The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s long-promised switch to an accrual-based accounting system is forecast to “near completion within the next two years” and, for the first time-ever, enable an accurate valuation of what Bahamian citizens actually own.

The Fiscal Strategy Report 2026, tabled alongside the Budget, reaffirms that the Ministry of Finance is “actively advancing” the transition away from the public sector’s modified cash basis of accounting to a method that will enable the Government to determine its “net worth” and by how much its assets exceed liabilities.

“As the Government continues to operate under a modified cash basis of accounting in accordance with IPSAS (International Public Sector Accounting Standards), the reliable production of net worth estimates is not presently feasible,” the report acknowledged.

“Pursuant to the requirements of the Public Finance Management Act, secondschedule 9(k), these estimates - expressed both in nominal terms and as a share of GDP - will be incorporated in future reports once they can be determined with sufficient reliability.”

“The Government is actively advancing the transition to an accrual-based accounting system,” the Fiscal Strategy Report added, “a reform that necessitates capacity development across the public sector, the implementation of new information systems and technology platforms, and the enactment of supportive legislative reforms.

“Integral to this transformation is the development of a comprehensive public sector balance sheet, which will provide authoritative visibility into the Government’s financial position, encompassing its asset base, inventory and acquisition values, and facilitate more accurate accounting of long-term obligations, including pension liabilities, which are not currently reflected under the modified cash approach.

“This transformation is expected to near completion within the next two years, and is anticipated to materially enhance fiscal transparency, decision-making and long-term sustainability.” Accountants and others have long urged the Government to move towards accrual-based accounting within the public sector as a means to provide a more accurate real-time picture of the state of the public finances and The Bahamas’ fiscal health.

Under the Government’s current accounting system, which is “a modified cash basis of accounting” that is guided by IPSAS, “revenue is recognised when received and not when earned”, and “expenditure is recorded in the period in which it is paid” but not when such commitments or obligations are incurred.

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.

In addition, the annual Budget only deals with the Government’s income statement, meaning its revenues and spending and whether it generates an annual profit (Budget surplus) or loss (deficit). It does not address the Government’s balance sheet, which would show the value of all assets that it owns and receivables (taxes and other payments) due to it, as well as liabillties such as debts and payments owed by itself.

Once this is calculated, as accrual-based accounting can provide for, the Government’s net worth - meaning assets minus liabilities - can be calculated. The Government owns significant assets, such as its Crown Land holdings, other real estate, public infrastructure such as roads, docks and airports, plus what belongs to state-owned enterprises (SOEs) - although the latter also carry major liabilities.

However, the move to accrual-based accounting within the Government has been talked about for more than a decade but never seen through to execution or implementation. The switch was foreshadowed as far back by then-Prime Minister Perry Christie in his 2014-2015 Budget communication.

Speaking to the advantages of making the change, the Fiscal Strategy Report 2026 added: “The rationalisation of payment arrears management constitutes a pressing reform objective of the Government.

“The implementation of accrual accounting will directly address the gap in current financial reporting by enabling systematic identification, classification and monitoring of outstanding obligations, thereby supporting a transparent and structured approach to arrears resolution.”

As for existing payment arrears, the Fiscal Strategy Report said: “Unpaid invoices or arrears to ministries, departments and agencies and SOEs can accumulate due to timing mismatches between expenditure commitments and cash availability, represent both a fiscal risk and a governance concern.

“Rising or persistent arrears can signal underlying fiscal stress, weaking the Government’s creditworthiness, erode supplier confidence and increase the cost of goods and services. At end‐December 2023, total government arrears stood at $165.9m, declining to $122.4m by end‐December 2024.

“This trend reversed in 2025, with arrears rising to $241.8m by end‐December. To reduce this fiscal risk posed by accumulated arrears and promote stronger financial discipline, the Government has focused increased attention on the following complementary measures.”

These include improved payment scheduling “to ensure timely settlement of obligations and reduce incidence of new arrears”, plus tougher “commitment controls” that involve “improved cash forecasting to align obligations more closely with available resources, while prioritising structured arrears reduction within the fiscal consolidation framework”.

The Fiscal Strategy Report also called for “eliminating intra-governmental payment backlogs through streamlined internal financial processes and optimised resource allocations”, plus “improvement of reporting and monitoring of arrears through the proposed transition to an accrual-based system”.