Waste in gov’t spending costs region 4.4% of GDP, says IDB
WASTE IN government spending due to inefficiencies in procurement, civil service and targeted transfers has cost Latin America and the Caribbean an estimated 4.4 per cent of the region’s gross domestic product (GDP), according to the Better Spending, Better Lives 2018 report by the Inter-American Development Bank (IDB).
The report states that the average of 4.4 per cent of the region’s GDP is greater than what is spent on health and almost as large as average spending on education, which stands at 4.8 per cent of the region’s GDP.
Accounting for the largest expenditure amount across the region, the report has attributed transfers including social programmes, firm subsidies and contributory pensions as the largest expenditure item, amounting to approximately US$700 billion. The report states that the economic efficiency of these programmes is affected by error, fraud, or corruption, which reduce the effectiveness of the interventions by decreasing the amount of money that goes to the intended beneficiaries.
Procurement has also been identified by the report as a magnet for inefficiencies in management and corruption due to the large volume of transactions, along with the close and complex interaction between the public and private sectors.
The IDB report says that procurement spending accounts for 8.6 per cent of regional GDP, with procurement waste amounting to 0.9 to 2.6 per cent on average. The waste of public funds due to bribes and padded budgets has been described by the report as “enormous” as those illicit activities are said to account for about 26 per cent over the cost of projects.
Inefficiency in civil service resulting from the public-sector wage gap is another point that has been identified by the report to cause significant waste in government spending. Much of the larger wage bills in Latin American and Caribbean countries can be attributed to a high public wage premium, which means that the average wages of public-sector workers are greater than those of the private sector.
However, the report points out that qualified workers may be figuratively paying in some countries to work in the public sector, or strong unions in the public sector may be protecting the wages of the less-skilled.