The Tribune

• ‘Taking blows’ because Gov’t assets unknown

• Upgrade accounting to tackle ‘elephant in room’

• Nation, markets need fiscal ‘good, bad and ugly’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is “like a boxer with one hand tied behind its back” because it has failed to determine the true value of the Government’s multiple assets, a prominent banker argued yesterday.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that this nation is “taking unnecessary blows” because it has failed to adopt modern public sector accounting methods that would give a true picture of the Government’s balance sheet.

He argued that The Bahamas is effectively operating with “an absentee asset ledger” because the Government’s current cash-based accounting methods do not capture, or value, the likes of its Crown Land and Public Treasury landholdings as well as its many buildings and holdings in the likes of the Bahamas Telecommunications Company and Arawak Port Development Company.

Urging the Government to switch to accrual-based accounting, which would both capture these assets and the extent of its future spending commitments, “in the shortest possible time”, Mr Bowe said it was vital this happen so that politics is eliminated and The Bahamas learns “the good, the bad and the ugly” about its fiscal woes.

Describing the Government’s assets as “the white elephant in the room”, the Fidelity chief said bringing the Bahamian public sector’s accounting practices into line with global standards will help put an end to arguments such as whether there was a “$1bn difference” between the Minnis administration’s pre-election fiscal report and the reality.

Reiterating that there was “a distinct difference” between commitments, which Deloitte & Touche appears to be examining on the Davis administration’s behalf, and “obligations” as contained in the pre-election fiscal report, Mr Bowe explained that the former do not always “crystallise” into obligations where an invoice is presented and the bill must be paid.

“Our financial reporting needs to be accrual-based accounting,” he argued. “Accrual-based accounting is not solely focused on liabilities; it is also focused on assets. We have an absentee asset ledger. We have no knowledge of what the Government’s assets actually are.”

K Peter Turnquest, former deputy prime minister under the Minnis administration, previously said the Government was targeting between 2022 and 2024 to introduce accrual-based accounting across the public sector but it is unclear how much progress has been made.

Arguing that the Davis administration will “have to be the ones to carry it forward” now that the Public Financial Management and Public Debt Management Act are being implemented, Mr Bowe added that the Government also has no true picture of its liabilities as future spending commitments and unfunded public sector pension liabilities are not included in the national debt.

“To me, when we can see our true financial position, assets minus liabilities, that will tell us whether the country is in a net asset or net liability position,” he explained, “and that will have a tremendous impact on our credit rating.

“If we have assets that we can monetise, dispose of, it shows we have the capital to pay. We can turn roads into toll roads, the ports into user fees, turn buildings into commercial or rental properties. The Government has a slew of properties that can be turned into commercial properties with the right management.

“We have Treasury and Crown Land, and don’t recognise them or look at them as commercial opportunities. That’s why accrual-based accounting must be implemented, and implemented in the shortest possible timeframe.”

Mr Bowe said the likes of Standard & Poor’s and Moody’s, together with The Bahamas’ creditors, lenders and investors, are currently only seeing the Government’s income statement and thus receiving an incomplete assessment of this country’s financial health which may look better when the balance sheet - assets and liabilities - are presented.

Acknowledging that The Bahamas has work to do to locate all government assets, and apply the correct valuation to them, he added: “If we are serious about saying how we turn the corner on our fiscal affairs, we should put all assets on the table and say how we make them profitable as opposed to being a white elephant.

“It would do away with all the theatrics around who left what bill [to be paid by the incoming administration]. We want to know the true fiscal circumstances, the good, the bad and the ugly and, more important, how we fix these things.

“If we’re doing it with one hand tied behind our back, knowing our liabilities but not our assets, we’re going to be like a boxer going into the ring with one hand tied behind his back and taking blows he should not.”

Mr Bowe said a recent International Federation of Accountants conference that he attended cited the examples of two African nations which had switched to accrual-based accounting, and come into line with International Public Sector Accounting Standards (IPSAS), thus removing politics from their financial management.

spoke out ahead of the Government releasing its 2021-2022 first quarter fiscal “snapshot”, which revealed the deficit for the period had declined by $182.8m - or 54.4 percent year-over-year - to $153.5m due to the economy’s re-opening post-COVID. The $153.5m represented some 16.1 percent of the full-year deficit target.

“Government fiscal performance during the first quarter of fiscal year 2021-2022 demonstrates a strengthening in revenue collections largely due to a resurgence in the travel and tourism sector,” the report said. 

“As a result of the protracted impact of COVID-19, government was forced to maintain elevated levels of spending to support health, social and economic assistance initiatives, as well as operational requirements to several state-owned enterprises (SOEs). To curb the impact of elevated relief spending on the fiscal position, discretionary capital expenditure was contained.

“As a result of increased vaccine availability, relaxed curfews and the cessation of lockdowns, tourism activity has improved with stopover visitor arrivals nearing pre-pandemic levels. Despite the improvement in the tourism sector, unemployment levels remain elevated with 17,154 beneficiaries relying on the government unemployment benefits program administered by the National Insurance Board to assist persons impacted by COVID-19. Inflation remains relatively contained but is projected to rise in the near term as global markets rebound,” it added.

“Visitor arrivals totaled 183,270 in July 2021 compared to 23,820 arrivals in the same period of the year prior during the first attempt to re-open domestic boarders. However, comparative tourism indicators remain far below pre-Dorian pre-pandemic levels and account for 79 percent of the July 2019 visitor totals.”