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Development Account Projects

Strengthening the technical capacity of public finance managers in select Caribbean small island developing States to manage their public finances

Background:

The recent global economic crisis had a particularly severe impact on the economies of the Caribbean, especially those that depend heavily on services for their economic growth. The aggregate cost of the crisis for the region has been estimated at 13.5 per cent of GDP in 2009 and, for many economies, positive growth only occurred in 2011. Unlike many countries in Latin and Central America, Governments of the region could not employ significant fiscal stimuli because they are constrained by limited fiscal space.

It is important to note, however, that the reduced fiscal space has been a long-standing problem which has only been aggravated by recent economic conditions. Chronic fiscal deficit leading to high public debt is one of the most important development challenges facing Caribbean small island developing States. For instance, the average fiscal deficit and public debt levels were 3.4 per cent and 84.4 per cent of GDP, respectively, from 2000 to 2007. Moreover, four countries had debt levels in excess of 100 per cent of GDP.

A variety of strategies have been employed to address the challenges, but with little success, because of the limited capacity of public sector technocrats to manage and forecast public expenditure and revenue, two essential factors for controlling fiscal imbalances and high debt. Furthermore, improved expenditure and revenue management are crucial for maintaining or improving systems of social protection.

Moreover, the ongoing fiscal crisis in the Caribbean has forced some countries to adopt either International Monetary Fund (IMF) or home-grown stabilization programmes. This has led to marginal improvements in the fiscal deficit and debt in some countries in 2011. Nevertheless, the average deficit and debt remain elevated at 3.8 per cent and 69 per cent of GDP, respectively. The counterpart of high debt is increasing debt service payments, which absorb scarce resources that could have been used for public investment.

The persistent fiscal and debt problem in the region is in part a reflection of procyclical fiscal policy, where Governments spend excessively during booms and are forced to retrench during downturns. However, it also reflects institutional weaknesses related to limited capacity for effectively managing public expenditure and matching this with revenues. In addition, systems for revenue and expenditure forecasting and debt management remain weak and ineffective in a number of countries, in particular as they relate to containing contingent liabilities.

Given the number of countries and the extent of the problems, the Caribbean requires a broad regional programme of capacity-building to strengthen public finance management in order to control fiscal deficits and debt. It is within this context that this project would seek to strengthen the capacity of the small island developing States of the Caribbean to effectively manage their public expenditure, revenue and debt so as to reduce the challenge that they present to the achievement of the internationally agreed development goals. At the last two Caribbean Development and Cooperation Committee intergovernmental meetings and the Caribbean Development Roundtable, a number of ministers requested ECLAC assistance in dealing with the challenge of fiscal imbalance and large debt burdens. Six countries were chosen as beneficiaries of the project (Antigua and Barbuda, Barbados, Belize, Guyana, Jamaica and St. Kitts and Nevis) based on the seriousness of their fiscal imbalances and debt, and limitations in their fiscal management capacity.

Objective:

To increase the capacity of policymakers and public finance managers of select Caribbean small island developing States to apply methods and procedures for better management and forecasting of public expenditure and revenue

Expected accomplishments:

  • Increased knowledge and skills of public finance managers in managing and forecasting public expenditure and revenue
  • Improved administrative systems and infrastructure in selected countries to ensure sustainable revenue and expenditure management operations

Implementation status:

Summary of the progress report for 2014


The following activities have taken place/ are ongoing:

  • Four member states (Antigua and Barbuda, Barbados, Belize and Saint Kitts and Nevis) have formally confirmed participation in the project and have identified project focal points within their respective Ministries of Finance.
  • Three related areas of focus have been identified for the first activity: revenue and expenditure planning and forecasting, public expenditure reviews and budgetary processes for fiscal transparency. In light of this focus, the subprogramme has started discussions with ILPES to determine the extent of their intervention and support, based on their expertise in capacity building.
  • Three national consultants have been recruited and the recruitment of an international consultant is in process and scheduled for completion by January 2015.
  • There has also been targeted dialogue with institutions and agencies known to be involved in similar work in the region, including CARTAC and the World Bank.