By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government says it has further slashed payables owed to its vendors by a sum equal to 0.4 percent of gross domestic product (GDP) as it bids to switch to accrual-based accounting within two years.

The just-released Fiscal Strategy Report 2025 discloses that the Davis administration cut its arrears payables to the equivalent of 1.7 percent of nominal economic output at year-end 2024, as opposed to 2.1 percent one year earlier, while acknowledging that its unpaid bills still represent a significant fiscal risk.

Based on nominal GDP figures for the 2023-2024 and 2024-2025 fiscal years contained in the Government’s Budget data, these percentages translate into $272.952m in outstanding arrears or payables at year-end 2024 and $326.592m for the prior year. This implies a $53m-plus, or 16.4 percent, year-over-year reduction in the size of these arrears.

“In the normal course of government operations, accounts payables or arrears can accumulate due to timing mismatches between expenditure commitments and cash availability,” the Fiscal Strategy report said.

“While short-term fluctuations in accounts payable are expected, persistent or rising arrears can signal underlying fiscal stress, weaken the Government’s creditworthiness, erode supplier confidence and increase the cost of goods and services due to perceived payment risk.

“As of September 2021, the Government recognised the growing fiscal risk posed by accumulated arrears - including unsettled legal claims, outstanding vendor obligations and working capital balances - and took deliberate steps to bring these under control,” the report added.

“At the end of 2024, the arrears stood at 1.7 percent of nominal GDP. This is an improvement over the prior year where the arrears accounted for 2.1 percent of nominal GDP.” No figures were provided, and large numbers of Bahamian companies are still thought to be owed significant sums by the Government, with some of these payables dating back months and even years.

The Fiscal Strategy Report also committed the Government to largely switching from its present system of modified cash-based accounting to accrual-based accounting within the next two years. This would give a more complete, and accurate, picture of the Government’s financial health by accounting for spending commitments when they are incurred and not paid out.

It will also enable the Government to develop a balance sheet of its multi-billion dollar assets and liabilities, such as Crown Land, as the Budget presently only shows the equivalent of its income statement. The promised switch to accrual-based accounting was first made by former FNM finance minister, K Peter Turnquest, who had suggested it would be completed around 2022.

That target was not met, but the latest Fiscal Strategy Report said: “As the Government currently operates under a modified cash basis of accounting in accordance with the International Public Sector Accounting Standards (IPSAS), it is not yet possible to produce estimates of the Government’s net worth.

“In line with the requirements of the Public Financial Management Act, these estimates - both as a share of GDP and in nominal terms - will be disclosed in future reports once they can be reliably determined.”

“The Government is actively progressing toward the adoption of an accrual-based accounting system,” the Fiscal Strategy Report continued. “This transition requires building capacity across the public sector, implementing new software and technology, and undertaking necessary legislative reforms.

“As part of this transformation, the Government is also in the process of building a comprehensive balance sheet to support the shift away from the modified cash basis. The establishment of a balance sheet will provide the Government with critical insights into its financial position, including its asset base, inventory, and the value of purchases.

The Fiscal Strategy Report added that accrual-based accounting will also “allow for more accurate accounting of long-term obligations, including pension liabilities, which are not currently reflected under the modified cash approach. This transformation is expected to near completion within the next two years, as well as support enhanced transparency, fiscal decision-making and sustainability.

“Addressing the issue of payment arrears also remains a key priority. Currently, the Government does not have a streamlined reporting system for arrears. Improved financial reporting under the accrual framework will enable more accurate identification, classification and monitoring of arrears, thereby enhancing accountability and supporting efforts to clear outstanding obligations in a transparent and strategic manner.”