Regardless of how the recent conversations have been framed, the bottom line issue faced by The Bahamas is the extent to which it is able to generate sufficient revenue to meet its obligations. This paper by the Ministry of Finance (MoF) goes to the heart of that conclusion and should go a far way in allaying come concerns. Specifically the paper is likely to have a positive impact on the credit market primarily because of the underlying reforms suggested.
In my opinion, by outlining firm initiatives, quantifying impact together and detailing a number of crucial administrative and legislative reforms the MoF has sent a clear signal of commitment while seeking to reassure the reasonability of its revenue projections, and by extension, the veracity of the deficit trend forecasted to 2025/26. This is fundamental to the near and mid-term fortunes of the country and is therefore a big positive.
The opening sentiments of paper appears deliberately crafted to convey the level of seriousness involved while communicating the narrowness of options available. As I have stated before, pursuing this target of 25% revenue-to-GDP is an imperative for economic future of the country. The paper accurately conveys a sense of urgency while underlining the implications of not being able to improve tax revenue. In this regards it should prove extremely useful in shifting the nature of the debt conversations and conveying greater confidence. Taking into consideration that the paper was completed in March, one would expect these result to start materializing over the next six months or so.
Reestablishment of the Revenue Policy Committee and the Revenue Enhancement Unit; strengthening the DIR; initiatives, etc. are very clear initiatives and reiterate discussions from the budget presentation and the fiscal strategy report. On balance, a few appears more speculative in nature but this, in my view, has not significantly diminished the value of the presentation given the stated ease of implementation.
The analysis of complexities, timelines and impact of the proposed (or speculated) initiatives is very useful. It provides important context for judging how soon they could start to generate improvements. The implementation of most can be achieved within a 12 months window. Of significant importance is the fact that Corporate Income Tax would be only have moderate impact, on a net basis, on tax revenue. This is very instructive as we contemplate the extent to which this source creates sustainable opportunities for broaden the country’s tax base. This effect should not, however, be extrapolated to a broader imposition of income tax (personal and corporate). The outcomes of the engagement of Deloitte will certainly tell us more in this regard once completed.
This paper is, at least in part, influenced by ongoing discussions since the budget presentation and the recent performance of the country’s debt on the capital market. These raised questions as to whether the revenue projections are overly aggressive. It is my view that the document has responded well and directly to a number of important questions in a relatively transparent and balance manner. The paper warns of the necessity of the things being proposed; and it reiterated, and in instances “upgraded”, some initiatives to confirm the reasonability of reaching the target.
The Administration must now move into a mode of seamless implementation. The window for success is extremely narrow but there appears to be reasonable possibilities. While the ultimate target is to get to 25% realizing the trajectory of reducing deficits, as projected in the 2022/23 budget, is fundamental to the desired impact of plans. The Ministry of Finance should be commended for responding in such a comprehensive manner and we look forward to and anticipate positive outcomes over the ensuing months.
Hubert Edwards is the Principal of Next Level Solutions Limited (NLS), a management consultancy firm. He can be reached at email@example.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