action plan to reduce the fiscal deficit · pdf fileaction plan to reduce the fiscal deficit...
TRANSCRIPT
Action plan to reduce the fiscal deficit
Report to the Chairman of the Social Partnership
Prepared by: Committee of the Social Partnership to Address the Fiscal Deficit
Updated April 12th, 2017
Executive Summary
1
Despite Government’s efforts, the debt has reached an unsustainable level – primary expenses continue to exceed revenue after adjustments for non-recurring items; interest expense is steadily rising
Waning investor confidence and delays in project execution have curtailed foreign direct investment, and the persistent large deficit has reduced sovereign credit worthiness, which has restricted government’s ability to refinance external debt at attractive rates; consequently, government has repaid external debt with reserves
Without a boost in FX reserves, near term foreign debt repayment will deplete reserves and government will not be able to meet its medium-term foreign debt obligations
Government needs a home-grown strategic plan to eliminate the fiscal deficit and rebuild adequate FX reserves without devaluation of the Barbados Dollar
Government should: 1) balance the budget to improve credit worthiness so that external bonds maturing in 2021 and 2022 can be refinanced and 2) reform government operations and the economy to stimulate GDP and FX earnings growth – enabled by near term balance of payments support from multilateral agencies
Balancing the budget requires savings of circa $750 million through action across four areas: a) Taxation and Revenue Administration Reform b) Government Bureaucracy Reduction and Efficiency Enhancement, c) Divestment and Reform of State Owned Enterprises and d) Barbados Dollar debt restructuring
The committee has identified circa $600 million in revenue enhancements and cost savings which when supplemented by $150 million in benefits from accelerated economic growth reaches the target in 3 years
To accelerate economic growth, increase FX earnings and reduce FX consumption, Barbados needs to improve competitiveness and the ease of doing business – focus on labour market reform, speed of service delivery and reduction of electricity costs through acceleration of renewable energy adoption; efforts here are projected to yield the additional $150 million by 2019/20
Government operations reform also provides the opportunity to strengthen efficacy of the social safety net by better targeting the deserving poor and vulnerable and delivering benefits without stigma
An implementation unit reporting to the Prime Minister’s office should be established to drive execution and report on progress
The negative social impact of delaying action is far worse that what would be expected if definitive action were taken now to tackle the deficit with latitude to put measures in place to cushion the impact
Discussion Guide
2
Understanding the intricacies of the problem Reestablishing sovereign credit worthiness Enabling growth Facilitating implementation
Despite Government’s efforts, the debt has reached an unsustainable level – primary expenses continue to exceed revenue after adjustments for non-recurring items; interest expense is steadily rising
3
-6.0-8.0 -7.3
-6.5-7.0
-7.5 -7.6
-4.0-2.0
2.92.9
-15
-10
-5
0
5
10
15
20
-20
-15
-10
-5
0
5
10
15
20
25
30
2017/18 (f)
-4.4%
2016/17 (est.)
-5.1%
2015/16
-8.2%
-0.6
2014/15
-8.1%
-0.6
2013/14
-11.0%
2012/13
-8.5%
2011/12
-4.4%
1.6
Interest Expense (% of GDP) - left axis
Primary Balance (% of GDP) - left axis
Interest/Revenue (%) - right axis
Trend in Fiscal Deficit Trend in Drivers of Fiscal Deficit ($ Millions)
Interest Expenditure Primary Expenditure Revenue
0.0
0.5
2.5
3.0
2016/17 (est.)
2013/14 2014/15 2015/16 2012/13 2009/10 2008/09 2011/12 2010/11
VAT to 17.5%
Gov’t Staff
reduction
Taxes drop post-crisis
NIS lends to SOEs in lieu of
Transfers
New Taxes
Interest Expenses steadily rising
GDP shrinks
Sources: Central Bank of Barbados, Estimates of Revenue and Expenditure 2017/2018
Amnesty and
asset sales
Non recurring items
Debt portfolio mix shift to lower rate T- bills
Waning investor confidence and delays in project execution have curtailed foreign direct investment, and the persistent large deficit has reduced sovereign credit worthiness, which has restricted government’s ability to refinance external debt at attractive rates; consequently, government has repaid external debt with reserves
4
Trend in Foreign Exchange Reserves
10.313.614.715.6
20.2
0
10
20
30
Import Cover (weeks)
9.2 8.58.7 8.6 9.55.94.55.1 4.5
0
5
10
2016
1.8
2015 2014 2013 2012
External Current Account Deficit (% of GDP)
Net Financial Inflows (% of GDP)
1,144 1,052 927 681 FX Reserves (BBD MM)
1,458
2006 2008 2010 2012 2014 2016 2018
2%
4%
6%
8%
10%
12% A1
Aa2
0%
14%
A3
Baa2
Ba1
Ba3
B2
Caa1
Caa3
Trend in Moody’s Sovereign Credit Rating
Investment Grade
Junk
Sources: Central Bank of Barbados, Moody's Investors Service
Barbados 2022 bond interest spread versus US Treasury (%) - right axis
Moody’s Sovereign Rating - left axis
Prevailing high interest rates to refinance external debt
Without a boost in FX Reserves, near term foreign debt repayment will deplete reserves and Government will not be able to meet its medium-term foreign debt obligations
5
Annual External Debt Service Schedule ($ Millions) Current Trend in FX Reserves ($ Millions)
610
536
236251
343364
0
100
200
300
400
500
600
700
2021 2022 2019 2017 2018 2020
Sources: Bloomberg, Central Bank of Barbados
Depletion of FX Reverses threaten the stability of the BBD/USD exchange rate and restrict capacity to import energy, food and medicine
The Central Bank estimates that net FX inflows of at least $700 million per year are required to cover these payments and to provide sufficient cover for imports of goods and services
* Assumes FX flows behave as they did in 2016 ** Assumes oil prices remain at current levels. Fewer week of import cover if oil prices rise.
2017 2018 2019 2020 2021 2022
Beginning FX Reserves 681 453 246 131 31 -369
2016 Balance of Payments Surplus without Debt Payments*
136 136 136 136 136 136
Scheduled Debt Payments -364 -343 -251 -236 -536 -610
Reserves after Debt Payments 453 246 131 31 -369 -843
Weeks of Import Cover** 6.9 3.7 2.0 0.5 -5.6 -12.8
6
Problem Definition
How does government
1. Balance the fiscal budget?
2. Rebuild and maintain adequate foreign exchange reserves?
Out of Scope BBD/USD exchange rate devaluation is outside the scope of the solution space
Criteria for Success
No industrial action
Medium- to long-term reduction in unemployment via increased private sector employment
Short-term external USD inflows adequate to cover expected outflows
Government needs to chart a course to a balanced budget and adequate FX reserves without devaluation of the Barbados Dollar
Solution Framework and Scope
Government should: 1) balance the budget to improve credit worthiness to enable medium term external debt refinancing and 2) reform government operations and the economy to stimulate GDP and FX earnings growth – enabled by short term support from a multilateral agency
7
Strategic Approach
Theme Strategic Pillar Rationale
Credit Worthiness
Eliminate the Fiscal Deficit by balancing the budget
Stabilises the debt
Facilitates improvement in sovereign credit rating so that external bonds maturing in 2021 and 2022 can be refinanced at reasonable rates
Growth
Facilitate structural reform of government operations and the economy to:
o Improve ease of doing business
o Facilitate growth in FX earnings
o Reduce FX consumption
Allows FX reserves to grow to sustainable levels
Restores business confidence, accelerates GDP growth and increases employment
Key Enabler Seek balance of payments support from a multilateral agency
FX Reserves are too low to enable government to repay current external debt from reserves
Creates room to implement structural reforms to the economy
Implementation would result in some short-term dislocation of public sector employees, but would increase employment in the medium term
Discussion Guide
8
Understanding the intricacies of the problem Reestablishing sovereign credit worthiness Enabling growth Facilitating implementation
9 Balancing the budget requires savings of circa $750 million through taxation reform, revenue administration reform, government bureaucracy reduction and efficiency enhancement, divestment and reform of State Owned Enterprises and Barbados Dollar debt restructuring
Area of Focus Recommended Actions Benefit1 ($ Millions)
2017/18 2018/19 2019/20
Increase Revenue Reduce Expenses
Taxation Reform Comprehensive revision of VAT to eliminate revenue leakage - 70 100
Withholding Tax on non-hotel hospitality sector2 - - -
Revenue Administration Reform
Accelerated reforms at the BRA
Establish a Revenue Court 19 38 40
Government Bureaucracy Reduction and Efficiency Enhancement
Eliminated waste - Close inactive projects
Accelerate IT implementation and process improvement and offer targeted voluntary separation packages to affected staff
Enhance procurement and energy savings 50 70 100
Reform of State Owned Enterprises
Classify SOEs by social value and commercial viability, and divest/improve efficiency as recommended by PwC review 65 125 252
BBD$ Debt Restructuring Cut coupon and extend maturities on Notes and
Debentures by 200bps to yield $112MM in savings 56 112 112
Total 307 427 604
Remaining gap to close to reach $750 million target 560 335 146
Notes: 1) Illustrative – could be higher or lower based on Government’s appetite for speed of implementation 2) Further work required to estimated benefits of tax on non-hotel accommodation
10
Comprehensive VAT reform – reducing the rate to between 10% and 15% and removing zero ratings and other concessions – should eliminate revenue leakage
Analysis Recommendations Benefit
Structural mismatch in VAT input and output rates generate unintended refunds that have escalated
Set a single lower VAT rate across the board with no exemptions, concessions or zero ratings for any industry or sector
Set rate between 10% and 15% based on optimisation modeling and reduce over time as macro economic fundamentals support
Eliminates revenue leakage
Brings targeted relief to the poor and vulnerable
Zero ratings apply comprehensively and do not target the vulnerable resulting in those who can easily afford benefiting from the concession
Eliminate exemptions and zero ratings
Enhance use of reverse tax credits and pension supplements
Government should begin the modeling and analysis now to determine the optimal rate and implement within 9 to 12 months
11
A withholding tax to bring the non-hotel hospitality sector under the tax umbrella could raise additional FX revenue
Analysis
Today, VAT collected from the non-hotel hospitality sector in not significant
Reported obstacle is the disparity between the VAT rate on hotels and that on short term residential rents
Recommendation is to implement a withholding tax with a rate equal to the VAT on hotels
Ministry of Finance should engage AirBNB and other non-hotel players to size the opportunity and put a process in place to collect
Not only would this measure raise incremental revenue, but that revenue would be FX
Further work is required to estimate revenue potential
12 To broaden the tax net and improve speed of collections, Government should accelerate reforms at the BRA and complete a TADAT assessment of the tax administration system for continuous improvement
*Tax Administration Diagnostic Assessment Tool -- supported in part by the World Bank and IMF
Situation
The IMF in the 2016 Article IV on Barbados recommends that BRA reform involve:
o Completion of the merger with Customs & Excise
o Strengthening the large tax payers unit
o Accelerating modernisation -- installation of integrated information management system
o Enhancing risk management and enforcement
o Resolving outstanding tax arrears
Developments Conversations to date indicate the BRA’s organisation is cumbersome and does not facilitate quick
decision making
Recommendation
Accelerate implementation of the IMF recommended initiatives
Flatten the BRA organisation structure and empower decision making
Close critical staffing and expertise gaps – leverage suitably qualified surplus staff from Public Sector reform
Complete TADAT* assessment of the tax administration system to create an action plan for further adjustments
Timing Immediate focus – complete merger, organisation and personnel elements within 3 months
Benefits
Based on implementation of similar initiatives in its other member states and adjustments for the
structure and size of the Barbados economy, CDB estimates incremental revenue of 0.2% of GDP in 2017/18, increasing to 0.5% by 2019/20 – Translates to circa $19 million in 2017/18 growing to circa $40 million by 2019/20
13
To supplement the tax amnesty and improve collections, Government should immediately establish a revenue court and evolve it to a full commercial court
Situation and Issues to address
Tax collection agencies have brought court action against delinquents
Cases take in excess of 10 years to be heard
When the are heard, Judges typically rule for negotiation although at that stage options are exhausted causing further delays
With agencies not seeing court action as a viable method to collect arrears, new laws which have been implemented as proxies, but they increase the difficulty in doing business
Recommendation
Immediately establish a self-funding Revenue Court
Train judges in delinquency resolution
Expand to a full Commercial Court over time to address bottlenecks in ease of doing business
Fund from penalties on arrears and charges on commercial cases
Timing Immediate focus – establish Revenue Court within the next 6 months to complement BRA
reforms
Benefits Faster collection of arrears
Incentive for delinquents to negotiate in good faith and avoid court action
14 Efficiency gains from Public Sector reform are a critical component of meeting saving targets; however, efforts in this area seem to be stuck; technical assistance and focused leadership are recommended
Opportunity Context Recommendation
Eliminate Waste
Projects have been suspended but still fully staffed
IFI funds not drawn but paying ongoing commitment fees
Lights in Government buildings on all night
Close inactive projects and release staff Cancel undrawn loans or accelerate effort to meet conditions Energy costs and one of government’s highest; turn off lights at
night and expedite implementation of the IDB-financed Sustainable Energy Investment Programme
Enhance effectiveness and efficiency of central government
Pubic sector reform efforts are underway
However, progress is slow Opportunity to save on
governments wage bill by end to end process improvements
Accelerate implementation of critical process improvements with private sector help
Complete a manpower/skills audit to facilitate reallocation of resources to close critical gaps
Partner with willing private sector entities to hire and retrain affected staff and share salaries – government continues to pay wages but transitions responsibility in increments over a 9 month period until the private sector entity takes full responsibility
Alternatively, offer targeted Voluntary Separation Programme to allow willing affected staff to pursue entrepreneurial aspirations – program should not be an incentive for best talent to leave
Wages growth control
As staff leave through attrition, tendency is to replace 1 for 1
Limit staff replacement to 1 for every 5 that leave to focus discipline around talent selection and sustaining the benefits of IT modernisation and process improvement
Benefits & Timing
Based on implementation of similar initiatives in its other member states, CDB estimates these initiatives are projected to yield 0.5% of GDP or $50 million in 2017/18 growing to 1.0% of GDP or $100 million by 2019/20
Efforts to capture these benefits should begin immediately
15
PwC was engaged under the auspices of the Central Bank to explore reform of State Owned Entities and presented preliminary findings in February 2017
They classified 57 SOEs into six areas with specific associated action plans
They also conducted a more detailed review of 4 entities and identified entity-specific and systemic recommendations for achieving cost savings
Under the auspices of the Central Bank, PwC has completed a study on State Owned Entities and developed an approach to reform of 57 SOEs; the committee broadly agrees with PwC’s approach and recommends Government begin implementation immediately
Context SOE Classification and Disposition Framework
Characteristics of SOE Action Plan
End of useful life Abolish/wind up
Duplicated functions Merge/consolidate
Commercially viable Privatise
Commercially viable, but strategic Partially Privatise
Essential social service Optimise efficiency and recover all costs via fees
Regulatory, Health and Safety Optimise costs & service delivery
Sources: PwC Report on Classification Analysis of Barbados SOEs, Committee Analysis
The committee broadly agrees with PwC’s approach and acknowledges that these reforms will require substantial professional effort as well as sensitive negotiation with and input from Labour and the wider population
16 PwC’s recommendations identify savings of circa $16 million in the near term for the entities reviewed and circa $250 million in the longer term across all SOEs; given the urgent need for action to address the deficit, Government should move swiftly to the implementation phase of the PwC engagement
Sources: PwC Report on Classification Analysis of Barbados SOEs; Committee Analysis Note that these figures relate only to savings on subventions and transfers – not total savings or incremental revenue
Action Plan State Owned Entities Estimated Savings ($ Millions)
Abolish/wind up • Barbados Agricultural Credit Trust 0
Merge/consolidate • Fund Access and Enterprise Growth Fund • Agricultural Mgmt. Co and BADMC • Rural and Urban Development
Commissions
• BCC, BCC Hospitality, Erdiston & Polytechnic
• TVET & Vocational Training Board • BTII, BIDC & Invest Barbados 36
Privatise • Cane Industry Corp. • Conference Services Ltd. • Barbados National Oil Co. Ltd. • National Petroleum Corporation • Southern Meats Ltd.
• Barbados National Terminal Co. Ltd. • Caribbean Airways International Ltd. • Hotels & Resorts Ltd. • Needham's Point Development Inc. • Needham's Point Holdings Ltd. 11
Partially Privatise • Barbados Port Inc. • CBC
• Caribbean Aircraft Handling • Grantley Adams Airport
Optimise efficiency and recover all costs via fees
• Barbados Transport Authority • Barbados Water Authority • Caves of Barbados Ltd. • The Gymnasium Ltd.
• Kensington Oval Management • National Housing Corporation • Transport Board
159
Optimise costs & service delivery
• Queen Elizabeth Hospital • All others
• Sanitation Service Authority 46
Total 252
• Entities reviewed in more detail
17
Below are PwC’s entity-specific headline recommendations for immediate cost-savings in FY/17 for the entities reviewed
Sources: PwC Executive Summary Report on Cost-Saving in Barbados SOEs; Committee Analysis
Entity Sample of Proposed Initiatives Impact FY17 ($ Millions)
QEH • Review procurement procedures and list of vendors 4.8
• Reduce average length of stay (“ALOS”) for inpatients 2.6
• Promote the use of day surgeries 0.9
• Centralise waiting lists for surgeries 0.7
TB • Improve insurance claim recoveries by including all areas where TB suffers financial loss 0.3
• Reduce the level of overtime incurred across the organisation 0.3
• Undertake a cost benefit assessment prior to any significant repairs and maintenance 0.4
• Increase the use of bus cannibalisation for repair parts 3.0
• Enhance the preventative maintenance program 0.5
SSA • Improve efficiency so as to reduce the level of overtime incurred 0.3
NHC • Increase income from the rental of office space 0.3
• Develop a plan to reduce labour costs 0.5
• Implement a utilities management plan 0.1
• Centralize procurement, contract finalization and inventory management 0.1
ESTIMATED COST SAVINGS 16.3
18 PwC’s headline recommendations also include systemic issues (outlined below) which should be addressed across the SOE community to reduce costs; our recommendation to augment revenue is to prioritise entities identified for privatisation based on the quality of their financial reporting (also outlined below)
Sources: PwC Report on Cost-Saving Initiatives for Barbados SOEs; Management Accounting Unit Analysis; Committee Analysis
Partial privatisation Full privatisation
1. Barbados Port Inc. 1. Barbados National Terminal Co. Ltd.
2. Grantley Adams International Airport Inc.
2. Needham's Point Development Inc.
3. Caribbean Broadcasting Corporation
3. Needham's Point Holding Ltd.
4. Barbados Conference Services Ltd.
Systemic initiatives for Cost-Savings in SOEs Prioritisation of SOEs for Privatisation
1. Consolidate SOE debt and refinance to achieve overall reduction in debt service costs
2. Improve financial reporting:
• Strengthen the analytical tools and systems of the MAU to allow for speedier collection of financial and operational data submitted by SOEs including possible automation
• Implement ongoing in-depth triennial review program of key SOEs in addition to regular monitoring by the MAU
3. Implement Alternate Delivery Models such as consolidation of back office functions or establishment of a shared services entity for SOEs
• Privatisation process should be transparent
• Local ownership should be strongly encouraged and supported
o provides local investment opportunities for private companies, pension funds, mutual funds, the NIS and individual investors
o Maximises FX earnings in the long term by reducing external dividend payments by entities that earn foreign exchange
Key Committee
Consideration
19
Interest Expense
4
14
108
402
Debt Outstanding
T-Bills 3,524
Debentures 6,061
Savings Bonds 172
Bank Loans 194
Largest Opportunity
To restructure the Barbados Dollar Denominated debt, a 200 bps or 2 percentage points coupon cut and maturity extension on domestic Treasury Notes and Debentures would yield $112 million in interest savings annually; however, the cross default clause on the Credit Suisse loan would require immediate repayment of $317 million
BBD$ Debt Profile ($ Millions) BBD$ Treasury Notes and Debentures by creditor – 2016
At December 2016
Other
17.3%
Insurance Companies 12.8%
SOEs 0.1%
NIS
53.7%
Banks and Trust Companies
6.2%
Central Bank
10.0%
Sources: Barbados Estimates 2017/2018 Revenue and Expenditure , Central Bank of Barbados Online Statistics
% Weighted average rate
6.8%
3.3%
5.5%
7.2%
Government should view the cross default clause as an obstacle to be overcome rather than an absolute barrier
Key Enabler
20
Minimum conditions for agreement by
creditors
A plan to significantly reduce and quickly cease central bank financing of the deficit
A reduction in current expenditure focused on privatization and public sector reforms to cut transfers and subsidies to state-owned entities
A plan to reduce arrears to the private sector to accelerate growth
Monthly reviews by an oversight committee comprising at least representatives from financial institutions and the wider private sector to monitor the monthly progress on compliance
Cut in negotiated coupon rates may be reversed if government does not pass its periodic reviews
Successful execution would require conditions including an oversight committee comprising at least representatives from financial institutions and the wider private sector to monitor the monthly progress on compliance on a plan to balance the budget
Implications
Triggers cross default clause on Credit Suisse loan and necessitates full immediate repayment
Reduces NIS annual income by $60 MM
o Not anticipated to have an immediate material impact on NIS cash flow since NIS currently reinvest interest in government paper
o Will likely require medium term adjustments to contribution rates or reduction in benefits
Restructuring Approach
Negotiation with creditors to cut coupons and extend maturities on Notes and Debentures
Extend maturities such that maturity profile has no large maturity coming due in a short time frame
Timing
Given the impact on Credit Suisse repayment on FX Reserves, debt restructuring should be done concurrently with financing from multilateral agencies which typically takes 6 to 9 months to negotiate
Discussion Guide
21
Understanding the intricacies of the problem Reestablishing sovereign credit worthiness Enabling growth Facilitating implementation
22
To accelerate economic growth and FX earnings, Barbados needs to improve competitiveness and the ease of doing business
Select 2017 Ease of Doing Business Rankings Select Ease of Doing Business time comparisons (Days)
Country 2017 Ranking
Mauritius 49
Jamaica 67
St. Lucia 86
Trinidad & Tobago 96
Dominica 101
Belize 112
Barbados 117
1,340
Securing Construction Permit 442
15
105
Enforcing Contracts
Registering Property
Business Startup
18
130
550
10
Sources: World Bank, CDB, Committee Analysis
Barbados Jamaica
Barbados is not likely to be top-of-mind for those seeking to establish businesses who reference World Bank Doing Business
It takes significantly longer in Barbados to get basic business requirements completed – Increasing speed at the Town Planning Department is a quick win that will immediately boost construction
Electricity costs in Barbados are high -- accelerating adoption of renewable energy will not only reduce the costs of doing business, but will save foreign exchange through import substitution
35
34
19
5
12United States
Trinidad & Tobago
Belize
Barbados
Jamaica
2012 Electricity Rates (US cents/kwh) Observations
23
Ease of doing business can be improved significantly by focus on labour market reform and speed of service delivery
Initiative Rationale
Enact Flexible Working Arrangements legislation
Allows businesses to operate 24/7 without elevated wage rates, e.g., “double time”
Complete Roll-out of ASYCUDA World and connect to the Electronic Single Window
Reduces time and transaction costs associated with imports
Introduce Electronic Property Register Reduce the average time to resister property from current 105 days to less than 20
Reengineer Town Planning’s processes and regulations
Reduce the average time to get construction permits from current 14 months to less than 3
Facilitate credit bureau establishment Faster adjudication and more transparent access to credit
Facilitate increased access to venture capital – explore alternative financing
Easier access to startup capital, more businesses and higher employment
Labour Market
Speed of Service Delivery
Benefits & Timing
The CDB estimates that based on implementation of similar initiatives in its other member states and adjustments for the structure and size of the Barbados economy, these initiatives are projected to yield 0.3% of GDP or $32 million in 2017/18 growing to 1.5% of GDP or $150 million by 2019/20
Implementation should begin now
Sources: CDB, Committee Analysis
24 Government operations reform also provide the opportunity to strengthen efficacy of the social safety net by better targeting the deserving poor and vulnerable and delivering benefits without stigma
Initiative Rationale
Expand use of proxy means testing indicators Improving beneficiary targeting and minimises leakage to the non-poor
Reduces government administrative costs and beneficiary transaction costs
Central Beneficiary Information Registry of households and individuals that quality for social assistance
Single point of reference for all agencies – reduces transaction costs, enhances transparency and improves acceptance
Leverage data and information from central registry to strengthen monitoring and evaluation of social programmes
Allows empirical evaluation of the efficacy of programmes and fosters continuous improvement
Expand deployment of card system where benefits are deposited to recipient’s bank account weekly/monthly
Fosters financial inclusion of the vulnerable in society
Helps recipients budget
Barbados has been served well by its very strong social safety net where many benefits are universal and provided independent of need
Society has reached a level of development where benefits of the universal system are diminishing and the economics are becoming unsustainable
Government should complete a comprehensive mapping of the social services with a view to rationalisation, reform, and strengthening where appropriate
Specific Initiatives
Context and Objectives
Costs and Funding
CDB estimates implementation cost of less than $1 million
CDB funding is available to pursue
Discussion Guide
25
Understanding the intricacies of the problem Reestablishing sovereign credit worthiness Enabling growth Facilitating implementation
26
An implementation unit reporting to the Prime Minister’s office should be established to drive execution and report on progress
Terms of Reference Structure
Responsibilities
Objective
Composition
Ensure implementation targets are met Prime Minister’s
Office
Heads of Ministries and
Agencies
Implementation Unit • SOE reform • Central Government and
Doing Business Reform • Social Sector Programming
Programme manage implementation
Give monthly progress reports to the public
Representation from labour unions, government and the private sector
Co-chaired by Governor of Central bank and Head of Private Sector Association
Supplemented with Financial, Business, Economic and Project Management experts drawn from the Private Sector and Multilateral Agencies
27
Multilateral Agency support and key pieces of legislation will also be required to facilitate implementation
Multilateral Agency Funding
Legislation
Initiative Rationale
Enact Fiscal Responsibility Legislation Embed fiscal responsibility, macroeconomic stability and long-term sustainability of fiscal policy
Approach the IMF for balance of payments financing to support implementation of the home-grown reform program
Seek policy based financing from the IDB and CDB
Borrowing on concessional terms to sure up reserves and service high interest debt
Creates room to implement structural economic reforms
Access to technical support
28 The negative social impact of delaying action is far worse that what would be expected if definitive action were taken now to tackle the deficit with latitude to put measures in place to cushion the impact
Social Impact of Doing Nothing Social Impact of Measures and Mitigating Factors
Policy implementation will likely result in some short-term dislocation of public sector employees, but will increase employment in the medium term
o May result in additional claims on the NIS to meet unemployment benefits in the short-term
Government will need to partner with tertiary education and other training institutions to retrain temporarily displaced workers with essential skills required for employment in the foreign exchange-earning sectors
Effort to ease the transformation needs to be prioritized and quantified
Taking no or limited action will reduce the standard of living enjoyed by Barbadians compared to its regional peers
o Rising interest costs and limited financing options are crowding out spending on social services and investment in infrastructure
o Running out of foreign exchange will lead to BBD devaluation, a sharp rise in the cost of living and few resources to import food, fuel and medicines
Life expectancy (years)
Average years of schooling
National Income per capita (US$000s)
10.5
14.0
15.0
75.8
75.2
8.3
Barbados
Latin America and the Caribbean
2016 Human Development Index Scores Expected Long-term Impact on
Standard of Living
29
Next Steps
Establish the implementation unit – issue mandate and invite participation
Begin negotiations with the IMF and other multilateral agencies for immediate balance of payments support
30
Committee of the Social Partnership on reducing the fiscal deficit
Darrin Downes, Chief Research Economist, Research & Economics Department, Central Bank of Barbados
Davida Forde, Officer, Barbados Workers Union
Charles Herbert, Chairman, Barbados Private Sector Association
Bertram Johnson, Chief Economist, Ministry of Industry, International Business, Commerce and Small Business Development
Tracy Maynard, Senior Economist , Research & Economics Department, Central Bank of Barbados
Patrick McCaskie, Director of Planning, Ministry of Finance
Dennis De Peiza, General Secretary, Congress of Trade Unions and Staff Associations of Barbados
David Small, Director of Strategy, CIBC FirstCaribbean International Bank
Appendix