CURB­ING GOV­ERN­MENT WASTE

With Caribbean gov­ern­ments leak­ing bil­lions from the pub­lic purse each year, tar­geted strate­gies are needed to cut this waste and spend smarter

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY CATHER­INE MOR­RIS, STAR BUSI­NESS­WEEK CORRESPONDENT

As Caribbean coun­tries grow, so too do the needs of their cit­i­zenry. More peo­ple means more health­care, more ed­u­ca­tion, more in­fra­struc­ture — in short, more gov­ern­ment ser­vices funded by the pub­lic purse.

But as spend­ing grows, so does debt and waste. It is a con­tin­ual chal­lenge for small is­land na­tions to fund nec­es­sary ser­vices while cut­ting leak­ages, re­duc­ing in­ef­fi­cien­cies and max­imis­ing their bud­gets. Ac­cordng to a new re­port from the In­terAmer­i­can De­vel­op­ment Bank (IDB), gov­ern­ment waste and in­ef­fi­ciency could be cost­ing the re­gion as much as US$220bn a year or 4.4 per cent of Latin Amer­ica and the Caribbean’s GDP.

Re­spon­si­ble spend­ing and sav­ing isn’t just vi­tal for a coun­try’s bal­ance sheet, it also has a sig­nif­i­cant im­pact on its eco­nomic de­vel­op­ment. A coun­try that can­not bal­ance its books is a coun­try that can’t at­tract in­vest­ment, chan­nel fund­ing into home­grown in­dus­try or ad­dress in­equal­i­ties.

SMART SPEND­ING

Caribbean coun­tries have long re­lied on tax and spend poli­cies to keep the gov­ern­ment cof­fers in the black. But there are is­sues with both sides of that equa­tion — cit­i­zens are re­luc­tant to ac­cept climb­ing taxes if they do not see a cor­re­spond­ing boost in the qual­ity and quan­tity of gov­ern­ment ser­vices avail­able, and spend­ing on those ser­vices is of­ten ad hoc and poorly ex­e­cuted.

In times of climb­ing debt and ex­ter­nal pres­sures, the im­pulse is to sim­ply slash spend­ing but, in the IDB’s Bet­ter Spend­ing for Bet­ter Lives re­port, IDB Pres­i­dent

Luis Al­berto Moreno ar­gues that re­duc­ing ex­pen­di­ture is not always the right path. “The an­swer is about fis­cal ef­fi­ciency and smart spend­ing rather than the stan­dard so­lu­tion of across-the-board spend­ing cuts to achieve fis­cal sus­tain­abil­ity — some­times at great cost for so­ci­ety.

“It is about do­ing more with less.” How can coun­tries like Saint Lu­cia do more with less? By look­ing at how they spend and where they spend.

HOW AND WHERE

Tra­di­tion­ally, de­vel­op­ing economies like those in the Caribbean have shown a bias against cap­i­tal spend­ing, ie they spend to­day, rather than in­vest­ing in to­mor­row. Saint Lu­cia’s to­tal bud­get for the cur­rent fis­cal year is just un­der US$1.5bn, of which 80.8 per cent is re­cur­rent ex­pen­di­ture and 19.2 per cent cap­i­tal ex­pen­di­ture. This cap­i­tal ex­pen­di­ture in­cludes some US$70m in in­fras­truc­tural de­vel­op­ment along­side heavy in­vest­ment in tourism, water ser­vices and agri­cul­ture. A large por­tion of re­cur­rent ex­pen­di­ture will go to so­cial ser­vices, health­care and hous­ing.

In­fra­struc­ture needs of­ten take a back seat to health and so­cial care in the re­gion. Latin Amer­ica and the Caribbean spends four times as much on its el­derly as its youth, with their share in the re­gion’s bud­get es­ti­mated to reach 78 per cent in 2065, ac­cord­ing to the IDB. This puts ar­eas such as job skills and ed­u­ca­tion un­der pres­sure which in turn sti­fles in­dus­try and de­vel­op­ment.

Proac­tive pol­i­cy­mak­ing is cru­cial so that spend­ing is al­lo­cated ef­fec­tively and sup­ports the econ­omy as it tra­verses the in­evitable cy­cle of boom and bust. Ser­vices should be equally ac­ces­si­ble dur­ing the good times and the bad if gov­ern­ments are to ad­dress in­equal­ity and build pub­lic trust.

Gov­ern­ment-funded projects in the Caribbean are fre­quently marred by de­lays and blown bud­gets. Large-scale ini­tia­tives can fail or be poorly ex­e­cuted for a va­ri­ety of rea­sons in­clud­ing in­sti­tu­tional de­lays, slow and cum­ber­some bu­reau­cracy, skills short­ages and out­d­dated tech­niques or equip­ment. The IDB claims re­duc­ing or elim­i­nat­ing these hold-ups could re­sult in sav­ings of al­most 1.2 per cent of GDP, and es­ti­mates that up to US$50bn a year could be saved through bet­ter pro­ject man­age­ment.

FIS­CAL RE­SPON­SI­BIL­ITY

Trans­parency and ac­count­abil­ity are cen­tral con­sid­er­a­tions when it comes to cut­ting waste, and fis­cal re­spon­si­bil­ity is com­ing to the fore as gov­ern­ments look to spend bet­ter.

When the Eastern Caribbean Cen­tral Bank launched its five-year Strate­gic Plan last year, fis­cal re­silience and strength­en­ing was one of its top pri­or­i­ties. The Bank has com­mit­ted to as­sist­ing mem­ber coun­tries in draw­ing up fis­cal re­spon­si­bil­ity leg­is­la­tion and track­ing their progress. This will in­clude strength­en­ing the ca­pac­ity of in­sti­tu­tions and agen­cies so they can be more ef­fec­tive watch­dogs.

Saint Lu­cia’s cur­rent debt to GDP ra­tio is 68.8 per cent and pub­lic debt has grown by al­most 5 per cent in the last three years

Saint Lu­cia’s cur­rent debt to GDP ra­tio is 68.8 per cent and pub­lic debt has grown by al­most 5 per cent in the last three years. In this year’s bud­get ad­dress, Prime Min­is­ter Chas­tanet an­nounced that his gov­ern­ment would in­tro­duce a Pub­lic Debt Bill to “in­still dis­ci­pline in the man­age­ment of gov­ern­ment fi­nances and also im­prove the ac­count­abil­ity and trans­parency of our debt ad­min­is­tra­tion”.

One area that could cer­tainly ben­e­fit from more trans­parency is pub­lic pro­cure­ment, which ac­counts for around a third of to­tal pub­lic spend­ing in Latin Amer­ica and the Caribbean. Waste in this area ranges from 10 to 30 per cent of to­tal spend. Pub­lic pro­cure­ment in the Caribbean has been heav­ily marred by cor­rup­tion, with favoured firms scor­ing lu­cra­tive con­tracts re­gard­less of their ca­pa­bil­ity. Re­form is un­der­way across the re­gion with many gov­ern­ments, in­clud­ing Saint Lu­cia, look­ing to a cen­tralised dig­i­tal sys­tem to tighten and se­cure ex­ist­ing pro­cure­ment frame­works. E-pro­cure­ment, as part of a broader e-gov­ern­ment ap­proach, is ex­pected to cut costs, speed up pro­cess­ing times, in­crease trans­parency and boost ac­count­abil­ity.

Pro­mot­ing fis­cal re­spon­si­bil­ity not only cuts waste, it also builds pub­lic trust and en­gage­ment. And a more en­gaged pub­lic will hold their politi­cians ac­count­able, en­sur­ing that bet­ter spend­ing is not just a mantra that holds un­til the next elec­tion cy­cle. Cut­ting waste, do­ing more with less, is not just a mat­ter for elected of­fi­cials but also the re­spon­si­bil­ity of every cit­i­zen. As IDB Fis­cal and Mu­nic­i­pal Lead Spe­cial­ist Carola Pessino says: “Pro­vid­ing cit­i­zens with more in­for­ma­tion so they can mon­i­tor their gov­ern­ments [and] in­creas­ing tech­ni­cal and al­loca­tive ef­fi­ciency so they get the ser­vices they de­serve, are ac­tions that will help re­store peo­ple’s trust in gov­ern­ment. They will then de­mand from their politi­cians more longterm in­vest­ments, set­ting in mo­tion a vir­tu­ous cir­cle that pro­duces bet­ter poli­cies and bet­ter spend­ing.”

In this year’s bud­get ad­dress Prime Min­is­ter Chas­tanet an­nounced that his gov­ern­ment would in­tro­duce a Pub­lic Debt Bill to “in­still dis­ci­pline in the man­age­ment of gov­ern­ment fi­nances and also im­prove the ac­count­abil­ity and trans­parency of our debt ad­min­is­tra­tion”.

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