The Fiscal Responsibility Council released its first assessment of the government’s Fiscal Strategy Report (FSR), revealing that the last administration was “broadly compliant” in providing the content required by the Fiscal Responsibility Act (FRA), though the council chided the former government for omitting important statistics and data in its report and for not providing a stand-alone Fiscal Adjustment Plan (FAP) the two times it was forced to deviate from its fiscal plan.
The council’s assessment was of the government’s 2020 FSR in which it largely provided facts and figures on the country’s fiscal performance and direction as prescribed by the act, though the council contended more could have been added in the way of additional data, especially forward-looking macroeconomic data.
“… There is a need for tightening and strengthening of the structure of the analysis, including strengthening linkages of performance data and macroeconomic conditions to projected outcomes, and connectivity of strategies and projected outcomes to supporting justifications,” the report read.
“As FSRs are subject to independent assessments of compliance, the structure should closely align with the content requirements and should build a framework of analysis explicitly around those requirements with focused integration of other supporting content, for effective analysis. Future FSRs should seek to achieve this.
“The extent and quality of the sourcing of data are considered material deficiencies, notably the lack of national statistics for domestic income projections, including domestic income forecasts by its components.”
The assessment report grades the government’s input on whether it was compliant, generally compliant, somewhat compliant, or non-compliant in the provision of information required by the FRA.
The government was found to be non-compliant in presenting exchange rates with major partners; the level of financial and performance guarantees; an assessment of the consistency of the planned fiscal policy aggregates and measurable fiscal objectives; and its reason for missing information.
The council noted that the government relied on data from the International Monetary Fund for its submission on the long-term macroeconomic forecasts.
“No domestically-sourced forecasts for the economy of The Bahamas is presented,” it read.
The council also explains in its report that the government did not provide an amended FAP in its 2020 FSR that could be considered a “comprehensive stand-alone policy plan, as required by the FRA”.
The government was to develop FAPs if it was forced to deviate from its fiscal plan as prescribed by the FRA. The government was forced to do so after the passage of Hurricane Dorian and after the impact of the COVID-19 pandemic was realized.
The council also suggests it had not seen a FAP though it is required to review such a plan developed by the government.
“The requirement for FAPs is separate from the content requirement of FSRs and accordingly should be treated as such: (i) to ensure clarity and understanding of the government’s departure from the obligations imposed by the FRA; (ii) to ensure explicit reasoning of implications for the overall fiscal position, and projected impacts; and (iii) doing so specifically in the context of the adjustments that the Government proposes,” the report read.
“Elements of a FAP, including reasons for the departure from the requirement for the Fiscal Objectives, specific measures the Government intends to take to restore its path to compliance, and a timeline for when such restoration and compliance will be achieved, are discussed in Overview of Economic and The Exceptional Circumstances clause in Section 13 of the FRA has been exercised by the Government in two instances, however, these have not been sufficiently supported with the required FAP.”
The council said the FAP was especially critical given that the FRA’s exceptional circumstances clause was invoked twice in one fiscal year.
The council added that the FSR omitted critical analysis for fiscal year 2019/2020 and missed the opportunity for a macroeconomic analysis following Hurricane Dorian.
The report noted similar data was absent with relation to COVID-19.
“FSR 2020 does separately present specific COVID-19-related expenses [Box A: Government’s Response to the COVID-19 Pandemic, p14] and Hurricane Dorian-related expenses [Table 5, p18], and in the case of COVID-19, the government’s policy response,” the council said.
“However, there is no analysis of the broader fiscal and macroeconomic context, specific to these periods, specific to the shocks, in support of the exceptional circumstances invoked and as a base of an FAP, inclusive of comparisons to relative periods in previous years. Such underlying analyses [are] essential to an FAP.”
The council said in its assessment that future FSRs should provide annual values for GDP for understanding where the country’s fiscal trajectory has been and where it is going.
“… The required historical, current, and projected periods, including a breakdown of those values by the components of GDP – private consumption, business investment (capital formation), government spending and net exports – as the typical presentation of national accounts and as the FRA requires,” the council said.
“Doing so would provide a more complete framework for performance and outlook, and also serve as a base for analysis, when such analysis calls for examination of sectors, specific economic activities, and the associated policies – implications, impacts, outcomes – and demonstrating linkages of strategies, performance, and projected outcomes.
“FSR 2020 is positioned mainly around projected overall growth rates, the underlying components of which were not made available.”
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source https://thenassauguardian.com/fiscal-responsibility-council-critical-flaws-in-fiscal-strategy-report/
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