PFM Reform in the Caribbean
Posted by Suhas Joshi, Richard Allen, and Bruno Imbert
A regional workshop on “Financial Processes—Transparency in Budget Practices and Execution in the Caribbean”, under the auspices of the Fiscal Management in the Caribbean Program (FMCP), took place in Belize City from May 28 to June 1, 2018. The workshop, which was the second of its kind in the region, gathered together senior staff from eight countries in the region—Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, St. Vincent and the Grenadines, St. Kitts and Nevis, and St. Lucia. One participant from Budget Department and one from the Accountant General’s Office of each country participated in the workshop. This mix of roles promoted a lively interaction among the participants, and facilitated understanding of the linkages between these two critical areas of PFM.
The workshop covered a series of interconnected topics. These included fiscal policies, laws and rules, transparency in budget formulation and execution, the management of state-owned enterprises (SOEs), public investment management, and gender budgeting. There was much discussion of the close inter-relationships between these topics, and how an appreciation of these linkages could contribute to the more efficient and effective management of public finances. The training focused on peer-to-peer learning, and included lectures by the facilitators, hands-on exercises, and the sharing of country experiences, with a special focus on state enterprises.
Some of the main messages of the workshop were as follows.
Two Caribbean countries (Jamaica and Grenada) have developed a fiscal responsibility law or included similar provisions in their budget legislation. St. Lucia is in the process of incorporating them into its new PFM Law. Only a few countries in the region have developed quantitative fiscal rules, and only one country (Antigua) has prepared a fiscal risk statement, which is not published. The development of oversight bodies, such as fiscal councils, has so far been limited.
Some progress has been made in developing medium-term fiscal frameworks in the region—including the application of sensitivity tests and scenario analysis to macro-fiscal forecasting in a few countries—but medium-term budget frameworks are still work in progress. Annual budgets lack credibility. Cash is subject to rationing, and cash forecasts are unreliable, making budget execution prone to uncertainty and the creation of arrears. This is particularly the case for the implementation of investment projects for which neither reliable cash forecasts nor procurement plans are prepared and regularly up-dated. Some countries have established cash management units and cash management committees, and are working to make effective use of them. Progress on establishing single treasury accounts across the region, however, has been relatively good.
The fiscal governance of SOEs is quite weak across the region. Public corporations and non-commercial public entities are combined within the same classification, which in some countries weakens oversight of the larger, more risky corporations, such as electricity and water supply. Ministries of Finance have relatively limited powers to exercise oversight of these corporations, or to obtain regular fiscal information from them. Some SOEs do not prepare annual financial statements on a regular basis, or submit these statements for audit, though required to do so by law. Political patronage plays a leading role in the election of the boards of management of these companies.
A high proportion of public investment (over 90 percent in many of the countries) is externally-financed, which ensures that some key elements of infrastructure governance, including cost-benefit analysis and procurement, are conducted according to the high-level international practices adopted by the donors. There are few public-private partnerships (PPPs). In relation to domestically-financed investment projects, however, there are considerable weaknesses in infrastructure governance, especially in areas such as project appraisal and selection, and public tendering, though some countries are in the process of modernizing their procurement laws. As a result, the eight FMCP countries face challenges in improving the efficiency of public investment. Data on investment projects are very scarce and fragmented.
In small countries such as these, political economy factors and state patronage tend to dominate the budget process, public investment, and the management of SOEs. The economies are prone to the creation of white elephants, inefficient spending, and waste. Moreover, the governments lack the human and technical capacities that would be required to counter-balance politically-dominated decision making, and to upgrade their PFM systems. Reforms such as modernizing the governance of state enterprises, have proved intractable because of political resistance, including in Ministries of Finance. A staged approach to reform, in which low-hanging fruit such as the proper classification of state enterprises, and improved reporting, might offer a way forward, though falling short of a complete solution.
Finally, the workshop included a lively discussion of gender budgeting initiatives around the world. Little progress has been made so far in the region with such initiatives, but the existence of program-based budgets in many of the countries creates an opportunity for developing a gender-sensitive approach to budgeting.
 Suhas Joshi is the IMF’s Regional PFM Advisor for the Fiscal Management in the Caribbean Program (FMCP), which is financed by Canada. Richard Allen is a Visiting Scholar with the IMF’s Fiscal Affairs Department (FAD), and Bruno Imbert is an Economist in the same department. The workshop was facilitated by Mr. Joshi, Mr. Allen, and Mr. Imbert, together with Courtney Williams (Advisor, Executive Director’s Office, IMF).
Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.