Turnquest outlines features, impact of Fiscal Responsibility BillRequires reduction of debt to GDP ratio to 50 percent
The government released its Fiscal Responsibility Bill, 2018 on the Ministry of Finance’s website yesterday, which sets policy that will seek to constrain government’s fiscal processes and keep the country on a medium-term trajectory toward economic growth, while creating a culture of transparency and responsibility with regard to public funds. When implemented, the bill will require government to reduce its debt to gross domestic product (GDP) ratio to 50 percent of GDP over time.
Deputy Prime Minister and Minister of Finance Peter Turnquest said yesterday at a press conference announcing the bill that the country’s debt to GDP ratio is currently at 58 percent.
Besides lowering the debt to GDP level, the law when implemented will require the government to lower the fiscal deficit of 5.8 percent of GDP to no more than 0.5 percent within three years.
Government will also be required to keep its comparative year-on-year current expenditure at or below 3 percent.
The International Monetary Fund (IMF) and Inter-American Development Bank (IDB) both provided guidance on the framework for the legislation, according to Turnquest. As the government introduced the bill yesterday, the IMF released its recommendations to The Bahamas on the implementation of fiscal responsibility legislation.
Turnquest explained that the chief strategic goals of the bill focus on lowering the country’s deficit and maintaining a sustainable fiscal balance, lowering debt to sustainable long-term levels, and maintaining current expenditure growth in line with growth in nominal GDP.
“We believe that this combination of fiscal objectives will achieve sustainability in the government’s finances and ensure the long-term stability and viability of the Bahamian economy,” he said.
“If we let our debt levels grow at an unchecked pace, then we run the risk of effectively leaving the bill on our children to pay off. No government should have the power to saddle future generations with burdensome debt, dooming them to a diminished standard of living. We must start taking the necessary steps to pay our bills up front and contain the growth of our national debt.”
The proposed legislation also seeks to limit the government’s ability to spend beyond its budgets without oversight and increase spending during an election year.
It does, however, allow for the government to spend beyond its budget during times of crisis, though those scenarios, like others will have to be put before Parliament and an “independent five-member Fiscal Responsibility Council comprising individuals from civil society and professionals with specific areas of expertise in law, business, economics, accounting and finance.”
“The government does not nominate these professionals,” Turnquest said.
“In each respective category, they will be nominated independently by the Bahamas Bar Association, the chamber of commerce, the University of The Bahamas, the Bahamas Institute of Chartered Accountants and the Certified Financial Analyst Society of The Bahamas. The Fiscal Responsibility Council is mandated to conduct periodic and ongoing assessments of the government’s finances and make its assessments public.”
The IMF noted the importance of countercyclical policy in the bill, saying: “The rapid increases in public debt documented in section one justify having fiscal sustainability as one of the main objectives of a rules-based framework. But this overarching objective should be balanced, to the extent possible, with the need to allow some room for countercyclical management, especially given The Bahamas’ exposure to external shocks.”
The IMF further explains that given the Bahamas’ exposure to hurricane damage, government should not be constrained by the new legislation. But it also warned that the new legislation should create a surplus of savings in an account dedicated for natural disaster recovery.
Government has put the bill out for public scrutiny and it can be found on the Ministry of Finance’s Facebook page and the government’s website – www.bahamas.gov.bs. The public can submit its comments about the bill to email@example.com.