting projections.

“We’ve been saying all along that while we’re making progress we have to maintain our fiscal discipline and spending prudence,” the deputy prime minister told Tribune Business. “Their comments are not out of line at all. In fact, they’re consistent with the statements we’re making.

“We’ve had relative success in containing expenditure and the like to meet targets, and we have to continue to do that as well as collect revenue that comes in this quarter.” The current quarter of the fiscal year is traditionally when the Government earns the bulk of its revenues, and Mr Turnquest said the Government was “meeting our expectations at the moment”.

He added: “The fact that we don’t have a track record, that’s a true statement. We just passed the Act. We do have a track record of meeting projected targets, and it’s not a good one. We are working diligently to achieve the deficit targets set out in the Fiscal Responsibility Act, and believe we are on course for doing that.”

Moody’s, in an update that accompanied its upgrading of The Bahamas’ outlook from “negative” to “stable” last week, warned that the government’s $237m deficit objective was still “attainable” but would likely require further spending curbs between now and end-June to hit target.

“I wouldn’t characterize it as a warning. I think they are making an observation, and it’s an observation that we have consistently been putting forward as we look at these reviews and mark our progress throughout the rest of the year,” said Mr Turnquest yesterday.

“We have been making some significant gains, resulting in the upgrade in the outlook from ‘negative’ to ‘stable’. We recognise that there is still a lot of work to be done. We did not get where we are overnight, and this is going to take a long time to get out of it.

“It is going to take discipline, creativity and a responsible approach to our spending patterns. We recognise that in order to lock in the gains that we have achieved, we have to be responsible with our spending throughout the rest of the year. We have the three-year consolidation plan with a projected surplus in year four,” he continued.

“In order to achieve that we have to invest in infrastructure and growth-enhancing programmes to ensure that we expand the revenue base while, at the same time, providing an opportunity for Bahamians.” Mr Turnquest is expected to deliver the mid-year performance review today in Parliament.

Moody’s had last week indicated that passage of the Fiscal Responsibility Act, combined with the introduction of quarterly fiscal reports and a reduced deficit for 2017-2018 compared to the prior year’s $661m, had restored some of The Bahamas’ policy-making credibility and prompted the improved “outlook”. However, the “credit opinion” obtained by Tribune Business indicates it now wants to see The Bahamas deliver by translating all this into results featuring a much-reduced annual fiscal deficit.

“We are certainly aligned in the thinking that we have to maintain our spending patterns to ensure that we do meet our objectives. This is not unusual. We are at this stage living up to our commitment. We are generally in line with where we though we would be at this stage,” said Mr Turnquest.

“Our revenue is behind, and we have spoken as to why that is; the change in gaming tax and the transition we gave in respect to the increase in Value Added Tax (VAT).”