The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Governance reformers yesterday voiced fears that proposed legal reforms are “a step back” for the independence of a key fiscal watchdog and also weaken accountability “enforcement teeth”.

Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, told Tribune Business there is an “opportunity for strengthening” the proposed Public Finance Management Bill so that it retains “the standard of accountability and transparency” achieved by the two Acts it will replace.

ORG, in reviewing the Bill unveiled by the Davis administration at the start of the mid-year Budget debate, said it has identified 32 issues that should be addressed to ensure the legislation fully aligns with “best practices” before it is debated and passed by Parliament to replace both the Fiscal Responsibility Act and Public Financial Management Act.

Mr Aubry said ORG had particular concerns with reforms that will see the Fiscal Responsibility Council’s members appointed by the minister of finance under the new legislation, rather than recommended by the House of Assembly’s speaker as under the current regime. He also noted that the accountant-general (treasurer’s) tasks are being watered down under the new Bill so that they play a lesser role in oversight and ensuring the proper “fiscal controls” are in place.

“What we’re generally seeing is that the independence of the Fiscal Responsibility Council is key,” the OEG executive director told this newspaper. “The International Monetary Fund (IMF) recommends that the second most important part of ensuring fiscal responsibility legislation is effective and sustainable is having a strong and effective Fiscal Responsibility Council. Every component that builds capacity or serves to increase independence is crucial.”

Noting that the Public Finance Management Bill will, as presently drafted, empower the finance minister to appoint the Council’s five members instead of them being recommended by the House speaker, Mr Aubry said: “Having them selected by the minister would indicate a step back in relation to independence. That’s something that best practices tell us will be a big part of legislation like this.”

The five-member Council, featuring representatives from the Bahamas Bar Association, Bahamas Institute of Chartered Accountants (BICA), financial analyst society, private sector and academia, is charged with examining whether the Government’s annual Budget, Fiscal Strategy Report and other measures align with set fiscal responsibility targets and principles.

ORG’s concerns echo those voiced last week in Parliament by Kwasi Thompson, the Opposition’s finance spokesman, who argued that the Council’s independence is being compromised because the minister of finance will, in effect, be able to appoint the very people who give judgment on his own performance.

However, the Prime Minister last night pushed back hard over these concerns regarding the Fiscal Responsibility Council’s independence. Philip Davis KC, in closing the mid-year Budget debate, argued that the Council’s present structure and set-up are “unworkable” because there were no safeguards within the present Fiscal Responsibility Act to ensure those selected can perform the tasks required.

“The Fiscal Council as constituted in legislation was unworkable. Vital issues had not been considered in designing the membership composition of the Council,” he asserted. “There were no guardrails to ensure that the composition of the Council adequately enables them to perform the job they are being asked to do.

“This is not to say that they are not professionally accomplished individuals, but what the public needs is surety that the Council was composed in a way that maximises their ability to get the job done.” Mr Davis, announcing that “a technical explanation” of the Public Finance Management Bill is being prepared, added: “This Bill had input from a wide range of internal stakeholders, and benchmarks against similar legislation in other countries.

“What is being done is in accordance with international best practices. It will correct many of the flaws with the current legislation, one of which was to treat the Public Financial Management Act as if it was a part of the penal code.” Mr Thompson then interrupted Mr Davis to ask if the Bill and other financial-related legislation was to be passed last night, saying he “would welcome” such a technical review and discussion of the changes.

The Prime Minister replied that Parliament would “come back” and deal with the Public Finance Management Bill “in the best interests of good governance of the country” at a later date. Mr Davis then continued his attack on the laws it will replace, asserting: “The present Act is overly prescriptive and does not reflect the current realities of the systems and processes used for public financial management in The Bahamas.

“It is as if the drafters never engaged with the practitioners. The legislation reflected a government totally disengaged from the people on the ground.” Mr Thompson, last night asserting that ORG “agreed with just about all of our points”, told Tribune Business he was pleased that the Government did not attempt to pass the Public Finance Management Bill into law last night “as they originally intended”.

“ORG has only confirmed our concerns,” the Opposition finance spokesman said of the group’s 20-page Bill review. “We again caution the Government not to decimate the financial acts. The Government’s present Bill is a step backwards from transparency and accountability.”

Meanwhile, Mr Aubry yesterday said ORG had reservations about the changing role of the accountant-general (treasurer) in the new Bill. While the two terms for the post are interchangeable, ORG’s review said the reforms “adjust the role to be more operational in nature, with less oversight function.

“In the 2021 Public Financial Management Act, the accountant-general is required to ‘ensure each public entity has in place proper financial control mechanisms in accordance with this Act”. However, the Bill appears to have watered this down and confined the treasurer’s role to one of simply “verifying payments to be made in accordance with the Act”.

ORG called for the proposed legislation to be altered to restore the treasurer’s oversight functions, and also suggested that the annual Fiscal Strategy Report be laid and debated in Parliament prior to the annual Budget’s unveiling on the last Wednesday in May. The new Bill instead calls for the Fiscal Strategy Report to be tabled “immediately after laying the annual Budget”, with the latter design in accordance with the former’s objectives.

Mr Davis previously argued that the current deadline for unveiling the Fiscal Strategy Report, namely the third Wednesday every November, has proved unachievable for both his and the former Minnis administration. And, by tabling it so far in advance of the Budget, he said many forecasts and projections will have changed to reflect evolving economic circumstances by the time the Government’s fiscal plans are released.

ORG, though, said in its review: “Best practices, as per IMF good practices, call for separation of the Strategy Report and Budget such that the Strategy Report development, publication and public presentation and debate prior to can inform the Budget process and build the involvement and awareness of the public.

“Similarly, requiring in the Bill that the mid-year review reflect progress against the fiscal responsibility objectives ensures an integration in reporting. Best practices would recommend that requiring publication of any revisions that may arise from the debate can also build public awareness and engagement.”

Mr Aubry said research and benchmarking The Bahamas’ reforms against similar fiscal legislation showed that the Fiscal Strategy Report should be used to “inform short-term and long-term Budget” planning. “There might be greater opportunity in having the Strategy Report presented and debated in the House of Assembly prior to the Budget for it to be used as intended; not solely as a guiding document, but one that can be amended as a living document,” he added.

The ORG executive director said there was nothing wrong with the Davis administration seeking to combine the Fiscal Responsibility Act and Public Financial Management Act into one larger, consolidated piece of legislation. The Inter-American Development Bank (IDB) had suggested such a move in its review of the original Fiscal Responsibility Act in 2018.

“Ideally they called for those laws to be integrated so they’d support each other, reinforce the relationship and all the elements embedded within fiscal responsibility, but ensure they were applied across the overarching public finance management framework,” Mr Aubry said.

“This represents a potential opportunity to improve our standards. Both the Fiscal Responsibility Act and the Public Financial Management Act were noted as being of a high standard. The opportunity is to keep the standard of accountability and transparency noted in those prior Acts and use them to achieve greater administration and strengthening. In some cases we see reforms at a higher standard, and in others we see an opportunity for strengthening of the legislation.”

Mr Aubry said the new Bill appeared to have retained “a significant amount” of what was contained in the existing legislation, adding: “Much of the Bill does reflect provisions in the prior legislation.” However, he argued that there was room for improvement, and noted that the penalties and sanctions for fiscal misconduct “that offer the Bill stronger enforcement teeth” have been removed.

Michael Pintard, the Opposition’s leader, yesterday called for “a wider discussion” on the Bill given that there had been no consultation with ORG and other stakeholders. Asserting that his party cannot support the changes as is, he added: “This is the same administration that has a confidentiality clause introduced into the Public Finance Management Bill but, at the same time, are busy taking penalties out of the Act for persons who misuse government funds.”