The Tribune

By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

THE Free National Movement’s (FNM) chairman yesterday challenged whether the Government “cooked the books” to bring last fiscal year’s deficit in close to its original $131.1m target.

Dr Duane Sands told Tribune Business he has heard sufficient “anecdotal” evidence from frustrated businesses, who have been waiting months to receive compensation from the Government for goods and services rendered, to suggest that the spending reductions responsible for achieving 2023-2024’s $186.7m deficit were heavily aided by deferring many of these payments.

Arguing that this will have caused a build-up in payables arrears that has spilled over into the current 2024-2025 period and future fiscal years, he called for the Government to complete the long-promised transition to accrual-based accounting across the public sector so that a true picture of its financial position is presented.

The Ministry of Finance’s monthly fiscal report for June 2024 and the full-year affirms that the figures and data presented are based on “a modified cash basis of accounting” that is guided by International Public Sector Accounting Standards (IPSAS). This makes clear “revenue is recognised when received and not when earned”, and that “expenditure is recorded in the period in which it is paid”.

While there is nothing wrong with this, Dr Sands argued that this form of accounting does not recognise spending commitments made, or bills that are owing such as those due to the Government’s vendors. Accrual-based accounting would record, and expose, such commitments and payables, but under the present system these do not show up in the revenue and expenditure figures.

Neither Simon Wilson, the Ministry of Finance’s financial secretary, nor Michael Halkitis, minister of economic affairs, responded to Tribune Business calls and messages requesting comment before press time last night. However, the $186.7m deficit outturn gives the Government a chance to argue that its fiscal forecasting is far better than even the International Monetary Fund (IMF) as well as its critics.

It initially projected, in unveiling its 2024-2025 Budget, that last year’s deficit would come in slightly higher than forecast at between 1 to 1.5 percent of Bahamian gross domestic product (GDP). That, according to this news- paper’s own calculations, placed the outturn between $146m to $219m, and the revised target was latter narrowed to around $210m. The full-year outcome unveiled Wednesday beats the latter figure.

The May and June monthly fiscal reports, which were released within five days of each other over the past week, were also disclosed just prior to Standard & Poor’s (S&P), the credit rating agency visits The Bahamas for its annual assessment of this nation’s creditworthiness as well as economic and fiscal performance.

However, Dr Sands yesterday questioned whether “the rosy picture” presented by the Government represented reality - especially for many Bahamian businesses and households. “There are some interesting things that are there,” he told Tribune Business. “You have a repayment of loans in June by $300m even though you are running a deficit. It doesn’t quite add up.”

The FNM chairman was referring to the June 2024 report showing that the Government’s direct debt declined by a net $162.4m that month, with $300.6m in total repayments exceeding $198.2m in new borrowings, even though a $35.6m deficit was incurred for that period. Observers questioned whether the bond sinking funds, or recurrent revenues, were used to pay down debt and achieve that outcome.

“It seems like some of the fiscal decisions don’t really add up,” Dr Sands reiterated. “You can pay certain things but you cannot pay other things. You are making out-size payments on one side but cannot keep up with recurrent expenditure.” He also questioned how the Government missed its full-year VAT target by $238m, or 15 percent, generating $1.353bn as opposed to $1.591bn.

Spending that fell below original Budget estimates was chiefly responsible for slashing the Government’s full-year deficit by 65 percent, or $346.7m, year-over-year. Spending on goods and services with local and international vendors was just 89.2 percent of forecast, finishing some $67.8m below estimates at $560.8m compared to the projected $628.6m.

So-called “other payments” also amounted to just 83.6 percent of Budget forecasts, closing 2023-2024 at $287.1m as opposed to the anticipated $343.3m. “You had less expenditure on goods and services than you thought: How much of this is book cooking?” Dr Sands queried.

“I can make the books look good if I keep the cheques in the drawer. How much of the reduction in expenditure comes from simply extending accounts payables into the next fiscal period so that the vendors are on the hook for the Government’s books to look better?”

Fred Mitchell, the PLP’s chairman and minister of foreign affairs in a recent note to the party’s supporters said The Bahamas “is in a tight economic squeeze” and that the Government is “seeking to pay as we go, not to borrow if we don’t have to”. The Opposition, interpreted this as an admission the Government has cash flow and liquidity difficulties, and is paying vendors in installments.

This was vehemently denied by Mr Mitchell. And Prime Minister Philip Davis KC, during the 2024-2025 Budget debate, asserted “that suggestions that the reduction in the deficit is due to an accumulation of payables are erroneous” as these had been slashed from 3.9 percent of GDP to 2.1 percent.

Dr Sands, though, begged to differ. “When I listen, and I heard a physician say yesterday that they have not seen it as bad in the hospital in 27 years in terms of shortages, in terms of challenges related to supplies and what have you, this is just one part of a massive procurement machine but not an insignificant part of the procurement machine,” he said.

“You listen to some vendors say they have not been paid in six months. The Beaches and Parks vendors have not been paid on time. It is possible that they have cooked the books in order to make the numbers good since our normal fiscal accounting is on a cash basis.

“Certainly, with this administration, the numbers just are not there. They do not add up to what the expenditure is. You are watching and hearing and, or course, these are anecdotes but when you hear this every day from reliable persons they become believable. When you are also one of those business people who has had a similar experience you start to realise there is some truth to it.”

Dr Sands said all doubts would be banished by transitioning the entire government and public sector to accrual-based accounting. The work to realise this switch began under the last Christie administration, and has now lasted into its third administration with no timelines or deadlines for completion provided recently.

“We have had this discussion over and over and over,” he added. “I think it’s reasonable to make that transition.... This situation where you make things look good because of the nature of the accounting, when the system doesn’t have to take into account commitments or hypothecations. It’s cash in, cash out.

“If I’m owed $10m, $15m, the cheque is written in the drawer but there is no money in the account. That does not show up on the Government’s balance sheet though they have some deeply-offended vendors.

“The Government has generated a very rosy fiscal picture, but I am sceptical that the rosy fiscal picture is an actual reflection of what’s going on. The scale back of spending is probably an indication of a severe cash crunch. The question that has to be put to Finance is: Are arrears accruing, especially as we are hearing from hundreds of people who say they cannot be paid by the Government,” Dr Sands added.

“I think the public looking at it might believe things look really, really good, but this doesn’t tell the whole story. There are some interesting signs that are built into this report that persons with an educated eye would have a jaundiced view of.

“If things are so wonderful, why are you scaling back and why is it the Government feels things are so great? The public doesn’t feel it, the business community doesn’t feel it. Businesses are screaming about the additional cost of electricity and the Government is just smiling ‘lovely report’. I’m sure it is cook book economics.”