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 realised? 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, “The credit rating does not reflect of 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 are highly influenced by the conditions of our national arrangements, state of our institutions and “normalized” behaviours 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 ten main categories of 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 Guardian Executive Editor, quoted former Minister Zhivargo Laing stating, “Anyone who understand 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 towards growing the country.
Consider this. Approximately $700M of the budget will go to remuneration. Our current debt stock carries interest of over $500M.There are known and urgent infrastructural needs in the areas of energy, education and health care. Given the high inflationary environment, there is the real possibility of increased need for social spending. The recent down turn may demand continued heightened subsidies for weak performing state own enterprises, a number that climbed to over $400M. These three categories alone account for more than 50% of total expenditure. Now contemplate the fact that variability in spending is limited to just around $300 Million. How can the government start to realise fundamental changes without employing the thinking espoused here? The only option would be to wait and waiting will imposed undue long run burdens.
START WITH STATE OWNED ENTERPRISES
The changes must come via a suite of policy and practice shift, that in the first instance does not require additional spending but results in cost savings and facilitate future growth through more efficient and productive service delivery. State owned enterprises (SOE) 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-autonomously 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. With a diverse list key SOEs, such as Bahamasair; PHA; Civil Aviation Authority; NAD; WSC; ZNS; BPL; and the Hotel Corporation, the government must ensure that best practices become commonplace. 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 trainings. Such moves will provide government the opportunity to develop an effective plan and roadmap to cause a much-needed spill over 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 creating of a broader public sector corporate governance framework, a revisiting the State-Owned Enterprises Bill idea that was expected impose requirements for corporate governance and the risk management should prove useful. The ultimate objective is to realise more effective entities with optimize 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 demand 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”. Regarding the latter, the cost and reliability of electricity must be priorities. While this will involve significant cost, its ubiquity dictates urgently starting with any low hanging opportunities to cause improvement in the cost.
Other areas that does not require significant spend but could be major game changers. These include early and consistent focus on Bahamas Invest 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 can 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 $2B in GDP lost from Hurricane Dorien. A refining, or redefining, of relationship with the 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 2022
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.