There is no other way to say it, avoiding a downgrade by Moody's Investors Service was a good thing; now the government has to follow through with its fiscal plan. I said in a previous article that the government was singing the right notes when it adjusted its rhetoric following the Moody's review of its standing after the budget communication. The government's pledge to reduce expenditure, cut its projected 2017/2018 deficit and focus on economic growth was, in fact, what it needed to do. Moody's has accepted the government's plan, but it carefully noted that it would be looking for effective implementation. This is all about follow through.
Follow through in almost anything is where we achieve success or failure. Good plans become a waste of time, because there is a failure to follow through on the plan. It will be important for the prime minster and the minister of finance to keep their eyes on the fiscal discipline prize. They will have to resist the many pressures by colleagues, supporters and Bahamians at large to do things that they simply cannot afford. They will have to be clear on their priorities. They will have to ensure that all government systems and personnel work in tandem with the fiscal mission to improve the state of the government's finances. This will not happen if any of the government's agents make political decisions or public pronouncements that commit funding it does not yet have or planned to spend. Discipline by all ministers, chairpersons and public officers is critical.
Follow through also will require the government to avoid costly mistakes. The agents of the government must not sign contracts without budgetary provisions established in advance. They must not secure jobs for anyone outside of the planned provisions of the budget or agreed upon in advance by the minister of finance given any exigency of the service. They must seek to ensure that capital works contracts represent the very best in value for money, avoiding wastage and continuous change orders that bloat project costs beyond even contingency amounts agreed for the project. Members of Parliament must not promise constituents things for which the government is unable to pay.
Moody's is expecting a four percent reduction in expenditure. In the best of times this is not easy for any government to do. It is near impossible in the worst of times. This is why the government deficits tend to be so persistent and ever growing. A four percent reduction in spending means about $200 million less in spending out there. That is no small amount of money for the government to cut in spending. Where will the cuts be made? We see some areas already. The government says it will release some 126 re-engaged pensioners serving as consultants. How much might this save? If they are each getting $100,000 or more per year, that would represent a savings of at least $12,600,000 per year. If this is so, the government only now has to find $188,400,000 more. It is not likely to cut civil servants' salaries or pension payments. It cannot simply cancel lease agreements for its offices. It cannot fail to pay interest payments on its loans. These are the big areas of spending for the government. All that is left to cut in any substantial way would be capital works.
If the government looks to cutting capital works, and invariable it will have to, it could find some unhappy contractors out there. The private sector activity in the construction area is already weak, so reduced spending by government does not bode well. It could cut subventions to government corporations, but this too will have consequences for both personnel and contractors. There are no easy decisions here. What has to be done is not for the faint of heart.
This notwithstanding, the government has to remain mindful of its commitment to Moody's and others to get its financial house in order. It has to follow through. If the prime minister and minister of finance are on the same page, they are halfway there. If they have the understanding and support of their colleagues, they can make it all the way. If they are not on the same page or have the support of their colleagues, just sit and wait for the stuff to hit the ceiling. It will not be a pretty picture, and nature's woes will not only continue, they will compound. What will happen? Time will tell. For the country's sake, let's hope that it tells of success.
o Zhivargo Laing is a Bahamian economic consultant and former Cabinet minister who represented the Marco City constituency in the House of Assembly.
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