Reforms: the path to economic vibrancy and resiliency

For those who pay attention to the affairs of the country, it is clear the challenges we face today could be with us for a while yet.

Further, if our efforts are limited only to solutions that need significant cash resources, then the problems are going to become even more entrenched, could harm sustained recovery and stymie performance when the “good times” next emerge.

There is not much that can be radically done with the finances of the country, but the country is in need of “radical” changes.

How will these be realized? A commitment to true reforms; creativity in execution; boldness in confronting the issues; and a willingness to challenge normalized approaches and status quo.

These all hold great value in shifting the country’s path to fundamental change. Given where we are, this approach represents a viable foundation on which a new level of economic vibrancy and resiliency can be built.

In a previous article, I noted, “… The circumstances regarding The Bahamas’ fiscal affairs are much too important and the issues far too critical for us not to be actively looking for insights on how to move forward.”

I ended it stating, “The credit rating does not reflect on the country’s ability to afford debt but rather the ability of the government, given its current policies…”

The message I sought to convey is that we have to become more deliberate in how we approach the future and that the nature of our circumstances is highly influenced by the conditions of our national arrangements, state of our institutions and “normalized” behaviors that are inconsistent with sound standards.

This thinking informs another statement carried in a much earlier article, “In order for the current administration to be successful, it must implement the greatest suite of reform this country has ever seen.”

This would hold true for any administration overseeing the country in its current state.

The statement is broad and embodies a challenge. Objectively assessed, we should accept that there is much truth to it and our attitude, therefore, should be game on.

The problems faced by the country are not just significant, they are prolonged and effectively endemic. Only effective implementation and enforcement of high standards will cause a fundamental and sustainable change in the affairs of the country.

A careful review will show that the major issues have been captured, specifically or in the underlying principles, in 10 main categories of the current administration’s “Blueprint for Change”.

However, when strategy meets limited resources, changes and adjustments become often necessary. This is why creativity must rule the day. We must pick all the low-hanging fruits and start attempting the ones requiring greater stretch. Waiting is not an option.

Understand the context

Why is this so? For the most part, the economic elements of the country are not as flexible as we often suggest in our discussions.

National Review, written by The Guardian’s executive editor, quoted former Minister Zhivargo Laing stating, “Anyone who understands the structure of the government budget should manage their expectations in such a way that they know that any new things happening will probably not represent more than 15 percent of the overall budget because the balance is essentially fixed or committed.”

The needs that could be met through economic means just simply cannot happen because the fiscal space does not exist.

The overall economic fortunes of the country will not change overnight and therefore the government must consistently seek to find ways of “drilling the tunnel at both ends”, to create a more viable path forward, in the shortest possible time.

In the face of limited financial resources, properly targeted reforms are the only other instruments and mechanics with which this can be achieved. We should move urgently and creatively.

The conclusion to the Economic Recovery Committee, created by the previous administration, noted in part, “Some of our recommendations address structural issues our economy has faced for some time now, even before the onset of the pandemic; some concern issues brought to the fore as a result of the pandemic.

“Some touch upon barriers to economic growth that can be overcome with moderate effort; some will require far more effort and the capacity to convince Bahamians that strategic changes to the way things are done could reap significant benefits.”

Without specifically addressing the recommendations, the statement captures the essence of how the government can move the needle forward on reforms, given limited resources.

A practical and pragmatic approach that identifies and accepts long-standing issues and fix them; that consider matters requiring moderate effort and low cash solutions and implement them; which start the necessary conversations with the general public about adjustments, outlook, attitude or expectation, all with a view to help galvanize national effort toward growing the country.

Consider this – approximately $700 million of the budget will go to remuneration. Our current debt stock carries interest of over $500 million.

There are known and urgent infrastructural needs in the areas of energy, education and healthcare.

Given the high inflationary environment, there is the real possibility of an increased need for social spending. The recent downturn may demand continued heightened subsidies for weak-performing state-owned enterprises, a number that climbed to over $400 million.

These three categories alone account for more than 50 percent of total expenditure. Now contemplate the fact that variability in spending is limited to just around $300 million. How can the government start to realize fundamental changes without employing the thinking espoused here? The only option would be to wait and waiting will impose undue long-run burdens.

Start with state-owned enterprises

The changes must come via a suite of policy and practice shifts, that in the first instance does not require additional spending but results in cost savings and facilitates future growth through more efficient and productive service delivery.

State-owned enterprises (SOEs) and agencies are a critical starting point. Think about it this way: where we are today is in no small part because of the inefficiencies of a number of these agencies and corporations.

Ineffective governance, boards and directors lacking the ability and/or commitment to cause productive changes and management who are not held accountable with sufficient consistency to help create and sustain healthy and productive working environments.

Therefore, even if the country corrects its fiscal intake to levels envisioned by recent pronouncements, these institutions and the history of underdeveloped institutional practices will create a drag on progress.

Importantly, many of these institutions and agencies are central to the growth policies promulgated and therefore the quality and extent of their facilitation will, at best, be suboptimal and, at worst, very ineffective, without change.

SOEs corporate governance

As the country pursues public financial management and fiscal reforms, it must also embark on an aggressive campaign for effective strategic management, risk management and corporate governance.

Starting with semi-autonomous entities, the objective is to infuse a new culture of accountability across all government corporations and agencies; adopt internationally recognized public sector standards; improve operational effectiveness and reduce losses.

The government must ensure that best practices become commonplace at entities like Bahamasair, the Public Hospitals Authority, Civil Aviation Authority, Nassau Airport Development Company (NAD), Water and Sewerage Corporation, ZNS, Bahamas Power and Light and the Bahamas Hotel Corporation.

There should be a concerted effort to cause the experience and practices of the well-run entities, for example NAD, to be transferred to the others, shifting organizational cultures and infusing corporate discipline to facilitate more effective outcomes.

Those who enjoy the privilege of appointment to provide oversight must be required to develop sound institutional knowledge; strive to operate at best practice standards and gain practical experience in corporate governance through structured orientation and training.

Such moves will provide government the opportunity to develop an effective plan and roadmap to cause a much-needed spillover into central government.

As an important step, this administration has the opportunity to institute changes that will arrest prevailing practices of wholesale board appointments/dismissals, with all directors having the same tenure.

Such a change would create some level of continuity at the governance level in these organizations and arguably facilitate greater transfer of institutional knowledge and strategic planning.

I do not pretend that this will be easy to do, but considering changes such as these is very necessary. As part of the creation of a broader public sector corporate governance framework, revisiting the State-Owned Enterprises Bill idea that was expected to impose requirements for corporate governance and risk management should prove useful.

The ultimate objective is to realize more effective entities with optimized earnings, management of risk and sustainable operations leading to reduced dependency on government.

Other key areas

Focused effort on factors critical to fiscal health is attainable despite fiscal impediments.

The state of public sector pension poses a serious long-term challenge for the country and therefore demands urgent attention.

A ranking of 119 out of 190 countries for the “ease of doing business” calls attention to the urgent need to fix the structural impediments paying special attention to “starting a business”, “getting credit” and “getting electricity”.

The cost and reliability of electricity must be priorities. While this will involve significant costs, its ubiquity dictates urgently starting with any low-hanging opportunities to cause improvement in the cost.

Other areas that do not require significant spend but could be major game  changers include early and consistent focus on Bahamas Invest Authority by refining the decision-making and creating greater transparency to the approval process together with much-debated rethink of the way the country employs concessions to attract investment.

Done effectively, these could definitely bear dividends.

Facilitating the redevelopment of Abaco and Grand Bahama (GB) by supporting and devolving autonomy to local government-styled entities could accelerate the recovery of the $2 billion in GDP lost from Hurricane Dorian.

A refining, or redefining, of the relationship with the Grand Bahama Port Authority could make a major difference in unleashing the potential of Freeport/GB and what the Hawksbill Creek Agreement was expected to deliver.

Reprioritizing educational expenditure to diversify and upskill the labor pool will position the country for improved national productivity.

There is significant work ahead with very limited resources and fiscal headroom. By creatively tackling known areas of deficiencies, government can advance the country and prepare it for growth and resiliency.

Reforms are the only viable path to sustained vibrancy and resiliency.

• Hubert Edwards is the principal of Next Level Solutions Limited (NLS), a management consultancy firm. He can be reached at
info@nlsolustionsbahamas.com. Hubert specializes in governance, risk and compliance (GRC), accounting and finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning. He also chairs the Organization for Responsible Governance’s (ORG) Economic Development Committee. This and other articles are available at www.nlsolutionsbahamas.com

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