Curbing government waste

[dropcap]W[/dropcap]ith Caribbean governments leaking billions from the public purse each year, targeted strategies are needed to cut this waste and spend smarter. 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 Inter-American 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. 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 long-term investments, setting in motion a virtuous circle that produces better policies and better spending.”