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A revolution in public finance

A revolution in public finance

A new sweeping initiative will see radical reform of public finance management

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The Bahamas Investor Magazine
June 26, 2018
June 26, 2018
K. Peter Turnquest, DPM, MOF

The government of The Bahamas has a commitment to fiscal prudence that goes beyond its own targets to balance the budget, maximize collections from existing revenue streams and control deficit spending. While actions taken in these areas, along with other macroeconomic factors, have already resulted in positive signs of economic recovery, there is little room for complacency on the government’s part.

Public sector reform that addresses the many complex and vexing issues in public finance is an area commanding high priority for the government, as it seeks to create meaningful change and results-based performance. With this in mind, the government is fully engaged in the Public Financial Management and Performance Monitoring Reform (PFM/PMR) Project–an initiative underwritten by a $33-million loan from the Inter-American Development Bank (IDB).

The project represents far more than an incremental change or the simple acquisition of new software. Rather, it is a revolutionary transformation that will involve process re-engineering, legislative change and cultural transitions across the public sector. In the current economic environment, countries that are not innovating, changing and adapting to the times will fall behind. Strengthening the government’s capacity to allocate, manage and monitor public resources is critical to Bahamian economic growth and global competitiveness.

By the end of the project’s five-year timeframe, which began in December 2016, it is expected that the Bahamian public sector will become a model of efficiency and performance.

A structure that facilitates success
As the lead agency responsible for executing the project, the Ministry of Finance is joined by the Office of the Prime Minister (OPM), Department of Statistics, the Budget Department, treasury departments, Department of Information and Technology, and the Tenders Board, as much of the changes will centre on the functions of these agencies. However, the nature of the project is such that every ministry, department and agency will be impacted directly or indirectly.

The project embraces a nimble and progressive approach to public sector project management–one geared towards ensuring the deliverables and deadlines of the programme are not buried under the daily demands of the public sector. The project is managed by an external team of dedicated contracted professionals known as the Project Implementation Unit, which monitors and supports coordinators and technical specialists in the four project components.

The four components that make up the project include: performance monitoring, national statistics, public financial management and public procurement. They are separate but interlinked. Collectively, they will revolutionize public sector operations in The Bahamas.

Performance monitoring
Under Component I, performance monitoring, the government plans to strengthen the management capacity of the public sector to monitor priority projects and programmes more efficiently and effectively. This includes efforts to centralize planning, implementation and monitoring infrastructure, and markedly reduce waste by eliminating project duplication and improving cross-agency coordination.

The government is well underway with the creation of the Prime Minister’s Delivery Unit (PMDU), which will link the administration’s strategic policy priorities to ministerial level projects, ensuring projects are allocated the human and financial resources required to succeed. In January, attorney Viana Gardiner was appointed chief operating officer of PMDU.

The administration has six priority areas: education, ease of doing business, land reform, safety and security, Over the Hill rejuvenation, and energy and infrastructure. The work of the PMDU will improve cross-agency coordination where needed and other project support to advance these priorities.

A monitoring and evaluation framework is also being implemented so that government can take a snapshot of the country’s performance according to pre-set indicators developed through the framework. When operational, the system will allow the government to track progress against any number of targets, including the sustainable development goals and the national development goals.

This component also covers efforts to significantly strengthen the Bahamas Investment Authority (BIA), providing the BIA with the capacity to ensure proactive investment strategies, to conduct full analyses on the quality of projects with respect to national priorities, and to actively promote investment areas that the government identifies as desirable.

National statistics
Statistical reforms under Component II are important for increased transparency and accountability in government. Good, reliable data–economic, fiscal and social–is a critical element of any modern economy and society.

The high demand for statistical data from policymakers is matched by the thirst of civil society, academia and the private sector to plan, budget, monitor and evaluate projects and to conduct research. The planned revisions to the 1973 Statistical Act will create the long sought after framework for modernizing the National Statistics System (NSS). The NSS will standardize data collection and dissemination across The Bahamas.

Overall, the Department of Statistics will have greater resources, authority and autonomy–establishing the institution as the lead coordinating agency for statistical activities in The Bahamas. It will improve public and private access to relevant and timely national data, and ensure The Bahamas meets international reporting obligations that are required under relevant conventions and treaties.

Research-based reporting and evidence-based practice offer actionable insight into how interventions and policies are working to impact Bahamian society at every level. In the absence of such data, spending decisions are too often made on anecdotal information or the personal priorities of managers. With improved national statistics the government can make evidence-based decisions on how public funds are spent.

Component II has already completed a comprehensive assessment of the current NSS, conducted planning workshops for the NSS and drawn up a draft edition of the revised Act.

Public financial management
With the reform of public financial management, the government is implementing the most sweeping changes of all the components. Component III covers every process related to government spending and collections. It requires a cultural shift in the way departments have typically planned and managed their budgets. These changes will help to control deficit spending and close gaps that have typically been exploited under the current compartmentalized, cash-based system.

Governments must have reliable information about their liabilities and expenses, as well as projected income flows, in order to properly understand their financial position and make sound fact-based decisions.

The overall goal is to re-engineer business processes, integrate new technologies and ultimately improve the accuracy and efficiency in the PFM system, which will allow the government to properly account, in a timelier manner, for public funds and strengthen the Bahamian economy overall.

In every way, PFM ties back to the budget process, which consumes an inordinate amount of the Ministry of Finance’s resources, on account of redundant processes, insufficient technology use and other inefficiencies. The PFM system will govern new budget lassifications/ formulations/executions, cash and debt management, accounting, internal control, external audit and reporting.

This means adopting new software, creating automated and centralized databases, making legislative changes, and updating and implementing new policies and procedures to govern the new model of financial management.

Using the new system, government expenditures can be tracked according to projects and programmes. These projects can be individually assessed for efficiency, promoting a performance-based budget. The routing of financial processes, such as the authorization of salary payments, can be simplified. The number of signatures needed to approve ordinary payments, for example, can be minimized.

It sounds sweeping because it is. The lion’s share of the IDB loan is allocated to this critical component. The government is still a long way away from a fully Integrated Financial Management Information System (IFMIS), but with perseverance and support from key stakeholders in the various departments, and with national resolve from the people, the reforms will take hold.

This component of the project’s activities operates in parallel with other current reform initiatives, specifically the transition from cash to accrual accounting and the reformulation of the Chart of Accounts.

Public procurement
Component IV, public procurement, is central to advancing the government’s commitment to transparency, efficiency and fairness. Government procurement accounts for a substantial part of the Bahamian economy and therefore offers significant opportunity to realize the PFM/PMR objectives to improve the management and allocation of national resources.

The government plans to enact the Public Procurement Act later this year to establish the framework for modern national procurement in The Bahamas. The Act will establish the Public Procurement Department (PPD), a critical lead agency where government purchasing, inventory management and supplier relationship management will all be centralized.

The PPD will oversee legislative and operational changes to guarantee transparency and fair competition in the public procurement process, and to protect against wastage and fraud. Upon implementation, there will be rapid, noticeable shifts in national procurement practices.

The department will create a new career path for public procurement professionals: trained specialists in project management, relationship management and financial management, with strong negotiating skills. As the government deploys its career professionals, it will turn the tide on the abuse of the process, which has been a constant topic of criticism.

Notably, the new Act will establish an independent oversight body, the Procurement Review Tribunal, to provide a check and balance on the procurement system. Suppliers which believe they have been treated unfairly will have a means of impartial review and possible remedy.

Already deployed is the Supplier Registry portion of the new E-Procurement and Supplier Registry System, which will be managed by the PPD. Once the Act is enacted, all government tenders will be executed through the online portal, where registered users can view documents, bid, and track the status of contracts. By automating and documenting the tendering processes, back doors that exist in the manual system will be eliminated.

Ultimately, with the passing of the Public Procurement Act, Bahamian procurement will become more transparent and provide greater value for money. These changes will also increase inclusion for small and medium-sized enterprises (SMEs) in the country. Under the procurement plan is a policy to ensure SMEs receive a certain percentage of the government’s procurement budget. In the Family Islands, in particular, this will ensure goods and services are sourced locally, as much as possible.

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