Caribbean Countries Public Sector Modernization in the ...documents.worldbank.org/curated/en/332361468743177121/pdf/multi-page.pdf · vii. The negative effects of excess spending

Report No. 15185-CRG

Caribbean CountriesPublic Sector Modernizationin the CaribbeanApril 1996

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Public SectorModernization

in the Caribbean

APRIL 1996

The World Bank

PrefaceThis report on the public sector in the Caribbean addresses the

representatives of lender and donor agencies and of fourteen governments whowill attend the 1996 Caribbean Group for Cooperation in Economic Development(CGCED). It reviews the progress and problems with public sector reform in theregion and discusses the remaining agenda of reforms that the countries need toundertake and might ask donors to support.

The report aims to put the experience of Caribbean governments into aCaribbean-wide perspective and thus to help them to pursue their own publicsector modernization programs. The report does not present detailedrecommendations for individual countries, since these are contained in the publicexpenditure reviews and other reports that the World Bank and the CaribbeanDevelopment Bank have prepared for most countries.

The report focuses on issues for which intensive work has been done forseveral individual countries, usually in the context of a public expenditure review,or for the region as a whole in other reports for the CGCED. To limit the lengthof the report, some interesting and important issues, such as social security, taxreform, and judicial reform, are not covered in detail.

In addition to national public sector issues, the report discusses regionalinstitutions of the public sector. Regional institutions are important, because theyshow the limits as well as the possibilities for delegating some functions upwardfrom the national level, which is particularly relevant for the very small countries inthe Caribbean. Also, they are often priority recipients of funds from bilateraldonors.

The report draws evidence from the public expenditure reviews ofindividual countries prepared by the Caribbean Development Bank and the WorldBank, from the regional reports prepared by the Inter-American DevelopmentBank and the World Bank on health, infrastructure, and poverty (all in 1996) andeducation (in 1992) and from a collection of essays written by panel experts fromthe region. The latter collection will be available in a separate volume under thetitle: Perspectives on the Caribbean Public Sector. The panel members--CarlGreenidge, Gloria Knight, Sir Alister McIntyre, Sir Neville Nicholls, BishnodatPersaud, and Hugh Small--also provided important advice and comments inpreparing this report.

The core team working on this report consisted of Horace Barber, MaryMcNeil, David Rosenblatt, Vinaya Swaroop, and Steven Webb, mission leader.Norman Hicks is lead economist, Philippe Nouvel is division chief, and PaulIsenman is department director. Peer reviewers are Winston Cox and PeterHarrold. Thanks are due to a number of people in the Bank and outside who

v

Preface

provided helpful and constructive comments on earlier drafts. Elizabeth Forsythedited the manuscript, and Ximena Hernandez-Cata and Deborah Trent prepared itfor publication.

vi

ContentsPREFACE ........................................ vLIST OF ACRONYMS ......................................... IEXECUTIVE SUMMARY ........................................ xi

I THE ROLE OF THE PUBLIC SECTOR ........................................ 1Regulation and civil order ........................................... 4Small countries, big government? ........................................... 5Finding a new vision ........................................... 7

2 PUBLIC RESOURCES: AMOUNTS AND ALLOCATION ........................................ 9Total size of the public sector ........................................... 9Macroeconomic adjustment ............................................ II

Group A-the OECS countries ............................................ 11Group B countries ........................................... 13Group C countries ........................................... 14Sumraary lessons ........................................... 1 7

Key sectors ........................................... 20Education and health ........................................... 20Infrastructure ........................................... 25

Conclusions ........................................... 28

3 INSTITUTIONAL FRAMEWORK ........................................ 29Budget-formulation, implementation, and monitoring ........................................... 29

Budget formulation ........................................... 30Implementation issues ........................................... 31Monitoring issues ........................................... 35

Public service management ........................................... 36Public enterprises and statutory agencies ........................................... 38Regional organizations ........................................... 43

APPENDICES ........................................ 49

REFERENCES ........................................ 117

vii

List ofAcronymsARP Administrative Reform ProgramAVT Agricultural Venture TrustCAIC Caribbean Association of Commerce and IndustryCANARI Caribbean Natural Resources InstituteCANARIC Caribbean Natural Resources Institute CorporationCARDI Caribbean Agricultural Research and Development InstituteCAREC Caribbean Epidemiology CentreCARICAD Caribbean Centre for Development AdministrationCARICOM Caribbean Community Secretariat and Common MarketCARIFTA Caribbean Free Trade AssociationCARIRI Caribbean Industrial Research InstituteCCA Caribbean Conservation AssociationCDB Caribbean Development BankCDCC Caribbean Development and Cooperation CommitteeCDE Corporacion Dominicana de ElectricidadCEDRA Caribbean Emergency Disaster Response AgencyCEDA Caribbean Development Export AgencyCEDP/CEDA Caribbean Export Development Project/Caribbean Export

Development AgencyCEH1 Caribbean Environmental Health InstituteCFC Caribbean Food CorporationCFNI Caribbean Food and Nutrition InstituteCFSC Caribbean Financial Services CorporationCGCED Caribbean Group for Cooperation in Economic DevelopmentCIMH Caribbean Institute for Meteorological and Operational

HydrologyCMO/CMI Caribbean Meteorological Organization/Caribbean

Meteorological and Operational Hydrology InstituteCRDTL Caribbean Regional Drug Testing LaboratoryCRISP CARICOM Regional Institutional ProjectCTO Caribbean Tourism OrganizationCXC Caribbean Examinations CouncilEAS/OECS Economic Affairs Secretariat/Organization of Eastern

Caribbean StatesECCB Eastern Caribbean Central BankECDS Eastern Caribbean Drug ServiceECEMP Eastern Caribbean Economic Management ProgrammeECIAF Eastern Caribbean Institute of Agriculture and ForestryECIPS Eastern Caribbean Investment Promotion ServicesECLAC Economic Commission for Latin America and the CaribbeanECODEF Eastern Caribbean Organisation of Development FoundationsECSEDA Eastern Caribbean States Export Development AgencyGEC Guyana Electricity CompanyGCT/VAT General Consumption Tax/Value Added TaxGDP Gross Domestic Product

ix

List ofAcronyms

GNP Gross National ProductLIAT Leeward Islands Air TransportMTESP Medium-term Economic Strategy PaperNGOs Non-Governmental Organization(s)NRMU Natural Resources Management Unit/OECSOECD Organization for Economic Cooperation and DevelopmentOECS Organization of Eastern Caribbean StatesSEDU Small Enterprise Development UnitUN United NationsUNDP United Nations Development Programme

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Executive Summaryi. People in the Caribbean feel that they are not getting adequate service fromthe public sector. They see the need for a mind shift in the public sector, a changeof mental objectives from prevention to enabling. Most governments havealready undertaken some reforms of the public sector, but they still recognize theneed to improve the quality of service.

ii. For the private sector to be an engine of growth, the public sector mustimprove its performance in core activities-to maintain public order, includingnecessary economic regulation, to provide infrastructure that the private sectorcannot, to improve human resources, and to provide a safety net for the poorest.Partly as a result of past government efforts, the growth of the middle class and thediversification of the private sector and NGOs over recent decades mean thatgovernment can now reduce its role in many areas where it once seemed essential.The most common complaint about governments is that existing programs fail to

deliver adequate service.

iii. The small size of Caribbean countries does not necessarily imply that thepublic sector should constitute a larger share of the economy. In selected areas, itneeds to increase its role, but it must then be smaller or absent from other areas inorder to be affordable. Efficient and impartial regulation, enforcement of privatecontracts, and assurance of public safety are emerging in the Caribbean asincreasingly important services for the government to provide in order to promoteprivate sector growth and social welfare. Political will and proper management arethe most crucial inputs to provide these services.

iv. Modernizing the public sector in the Caribbean will require expanding theopportunity and capacity of the private sector to take on some roles traditionally inthe mandate of the public sector. It will require focusing public resources on thecore activities. It will require stronger incentives for performance by agencies andindividuals in the public sector. The new thinking should lead to results alongthree dimensions: keeping expenditures at a sustainable level, improving thesectoral allocation of public spending to encourage growth and equity, andstrengthening public institutions.

Fiscal constraints

v. Macroeconomic stability has been necessary but not sufficient forimproving the quality of the public sector and for encouraging private sectorgrowth. Some Caribbean governments-Bahamas, Barbados, Belize, and someEastern Caribbean states-have kept spending at about one-fourth to one-third ofnational output over the past decade. Most of the others had considerably higherspending in the early 1 980s but then reduced spending to that range.

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PUBLIC SECTOR MODERNIZ4TIONJN THE CARIBBEAN

vi. Rapid expansions of the public sector, particularly those financed by mineralcommodity booms, proved unsustainable. In the worst cases, such as Guyana andJamaica, ill-planned responses to fiscal crises caused high inflation and devaluationand reduced the quality of public services by distorting salary structures andsectoral allocations. The countries also carry a costly legacy of debt service.Although the governments have made tremendous fiscal efforts, they are stillstruggling to improve the technical management of debt and macroeconomicpolicy. External creditors, mostly official, have taken various steps to reduce theburden of debt service and need to continue doing so.

vii. The negative effects of excess spending were less severe in countries, suchas Barbados and most of the members of the Organization of Eastern CaribbeanStates (OECS), that did not delay the necessary adjustments or resort to heavyborrowing or inflationary financing.

viii. The tax bases of Caribbean countries are more volatile than those of largermiddle-income countries and are much more volatile than those of high-incomecountries. Therefore they need to be more circumspect in the range of activitieswhere the government commits itself to provision and financing. This isparticularly true in countries with large commitments for debt service.

ix. Reforming taxes to have broader bases with lower rates has helped revenueto grow and improved incentives for efficient growth, although this has never beena panacea for balancing the budget. Tax policy must also take account of itseffects on private saving and investment. The shift in some countries to broadconsumption taxes at low rates has helped in the regard.

Allocation and effectiveness of spending

x. The problem with the public sector in most countries now is less itsaggregate size than its ineffectiveness and inefficiency in performing many of itstasks. Taking on more tasks than they have resources to do properly is a problemfor many governments, including those in the Caribbean. Improving servicedelivery by the public sector in the Caribbean requires not only focusing on thehigh-priority functions but also allocating spending efficiently among wages,capital, and other objects and designing programs to complement what the privatesector is doing. Incentives need to be changed through improved monitoring ofvalue for money in public spending

xi. In health and education, the Caribbean enjoys good outcomes relative tomost other developing countries. Mobility of labor and hemispheric integration oftrade and production have, however, raised the standards for education, jobtraining, and health care. With isolated exceptions, service delivery by the publicsector has not met these higher standards. The private sector has increased its rolein some areas, such as health care and primary education, which has helped to keepsupply and quality of service from falling even farther behind demand.

x.

Executive summary

Unfortunately, governments have rarely realigned their programs enough in light ofwhat the private sector is doing.

xii. Successful provision and operation of infrastructure by the public or privatesector requires adequate regulation, user charges, and maintenance programs.Most Caribbean countries have extensive infrastructure, but that infrastructuresuffers from lack of maintenance, from obsolescence due to technical change, andfrom demand that expands faster than supply. Usually the necessary investmentprograms exceed the resources that governments can raise from recurrent surplusand sustainable borrowing. The private sector has increased its involvement insome areas, such as ports, telecommunications, and power generation in Barbados,Jamaica, and the Eastern Caribbean. Still, the private sector could do more inmost countries, and governments could facilitate this involvement by privatizing orby entering contractual arrangements on a commercial basis. The partnership ofpublic and private sector can take many forms along the dimensions of financing,management, and ownership. For instance. many recent reforms have introducedcost-recovery for publicly provided services and introduced contracts and subsidiesas ways to have the public sector support private production of services thatbenefit the wider society.

Improving institutions

xiii. Democratic institutions are a major asset of the Caribbean countries, butthey are threatened by lack of transparency, by corruption, particularly from drugmoney, by politicization of the civil service, and by the inefficient provision ofpublic services. As a check on excess concentration of executive power,parliaments also need strengthening, for instance through better information andreporting systems and more use of the public accounts committee. Past attemptsto reform public sector institutions in developing countries-in the Caribbean andthe rest of the world-have often had disappointing results, including someprojects supported by the World Bank.

xiv. A public service reform program should be government-wide in its strategicconception. The implementation, however, could go either with pilots first thenre-evaluation and revision before broader implementation or with government-wide implementation of a single model, although the latter would in practice havesome degree of phasing. Planning public sector reform as a collaborative effortwith top administrators from priority ministries would increase the efficiency of theexercise and make any resultant downsizing more sustainable. This approach isbeing tried in Belize and Jamaica. To avoid some of the uncertainty and initialexpense associated with attempts to reform the whole government at once,Trinidad and Tobago, Jamaica, and some OECS countries are proceeding first withpilot projects in a few ministries and agencies

xv. Even when projects have implemented specific elements-downsizing thecivil service, reclassifying jobs, setting up financial information systems-theyrarely have done enough to change the incentives of the system by linking the

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PUBLIC SECTOR MODERNIZ4 TION IN THE CARIBBEAN

allocation of resources to performance. Some budget and financial managementreform proposals, as in Jamaica and St. Kitts and Nevis, would address thisproblem by emphasizing performance outcomes, subject to global budgetconstraints, rather than ex ante controls on line items.

xvi. Delegating spending and personnel decisions to responsible managers, withperformance targets and budget constraints, could improve efficiency. Althoughconstitutionally the budget and the civil service commission control such decisionsin the Commonwealth Caribbean, the law usually allows substantive delegation.

Regional institutions

xvii. The small size and common heritage of the Commonwealth Caribbeancountries have led them to set up more than forty regional institutions in the hopeof realizing greater efficiency and encouraging regional integration. Someinstitutions have worked well, but the performance of many has beendisappointing.

xviii. The regional institutions work best in functional areas that do notduplicate national activity and in areas that need scale because of investment ortechnical expertise. Good examples include the Caribbean Development Bank, theCaribbean Examinations Council, the Caribbean Meteorological Institute, theEastern Caribbean Central Bank, and the University of the West Indies.

xix. The ones that work best also succeed in attracting a mix of financing-actually paid, not just promised-that includes national government contributionsand user fees. User fees not only provide the institution with financing but alsomake the provider accountable to clients and encourage clients to use servicesmoderately. Donor financing is important for many regional agencies, but itbecomes counterproductive when agencies no longer need to attract substantialfunding from users and national governments.

Reform agenda

xx. The agenda for public sector modernization may vary between countries,but certain elements should be present in any program:

* Maintain, restore, or complete macroeconomic stabilization* Take into account the expanding role of the private sector in the

provision of social and infrastructure services, as well as the need for anappropriate regulatory environment. In light of this, prioritize the areas forgovernment activity and allocate enough resources to do the job correctly andefficiently.

* Focus public sector activities on areas that only it can provide, suchas the legal system, public health and safety, basic education, environmentalprotection, and macroeconomic management. Review regularly the cost andeffectiveness of public programs, recognizing that it may be necessary to close

xiv

Executive summary

programs that are not effective in order to provide funds for higher priorityactivities.

* Enhance cost recovery for publicly provided services wherepossible, and use targeted subsidies where necessary to assure that the poor haveaccess to basic needs, whether provided by the public or private sector.

* Simplify government decision-making and clearly specify financialand personnel procedures; emphasize ex post evaluation and accountability ofpersons and programs, according to clear performance criteria.

* Take advantage of opportunities to increase efficiency bytransferring activities to regional agencies, but forgo or cancel regional activitiesthat merely duplicate national efforts or that fail to attract adequate financing fromusers.

xxi. Although the governments and their citizens must take the lead in thismodernization process, support from the international development community canhelp in important ways:

* Debt restructuring or reduction should continue to be allowed forhighly indebted countries that are pursuing or sustaining structural adjustment andthat are improving the efficiency of their program spending.

* Technical assistance, in kind as well as with grant and loanfinancing, should continue to support public sector modernization efforts, as longas they are well conceived and promoted by the governments.

- Training assistance will be important both for building regulatoryand management capacity in the public sector and for assisting private-sectormanagers to take on the added tasks implied by the revisions to the public-sectormandate.

xv

The role of the publicsector

"The private sector will be the engine of growth in Guyana.... The Government willcontinue its reform of the public sector to reflect the changing role of the state under amarket-oriented development strategy." Government of Guyana 1994, p. 4.

"The Government is commined to implementing a Medium-Term Economic Strategythat ... provides an enabling environment for private sector development ... [and)rationalizes public sector management." Government of Belize 1994, p. 5.

"The Government recognizes that private sector development is the mechanismthrough which Jamaica will move from stabilization to export-led growth. The publicsector therefore must assume a new role. It must create an environment in which theprivate sector can operate efficiently." Government of Jamaica 1994, p. 9.

"Consistent with the Government's development strategy, . . . the MTESP [Medium-Term Economic Strategy Paper] concentrates on ways to enhance economic growthwhile concomitantly preparing for the economic transition through higherproductivity, increased participation in economic activity by the private sector .. . Toachieve these objectives, the MTESP emphasizes . . . modernization of publicadministration and strengthening of institutions." Government of the Commonwealthof Dominica 1994, p. 1.

The medium-term economic policy strategies presented at the CaribbeanGroup for Cooperation in Economic Development (CGCED) in 1994 rely onprivate sector, market-oriented growth. They call for a new role for the publicsector to enhance such growth and describe their plans to modernize the publicsector accordingly. The Caribbean heads of government at their 1995 meetingendorsed a program to support public sector reform and administrativerestructuring.' This report to the 1996 CGCED starts by examining theimplications of these bold decisions.2

As the responsibility for providing goods and services shifts from the publicsector to the private, the attitude of personnel in the public sector needs to shiftfrom one of preventing undesired outcomes in the private sector to one of enabling

Caribbean Centre for Development Administration, 1995.2 In this report, the term "Caribbean" refers to the Caribbean Group for Cooperation in

Economic Development (CGCED) countries. These countries are Antigua and Barbuda,Bahamas, Barbados, Belize, Dorninica, Dorninican Republic, Grenada, Guyana, Haiti, Jamaica,St. Kitts and Nevis, St. Lucia, St. Vincent and Grenadines, Suriname, and Trinidad and Tobago.Due to the recent political and economnic turmoil and the inability to get information, Haiti is notincluded in this study.

PUBLIC SECTOR MODERNIZATION IN THE CARIBBEAN

the desired outcomes. This will require not only time and training, but alsochanged incentives in the pubic sector and increased public awareness, to assuredemocratic support.

No simple rule or number defines the proper extent of the public sector. Indemocratic societies, like those in the Caribbean, people decide what they wantand how much of it they want the public sector to raise resources for and provide.But the political process often obscures the connection between cost and benefits,and the institutional legacy limits options at each point in time. The public sectorhas difficulty in replicating market discipline for itself and in shielding itself fromcorrupt influences. Consequently, the government has often found that it lacksadequate resources and that it is not providing the mix of services necessary tosupport the economic growth that people want. Yet leaving production to theprivate sector does not always fill the gap. Most leaders in the Caribbean nowrecognize the practical limits of both the public and private sectors and seek apragmatic balance or, with increasing frequency, a creative partnership between thetwo.

The rationale for public sector involvement often varies with the sector: thequasi-public good nature of transportation infrastructure, natural monopoly issueswith respect to energy,3 equity considerations related to the ownership of a nation'snatural resource base and basic health services for the poor, and the positiveextemalities associated with minimum standards of health and education. Whenmarkets fail, the govermment can act in various ways. It can take over theallocative function of markets by actually producing goods and services. It canregulate private production through legislation or motivate certain types ofproduction through subsidies. It can use taxation and entitlement programs toredistribute income or wealth or to finance all or part of the cost of selectedprivate activities, such as crime prevention or the private provision of healthservices to poor families. But these interventions are also costly, and almost all theCaribbean govemments have made the mistake at various times of extendingthemselves too far.

In the Caribbean, governments became involved in the production of goodsand services in a wide variety of sectors, particularly in the 1970s. Examplesinclude electric companies, banks, oil companies, banana marketing boards, sugarmills, and hotels. When markets do not exist initially, govermments may initiate theproduction of a good or service. An example is the Leeward Islands AirTransport, a unique provider of comprehensive regional airplane service. Althoughthe airline was started by the public sector, it is being privatized now that themarket and profit potential of the business have been established. The problem ofpast overexpansion of the state is often matched now by the growing capacity of

3 This situation does not necessarily justify public sector production of energy, since it couldalso be addressed by government regulation. As a matter of fact, many of these "market failures"in many of these sectors in principle could be addressed by other interventions. This will bediscussed further in the next section.

2

I The role of the public sector

private business and non-profit organizations. Taking the opportunity to movesome activities to the private sector is a way to release financial and managerialresources for the state to strengthen its core functions.

The movement of functions from the public to the private sector is not anautomatic process, particularly in small economies where the private sector isweak. The transition involves diversifying and building capacity in the privatesector to take on new tasks and sustainably employ a larger share of the laborforce, training personnel who need to exit from the public sector and move to theprivate, and building capacity in the public sector to perform the increasinglynecessary regulatory functions. International assistance to facilitate the transition isappropriate.

In many functions, public and private sectors share responsibility for thesame activity. The division of labor in the partnership has three importantdimensions: production, management, and financing. While a decision about onehas implications for the other, important public sector reforms have resulted fromcombining private provision with targeted public financing, and vice versa.Governments can use their taxing authority to raise revenues and then use theserevenues to subsidize the purchase of privately provided services. For example,the government may provide food stamps that the poor use to purchase privatelyproduced and marketed food, or it may provide vouchers that the poor use topurchase medical services from a private clinic. In contrast, government-ownedhospitals and clinics can charge fees for services, with subsidies provided for poorhouseholds. The government also can use taxes to finance subsidies for charitablenon-governmental organizations that provide services for the poor. Table 1.1 listssome options for different degrees and dimensions of public involvement in theownership, management, and financing of an activity.

Table 1.1 Public and Private Production, Management, and Financing

Type of agency Ownership Management Financing

Private corporation Private Private PrivateSelf-financed private clinic or school Private Private PrivateExecutive agencies with performance contracts Public Private Public

regularly renegotiated

BOT infrastructure project' Public Private Pub/PrivState-owned enterprise that contracts out some Private Private Public

services

Budget subsidy for private school or health Private Private Publicclinic

Cost recovery by state-owned enterprise or Public Public Privatehospital

Public agency on budget, without cost recovery Public Public Public

a. BuildlOperate/Transfer. An infrastructure project where the government contracts a private firmto build the project, and then operates it for fees; the government retains ownership of the physicalinfrastructure.

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PUBLIC SECTOR MODERNIZA TION IN THE CARIBBE _N

Although a variety of institutional arrangements have worked in one placeor another, success has always required getting incentives right. If ownershipremains in public hands, the management must know that they will be rewarded forsuccess and penalized for failure, to deliver service and to meet the budgetconstraint. Similarly, private owners must know that the government will not bailthem out if they run the business badly. Governments have often gottenthemselves into serious financial difficulties by offering explicit or implicitguarantees for private-sector or quasi-public sector activities. Keeping disciplineon contingent liabilities is often difficult in small economies, such as those of theCaribbean, but the fragility of their public finances makes the discipline all themore important.

Regulation and civil order

Two of the most basic regulatory functions of government are theprotection of personal safety and the enforcement of property rights, withoutwhich both civil and economic order fail. Judicial reform is needed in mostCaribbean countries in order to improve efficiency and provide timely settlementfor the private sector. The situation in Trinidad and Tobago seems typical (WorldBank 1995). Private individuals and firms spend their own resources for part ofthe protection of persons and property, for example, private security systems andalarms. The economic cost to society, however, multiplies rapidly if individualscannot move freely in their community or secure the instruments they need forproduction and the fruits of their labor. Private security guards are not a complete(or politically acceptable) solution to the problems of urban crime, for example.

For markets to function smoothly, individuals and firms must be able toenter into contractual arrangements knowing that a neutral third party has the legalauthority to resolve any dispute that arises. Contractual obligations can becomeparticularly complicated in the financial sector. Lenders will not lend unless theyhave the legal right, as enforced by the public legal system, to collect on collateralif payments are overdue. Borrowers need protection from deceptive lendingpractices. Holders of bank accounts want some assurance that their deposits aresafe. Investors need assurances that capital markets operate according to fairrules.

Protecting citizens from fraud and inept services is another important areaof government regulation. For example, health regulations help to preventillnesses due to improperly stored or improperly prepared food products.Certification processes ensure that professionals have the basic qualifications toprovide specialized services, such as education and medical care.

For regulatory functions, governments often have private sector partners,such as the bar association, which regulates lawyers. Some non-governmentalorganizations help to monitor compliance with environmental regulations and toprotect personal safety and property (for example, neighborhood associations keepa watchful eye out for possible criminal activity). Various business associations,such as exporters, growers, and bankers associations, can help the government to

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design and implement regulations, even though their members would not do soindividually.

Regulation of monopolies is an important task of the public sector. Largefirms often capture markets and charge excessive prices for their goods andservices, although trade liberalization has minimized this tendency in many areas.In the financial sector, for instance, there is typically competition amongintemational and domestic banks in the Caribbean, but regulation remains essentialto assure fair competition as well as sound financial practices. Regulating themonopolies is difficult in practice, but the gains to social welfare from successfulregulation are often large. Improved regulations will be especially important tofacilitate growth of service exports.4

As long as they can freely use water and air, many producers will pollutetoo much, which can seriously impair health and decrease people's enjoyment oftheir natural surroundings. Environmental regulations, effluent taxes, and othermarket-based instruments can reduce pollution. Countries in the Organization forEconomic Cooperation and Development (OECD) have experimented with thecreation of markets for pollution rights. Even with such market mechanisms,govemment regulations are required to enforce them, but they can be lessdiscretionary and interventionist.

Protecting the integrity of the regulatory system is essential. In order forthe system to function well, individuals must believe that the majority of peoplewill comply with regulations and that the majority of regulators will enforce thelaw. They must also believe that the regulations themselves are necessary andreasonable. Following from this understanding, there will be a certain amount ofself-enforcement, which is absolutely essential to avoid skyrocketing enforcementcosts. One factor that enhances this faith in the system is a democratic politicalprocess that allows citizens to participate in the creation and govemance of theregulatory system. The English-speaking Caribbean is one of the few regions ofthe developing world with a long-standing democratic tradition. Other countriesof the Caribbean have also become more democratic in recent years.

Governments walk a narrow line in attempting to use regulations topreserve the public interest without discouraging legitimate private sectoractivities. Achieving this balance requires frequent fine-tuning of the regulatorysystems (see World Bank 1994a). The benefit of improved investor confidence isvital for achieving the goal of private sector led growth.

Small countries, big government?

Does smallness of a country justify a larger role for the public sector in theprovision of goods and services? Governments in small countries face particularchallenges. These countries are characterized by a small, monopolistic private

World Bank 1986a.

5


sector, a high vulnerability to external economic shocks, diseconomies of scale,and difficulties in diversifying the economic base. Public investments often involvehigher unit costs due to diseconomies of small scale, although how much higher isnot certain.5 The Caribbean islands face threats of storms and geological disastersthat can destroy sizable portions of a small nation's infrastructure and productioncapacity. In its function as regulator, the government must be especially watchfulof the activities of monopolistic firms' and of threats to law and order frominternational crime organizations. Natural disasters and crime rings also plaguelarger economics, but they are more likely to have some unaffected areas fromwhich resources can be drawn in time of emergency. For these reasons,governments of small countries take a larger role in some areas, but a smaller rolein other areas. Decisions concerning the overall size of government must also takeinto account the supply of finances.

In terms of fiscal sustainability, the decision on the extent of the publicsector should recognize that the government's commitment to an activity, oncemade, is relatively inflexible. Such reliability is one virtue of the public sector, butit is also a limitation, particularly when the resources available to the governmentvary and are uncertain. When available resources shrink, either from a drop ingross revenue or an increase in the interest rates on debt, the cutbacks in realterms-via nominal cuts or inflationary erosion of real wages are for the most partmade not in accord with fundamental spending priorities, but rather across theboard or according to administrative and political ease. As a result, the highestpriority activities for economic development may suffer, while lower priorityactivities continue to receive funding. In the Caribbean as elsewhere in low- andmiddle-income countries, attempts at building up reserve funds in the good yearshave not been nearly adequate; borrowing and adjusting tax rates have succeededwhen the necessary adjustment is small and temporary and have failed when theadjustment was large. The implication is that, if a government's revenue base ismore volatile, as in Caribbean countries, it should limit its mandate to a narrower,higher priority range of activities to ensure that it will be able to sustain them at anacceptable level of quality.

The fragility of the Caribbean countries is evident in that their realgovernment revenues and tax bases-gross domestic product (GDP), exports, andimports- are several times more volatile than in a sample of OECD countries andalso higher than in a sample of large developing countries.6 Among the Caribbeancountries (all relatively small by world standards), the smaller countries did not

5 In discussing the problems of these small countries, Srinivasan (1986) cites a study of theInternational Monetary Fund that calculates a 65 percent cost disadvantage for small countries ingenerating additional thermal capacity for power generation. The same study calculated a costdisadvantage for more densely populated Barbados of only 20 percent.

6 Volatility was measured as the standard error of a regression fitting the logarithm of thevariable (real revenue, GDP, imports, exports) to a trend of time and time-squared. We looked atthe tax bases as well as revenue, since tax rates are sometimes adjusted endogenously to offsetexogenous changes in the tax base. There were differences among Caribbean countries in thevolatility of each variable, but the differenccs betwecn country groups were stronger.

6


have greater instability than the larger ones. Greater dependence of smalleconomies on trade taxes and the higher share of debt service in total expendituresalso increase the volatility of resources available for program expenditures. Inaddition, small islands in the region have a fairly mobile tax base that is sensitive tothe tax rates set by national governments.

Since smaller economies face some pressures to have a larger public sectorrole and some pressures to have a smaller role, it is not surprising that data in thenext chapter show no correlation between size of the economy and share ofgovernment spending, neither among the Caribbean countries nor in comparisonsof them with other country groups.

In the hope of overcoming some inefficiencies due to small size andencouraging regional integration, Caribbean governments have set up more thanforty regional organizations in the English-speaking Caribbean that receive fundingfrom national govemments. In some cases, these organizations have filled vitalroles, delivering services that can be delivered more cost-effectively at acentralized regional level. In other cases, these organizations have been lesssuccessful. Chapter 3 discuss some reasons why the use of regional institutionshas worked better in some areas than in others.

The smallest states, those of the Organization of Eastern Caribbean States(OECS), have moved ahead of the broader regional arrangements with a numberof subregional organizations that cooperate closely on economic policies andprogram implementation.

Finding a new vision

Traditionally, the public sector has affected almost every aspect ofCaribbean citizens' lives-from birth in public hospitals to purchase of medicinesfrom a regional pharmaceutical-purchasing cooperative, from attendance at publicschools to study at the multinational University of the West Indies, from use ofgovernment-sponsored agricultural research from a regional institute to the exportof bananas and sugar through a government marketing agency operating under aninternationally negotiated trade arrangement. Governments have been havingincreasing difficulty in filling all these roles and have been turning some of themover to the private sector, which has grown strongly in many areas. A mandate topromote private sector development as the engine of growth will require not onlyan exit of the public sector from some activities but also its strengthening in otherareas, such as providing regulation, infrastructure and training that help the privatesector to perform better. Markets cannot do everything.

The Caribbean countries recognize the importance of modernizing theirpublic sectors to better serve their citizens and fulfill their critical tasks. Publicsector reform programs need to be widely discussed and to have bi-partisansupport, so that the reforms will not be undone by changes of the party in power.This would also enhance the credibility of the reform process. The Caribbeangovernments have started on this process but still seek better solutions.

7

Public resources: Amountsand allocation

Spending is only one indication of and channel of the government'sinfluence on the economy. Legal codes, moral standards, regulations, and taxincidence and exemptions are other channels and indicators of public sectorinfluence. All the same, public expenditures indicate priorities and the resourcecost of government and are especially useful in making comparisons across anumber of countries.

Total size of the public sector

The share of the public sector in the Caribbean economies still varies, butless than it did a decade ago. Figure 2.1 shows that in the early 1990s, centralgovernment spending as a share of GDP was around 30 percent in most countries,but 20 percent or less in the Bahamas and the Dominican Republic, almost 40percent in Dominica, almost 50 percent in Suriname, and more than 60 percent inGuyana. In all the Commonwealth Caribbean countries, the shares declined or heldsteady from the early 1980s to the early 1990s, reflecting substantial adjustment inall countries in which the government formerly had relatively high shares ofspending. The spending on programs-spending net of interest on debt-declinedmost in the formerly high-spending countries.

Although these data cover only central government spending and not theentire operations of the public sector, they reflect the total share of economicactivity being financed publicly. Central government spending includes budgettransfers to local governments (with virtually no tax revenue) and state enterprisesand the cost of other public entities that rely on the budget, rather than on costrecovery. The size of the public enterprise sector varies widely in the Caribbean.For example, in Barbados the central government represents close to 90 percent ofthe consolidated public sector expenditure accounts, but in Trinidad and Tobagothe rest of the public sector (public utilities, state-owned corporations, andstatutory bodies) spends as much as the central government. The size of thissector matters, as discussed in Chapter 3, but the statistics on aggregateexpenditure are not comparable across countries because of differences in thenature of activities and in the degree of government ownership and interference.Thus we focus here on central government spending.

PUBLIC SECTOR MODERNIZA TION IN THE CARIBBEAN

Fure 2.1 Central Govenunent Expenditure Share of GDP, 19804 1990-94

90

80

70

60

i50 i 19]4i 4~~~~~~~~~~~~~~~~~~~~~~~0 |191 191-94

40

30

20.

10

0A I *2 E -e

CZ .2 Cl -

Government spending equal to between one-fourth and one-third of GDPis not out of line with that of the rest of the world. Governments in lower-middle-income countries spent 25 percent of GDP in the early 1990s, down from 30percent in the early 1980s, and in upper-middle-income countries, they spent anaverage of 30 percent in the early 1990s, down from 32 percent in the 1980s.' Ofcourse, individual countries vary widely around these averages, and some of themmaintain spending at unsustainable levels. Government spending in high-incomeOECD countries averages somewhat higher, almost 40 percent, which is feasiblebecause those countries have much more stable tax bases, as noted in Chapter 1.Taking the 25-33 percent range for the two groups of middle-income countries asa benchmark, one does see a pattern for the Caribbean. All the countries in thatrange or below stayed there. Almost all the countries that started out above thatrange reduced the government's share of spending to come within that range, withGuyana, Dominica and Suriname being the exceptions. Overextended mandates,unsustainable borrowing, and volatile tax bases show the need for furtherdownsizing in these economies and to a lesser extent in some others.

Although the efficiency of the public sector and the recent growth of theCaribbean economies are not related in a simple way to the overall size of thepublic sectors today, past episodes of overexpansion relative to sustainablefinancing have affected the character of the public sector and played a critical rolein retarding economic growth in some countries. The next section discusses howthe effects of overexpansion, if too extreme, left a legacy in which the burden of

7The sample of lower-middle-income countries has eighteen countries: Bolivia, Chile,Cameroon, Colombia, Ecuador, Egypt, Jordan, Morocco, Panama, Papua New Guinea, Peru, thePhilippines, Paraguay, Turkey, Senegal, Syria, Thailand, and Tunisia. The sample of upper-middle-income countries includes seven countries: Argentina, Brazil, Federal Republic of Korea,Mexico, Malaysia, Uruguay, and Venezuela. The OECD sample excludes Greece, Japan, Mexico,and Turkey.

10

2 Public resources: Amounts and allocation

government indebtedness lingers and inflationary financing devalues the wages ofcivil servants, prompts an exodus of skilled personnel, and discourages saving andinvestment in the private sector.

Macroeconomic adjustment

During the 1980s and the first half of the 1990s, most Caribbean and otherdeveloping countries pursued adjustment and diversification programs to restoreand sustain their external and internal balance. They were committed to export-ledsustainable growth and also undertook stabilization programs to restore price andexchange rate stability. In most cases, the need to adjust arose in part because ofan overexpansion of the state, relative to available resources. When spending wascut on an emergency basis, the remaining allocations were often far out of line withthe development priorities of the country (World Bank 1992b). As countriescompleted the macroeconomic stabilization phase of adjustment, they then facedthe tasks of selecting areas in which to strengthen or rebuild and of selecting whichareas to shift to the private sector for the sake of efficiency and fiscal sustainability.The promptness and thoroughness with which governments adjusted varied widelyand had substantial consequences for the long-term health of the public sector andfor growth outcomes.8

The Caribbean countries can be usefully considered in three groups thatcorrespond to size and, as will be shown, to style of macroeconomic management.The OECS member countries, hence referred to as group A-Antigua andBarbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent andthe Grenadines-are the smallest countries and share many common institutions.Group B-the Bahamas, Barbados, and Belize-are middle sized among theCaribbean countries. Both groups A and B depend on tourism and someagriculture for export earnings, but not on minerals. The larger Caribbeancountries-the Dominican Republic, Guyana, Jamaica, Suriname, and Trinidad andTobago-form group C. They have substantial manufacturing and mineral sectorsas well as tourism and agriculture.

Group A-the OECS countries

The OECS countries are very small, open economies that depend ontourism, agriculture, remittances, and external assistance to eam foreign exchange.They share common market arrangements within the wider CARICOM (CaribbeanCommunity Secretariat and Common Market) grouping, have their own sub-subregional Organization of Eastern Caribbean States with a secretariat and anumber of specialized agencies, and participate in a monetary union with acommon currency and central bank. The Eastern Caribbean Central Bank (ECCB)

' Growth rates are in Appendix 1, Table A 1.14. McCarthy and Zanalda (1996) compare andanalyze growth rates in the Caribbean islands.

11


has by its multinational character an exceptional degree of independence from theindividual governments. It has maintained a fixed exchange rate to the US dollar,kept most of its assets in foreign exchange instruments, and strictly limited thefinancing to member governments. The discipline of the ECCB has not preventedall policy mistakes, but it has limited their effects and in important ways protectedthe public sector itself from the ravages of inflation.

In the Eastern Caribbean states, the public sector on average accounts forroughly 35 percent of GDP, but there is a clear downward trend, with centralgovernment spending declining from 45 percent of GDP in the early 1980s to 30percent by the early 1990s. Since achieving independence in the late 1970s, after aperiod of self-rule dating back to the 1950s, three of the OECS countries have had,at least intermittently, seriously defective macroeconomic policy. In Grenada,general incompetence gave way to revolution in 1979 followed by four years ofunsustainable populist expansion, foreign military intervention in 1983,deterioration of the fiscal situation later in the 1980s, and then a home-grownadjustment program in the 1990s. Public sector deficits averaged over 25 percentof GDP in the 1980s, before being brought under 6 percent in the 1990s. SeeTable 2. 1. In Dominica, overall public deficits were 18 percent of GDP in the early1980s, dropped to 2 percent in the late 1980s, but then rose above 10 percent inthe 1990s. In Antigua, the story is less clear, for the recorded budget deficits haveaveraged under 5 percent of GDP since the mid-1980s, but arrears on extemaldebt service have piled up to over 60 percent of GDP, and the government hasresorted to unsustainable borrowing from the domestic financial sector, withpayments guaranteed by earmarked revenue streams.9 In Dominica and in Antiguaand Barbuda, the authorities are still deciding how to make the necessaryadjustments, while in Grenada they are considering what adjustments will beneeded if they eliminate the income tax. In these three countries, the agenda forpublic sector reform and fiscal retrenchment is more urgent than in St. Kitts andNevis, St. Lucia, and St. Vincent and the Grenadines, where government spendinghas expanded less and used sustainable concessional financing.

St. Kitts and Nevis, St. Lucia, and St. Vincent and Grenadines havegenerally had positive public saving, have been prudent in acquiring debt, and havebeen prompt in correcting for overexpansion of the state relative to its financingconstraints.'" Not coincidentally, other aspects of policy in these countries haveencouraged private sector development, and the micro management of the publicsector is generally good. Thus it is not surprising that these countries have goodoverall records of growth. See Appendix I, Table Al.14.

'Much of Antiguas official external debt now in arrears came from off-budget transactions,such as the financing of hotel investment, which was originally private and guaranteed by theItalian Ex-Im Bank but officially became public when the private borrowers did not pay.

'0 The recent rise of borrowing in St. Vincent was for a port infrastructure project. Althoughthe project has encountered difficulties, the increased borrowing does not indicate a decline ofpublic saving or a systemic failure to respect overall macroeconomic constraints.

12


Table 2.1 OECS: Central Government Balances (percentage of GDP)

Current balanceOverall fiscal balance (public saving)

Country 1980-84 1985-9 1990-94 1994 1990-94

Antigua and Barbuda - -5.2 -2.2 2.5 1.0Dominica -18.1 -2.4 -9.8 -15.5 0.2Grenada -30.3 -26.0 -5.8 4.2 0.4St. Kitts and Nevis -5.4 -3.2 -2.4 -3.1 1.4St. Lucia -8.5 -0.2 -1.1 -5.0 6.1St. Vincent and 4.1 -1.8 -6.9 -9.7 3.8

Grenadines

- Not available.Source: Appendix I, Tables A1.12 and Al. 13.

OECS economies have serious concems about the fragility of the tax base.The extensive granting of exemptions has repeatedly threatened fiscal balance.Also, the CARICOM agreement calls for reduced import duties, which will requireoffsetting fiscal changes. A common tax regime within at least the OECS wouldmake multi-island operations more efficient, but OECS governments seem to havediverging tax agendas. Eliminating exemptions and using the additional revenue tocut rates would improve economic efficiency as well as the equity and revenuebuoyancy of the tax regime (Bain 1995).

Concessional financing has been important in the OECS, peaking at 9percent of GDP in the 1980s, declining to about 4 percent in the early 1990s, butrising again in 1994. The flow of concessional financing from donors will probablydecline substantially in the foreseeable future, which underscores the need forincreased domestic public saving. All governments, especially Dominica, haverelied on domestic bank and non-bank credit in recent years, which will raise futureinterest payments.

Group B countries

Even without the discipline of a multi-country central bank, the countriesof group B-Bahamas, Barbados, and Belize-have thus far checked their fiscalexpansions and use of monetary finance soon enough to retain fixed exchange ratesand usually free convertibility. Their macroeconomic stability is evident: theirgovernments' five-year average share of spending does not change much; seeFigure 2.1 and Appendix I, Table Al .7. Fiscal deficits remain modest, as shown inTable 2.2.

In the Bahamas, government spending has remained steady, around 20percent of GDP, since the mid-1980s, after dropping from an average 22 percentin the early 1980s. Fiscal deficits were low relative to growth throughout the1980s and thus were sustainable. Slightly higher deficits in the 1990s, with lowergrowth, were the result of maintaining expenditure outlays at the average levelexperienced in the 1980s, while revenues, largely from taxes on international trade,declined due to adverse external developments. The deficits have remained low

13

PUBLIC SECTOR MODERIZA TION IN THE CARIBBEAN

enough so that the government has been able to avoid monetary financing andsubstantial inflation.

Table 2.2 Group B: Central Government Balances (percentage of GDP)


Country 1980484 198589 1990-94 1994 1990-94

Bahamas -2.7 -2.0 -3.5a -3.8b .0.8Barbados 4.9 4.7 -1.8 0.4 1.5Belize -8.7 -6.4 4.1 -5.5 5.6

a. 1990-93.b. 1993.Source: Appendix I, Tables A1. 12 and A1. 13.

In Barbados, central government expenditure averaged 30 percent of GDPduring the 1980s, rising to a peak of 34 percent in 1990. Overall deficits averaged5 percent of GDP in the 1980s, rising to a peak of 7 percent in 1990. Thegovernment recognized that the deficits were unsustainable and that the realexchange rate was overvalued, even though there was not yet a divergent parallelrate. Therefore, during the 1990s, the government brought spending quickly backunder 30 percent of GDP and reduced the deficit to under 1 percent of GDP. Thefiscal contraction, which led to a painful recession in the private sector, wasnecessary to bring about a real devaluation while holding the nominal exchangerate constant. The fiscal contraction seems to have been done efficiently andquickly enough to maintain the quality of government programs and to restoreprivate sector confidence in economic stability. Public sector employment is nowunder 20 percent of total employment, down from over one-third in the 1980s.The government takes on a large mandate in the provision of education, health,social insurance, and infrastructure, and it provides these services at a level ofquality that contributes to export-oriented growth. This is possible because thegovernment has neither built up high debt service burdens nor caused high inflationthat would have eroded professional salaries in the public sector.

In Belize, public spending was prudent in the 1980s, but rapid increases inemployment and real wages have pushed current spending up from less than 17percent of GDP to more than 21 percent in the 1 990s. Public investment also rosein the 1990s. Overall deficits, which had declined during the 1980s and moved tosurplus in 1990, have risen sharply again and are no longer being financedexternally on long terms. Increased use of monetary and commercial bankfinancing has depleted foreign exchange reserves. Seeing that this is unsustainableand threatens to bring inflation and exchange rate instability, the government isnow planning a major fiscal retrenchment.

Group C countries

The policy histories of the larger countries, group C, are more complex andheterogeneous than those of the other two groups. All the countries in group C

14


experienced severe external and internal economic imbalances during the 1980sand 1990s as a result of inappropriate domestic economic policies and mineralcommodity boom-bust cycles: bauxite in Guyana, Suriname, and Jamaica; oil inTrinidad and Tobago; and nickel in the Dominican Republic. See Table 2.3. InGuyana and Jamaica, large amounts of official balance of payments lending, priorto taking adequate fiscal adjustment, exacerbated the situation. Except forSuriname, the countries have implemented programs for economic adjustment, butthis has not always generated sustainable growth.

Table 2.3 Group C: Central Government Balances, 1980-94 (percentage of GDP)


Country 1980-84 1985-89 1990-94 1994 1990-94

Dominican Republic -2 0 -0.2 4.5 -4.4 4.4Guyana -47.0 48.6 -25.1 -15.1 -12.2Jamaica -13.5 -2.5 -0.5 1.5 4.2Suriname -13.5 -21 0 -19.9a - 14.9aTrinidad and Tobago 4.2 -5 9 -0.9 -0 3 1 1

- Not available.a. 1990-93.Source: Appendix 1, Tables A 1.12 and A1 13.

Guyana continues to struggle under the long-term effects of the massiveoverexpansion of the state in the 1960s and 1970s, which pushed expenditureshigher than 80 percent of GDP by the 1980s. Financed initially by profits from thestate-owned bauxite and sugar sectors and then by balance of payments lendingand monetary financing when terms of trade moved against them, adjustmentbecame unavoidable in the 1980s as overall deficits ran up to half of GDP. At firstthe adjustment was haphazard-slashing non-wage operations and maintenance,allowing inflation to erode public sector wages, not filling vacancies as skilledpersonnel left, rationing foreign exchange, and running up arrears with externalcreditors. The parallel rate in the foreign exchange rate reached several times theofficial rate. Since the late 1980s, the Economic Recovery Program has reducedthe deficit to single digits, for which there is concessional external financing, anddevalued the exchange rate to a competitive level. Central governmentexpenditures declined from 66 percent of GDP in 1989 to 38 percent in 1994."After a decade of negative growth averaging 3 percent a year (1980-90), Guyanaposted a robust annual average growth of almost 7 percent in the 1990s, butstrengthening the capacity of the public sector and improving infrastructure will benecessary to sustain positive growth.

The debt overhang remains huge in Guyana; in 1989 the country paid 31percent of its GDP in debt service. Although payments have declined in recentyears due to debt write-offs and rescheduling, external debt service continues to

" This is on a cash basis, not counting the accrual of interest arrears To get a series goingback to the early 1980s for figure 2.1, we use the International Monetary Fund's expenditurefigures, which are on an accrual basis and consequently much higher.

15

PUBLIC SECTOR MODERNIZATIONIN THE CARIBBEAN

demand nearly 15 percent of the national income. The Paris Club mightsubstantially reduce official debt starting in 1996. The more difficult problem isthe depletion of the public sector. Although the nominal mandate remains almostas large as ever, the absence of material inputs, the deterioration of mostequipment, and the pervasive pattem of vacancies in key posts leave the publicsector unable to fulfill its mandates. Personnel emoluments decreased steadilyduring the late 1980s, and, despite some improvement in the 1990s, top wagesremain far too low to attract professionals in a labor market that is now officiallyCaribbean-wide and often effectively hemispheric."'

Suriname now faces a situation not unlike Guyana's almost a decade ago.The aftermath of a bauxite boom and dependence on aid from the Dutch left highgovernment spending and deficits, low quality of public service, high inflation, andnegative growth. Policy and bauxite prices improved in 1995, bringing a short-term improvement in the situation. The details of the long-term reform agendaremain to be determined, however, although it is clear that improving govemancewill be a priority.

Since the early 1980s, Jamaica has implemented an extensive adjustmentprogram, but the negative effects still linger from the overexpansion engendered bythe bauxite boom in the 1970s and the heavy borrowing in the 1980s that allowedthe government to delay adjustment. Jamaica's overall fiscal balance improvedafter the mid-1980s, as revenues outgrew expenditures, and it moved into surplusafter 1992. After Jamaica's encouraging growth of almost 5 percent a year onaverage for 1986-90, growth slowed to an average of I percent a year over 1991-94, as the Bank of Jamaica repeatedly tightened credit to stabilize prices and theexchange rate, following successive rounds of wage increases, reductions in importduties, corporate bailouts, and buildups of the foreign exchange reserve.

Nearly one-third of government spending in Jamaica was for interestpayments during the past decade, initially mostly on debt owed to foreign lendersbut increasingly on domestic debt, because of its higher interest rate. The light atthe end of Jamaica's long tunnel of adjustment could be financed substantially byreductions in the interest cost of domestic debt, which would result from bettermanagement of debt and spending. The negative legacy of past mistakes alsoshows through the tattered and unbalanced structure of public employment.Currently, the central government employs roughly 8 percent of the country'sworkforce, down from 14 percent in the early 1980s. Although the wage bill in1994-95 accounted for more than 50 percent of the government's discretionarycurrent expenditure, the salaries of managerial, professional, and technical staff aretypically half or less of the private equivalent. As a result, professionals are notattracted to the civil service, as indicated by the significant number of key positionsthat are not filled, while the lower ranks are overstaffed.

12 CARICOM countries agreed in 1995 to allow free mobility of university graduates betweenthe islands.

16


In Trinidad and Tobago, oil windfalls greatly expanded the size of thepublic sector in the 1970s and early 1980s, but the public sector did not contractwhen oil prices fell. From 1982 to 1990, oil prices were depressed, and fiscaldeficits averaged 8 percent of GDP, financed almost wholly from reserves, centralbank money creation, and short-term borrowing. Together, by 1986-90, the civilservice, public utilities, and state-owned enterprises accounted for nearly two-thirds of GDP, which had shrunk steeply since the oil boom a decade before. At itspeak in 1987, 30 percent of the total labor force was employed in the public sectorand close to 15 percent of GDP went for govermnent wages. Since 1990, theadjustment program has streamlined the public sector and privatized manyactivities. By 1994, government spending was down to 27 percent of GDP, from42 percent in the early 1980s, and public sector employment had declined to 22percent of the workforce. Overall, deficits in the 1990s have averaged less than Ipercent of GDP. The composition of personnel continues to be bottom heavy,however, and the wage structure needs revision in order to improve efficiency.Compensation is almost double the prevailing market wages at lower levels in thepublic sector, but at professional, technical, and managerial ranks, compensation isas much as 50 to 70 percent lower than in the private sector, which makes itdifficult to attract and retain qualified staff. Growth still fluctuates with thevolume of exports and the price of oil, gas, and by-products. The public sectorprolongs this dependence by crowding out private non-oil export firms,particularly from the labor market, and by failing to provide adequateinfrastructure to support these industries.

The Dominican Republic has consistently had the lowest governmentspending as a share of GDP in the Caribbean countries but has had a large publicenterprise sector that grew up during the nickel and sugar booms of the 1970s andearly 1980s. In the 1980s, tax revenues fell short of even the low levels ofspending, and the government resorted to inflationary finance and other measuresthat distorted financial markets. The New Economic Program in 1990 combinedstringent stabilization measures with financial, trade, pricing, and tax reforms.Since the early 1990s, real GDP growth averaged 5 percent a year, inflationdeclined from 56 to 6 percent; and the external account strengthened throughcapital reflows, the elimination of external debt arrears, and the renegotiation andrepurchasing of external debt.

Summary lessons

Although the A, B, and C groupings follow population size groupings, theyalso correspond to differences in the way that the governments have respectedtheir budget constraints, and the correspondence is not coincidental. Thesmallness of the OECS countries and historical legacy convinced them not to haveseparate currencies. With a common currency and central bank, the onlyconsensus policy strategy has been to fix to a strong external currency, and therehas never been a consensus to use monetary financing to expand the fiscalenvelope for the one or two countries that might want to do so at any one time.The group B countries consider themselves large enough to have separate

17


currencies and central banks and therefore have occasionally used monetaryfinancing. But the policy-makers know that their economies are too small and tooopen to withstand exchange rate variability, especially given the countries'competitive advantage in business requiring open capital markets. Thus they havealways pulled back from the abyss, which was made easier because they have neverhad a massive commodity boom that led them to expand far beyond the sustainablelevel.

The mineral commodity booms in the group C countries madeunsustainable expansions of the public sector hard to resist. Their slightly largereconomies perhaps also gave the governments unrealistic ideas about thepossibilities for maintaining an independent currency while using monetaryfinance."3 Guyana and Jamaica expanded the public sector using short-term debtand central-bank financing. Inflationary erosion of real wages led to severe lossesof good managerial and technical personnel. The situation in all countries could beimproved, because overstaffing at lower ranks of the public sector is common, asare inadequate wages and unfilled vacancies at technical and managerial levels.The problem is far more severe, however, in countries where the inflation tax andemergency retrenchments were common.

Now that most Caribbean countries have gotten past the emergency-stabilization phases of adjustment, governments should plan public saving levelsmore as part of a policy to finance enough investment to support their overallprogram of public service.

The Caribbean countries need to develop rational debt managementstrategies. Past excesses in the group C countries, as well as some in the OECS,left large debt service burdens that soak up public saving and leave publicinvestment programs seriously underfunded. Creditors, especially external officiallenders whose experts should have recognized the problems, share part of theblame for allowing this situation to come about. The creditors should have had alonger perspective, but some of the lending was motivated by cold war geopolitics.This is an important justification for supporting the various debt rescheduling andreduction schemes and perhaps for extending them further.

Since public savings can be used to fund public investment or to repay debtprincipal, the mix of borrowing sources matters. The OECS, except Antigua,relied largely on external funds, mostly on concessional terms, so that external debt

'3 In fairness to history, one must recall the global and intellectual context of the 1970s,when these countries were abandoning fixed exchange rates or expanding money to such anextent that eventual depreciation was unavoidable. Most OECD countries then were abandoningfixed rates and floating out of necessity, if not conviction. The intellectual argument shifted infavor of floating. Most important, the two currencies to which the Caribbean could peg-the U.S.dollar and the British pound-were both floating and experiencing double-digit, highly variabledomestic inflation rates. Even in the last decade, as dollar inflation declined to low rates, theinternational financial institutions have not always recommended fixed exchange rates asanchors and devices for the Caribbean countries to commit themselves to monetary stability.

18


service ratios remain in low single digits. Guyana and Jamaica both used externalfinancing to support adjustment programs in the 1990s, but much of it went tofinance repayments on loans from the 1980s. Shortage of counterpart finances andlack of implementing capacity, partly the result of the loss of critical personnelmentioned earlier, have greatly slowed the use of long-term project finance, eventhough moving debt structure in this direction would reduce debt service costs.

Most non-OECS govemments increased domestic borrowing to coverfiscal deficits in the 1990s; the Dominican Republic did so in the 1980s. At thesame time, with the exception of the Bahamas, they reduced outstanding extemaldebt. Attempts to finance the fiscal deficit domestically encounter three problems.First, the public sector competes for private domestic saving and can crowd out

the private sector's requirements for financing growth-an outcome inconsistentwith the expressed role for the private sector in an open market economy. Second,heavy domestic debt financing has usually led to financial sector repression, asbanks are pressured by high reserve requirements and other devices. Third,domestic borrowing is not concessional (except if accompanied by financialrepression). It carries market terms and conditions, and the increment to interestexpenditure could nullify attempts to reduce current outlays and improve fiscalsaving.

This review suggests that governments in Caribbean countries should nottake on sizable incremental loans in either the domestic or the extemal market,because export markets are fragile, and the private sector needs to retain a majorshare of domestic saving. At the same time, large amounts of extemal debt shouldnot be repaid on a net aggregate basis, for that would use up public saving andimpair the government's ability to fund public investment programs. Borrowingprograms should be tailored, therefore, to fit a medium- or longer-term debtservice profile as a function of growth, viable external overall balance, and fiscalprudence.

While expenditure control rather than increased tax effort has been the keyto getting the public sector back in a sustainable envelope in most Caribbeancountries, tax reform has been important for improving the prospects for privatesector growth, and further reforms will be necessary to assure continued fiscalsustainability. The most common and beneficial change has been the introductionof broad taxes on domestic production and consumption of goods and services,replacing individual excise taxes and allowing the reduction of rates for directtaxes and trade taxes. Value added taxes have gained in popularity because of theirgreat buoyancy, as in Barbados and Jamaica, but experience highlights the need forsimplicity, transparency, and the elimination of exemptions and concessions thatnarrow the tax base.

For a number of countries, the performance over 1993-94 indicates thatrestraint of growth in current expenditure, previously exercised, may not besustained because of pressure to increase wages. Programs to improve publicsaving by restraining or reducing current expenditure are faced with a hard core ofexpenditure on wages and salaries, pensions, and interest payments that represent a

19

PUBLIC SECTOR MODERNIZ4 TION IN THE CARIBBEA N

major share of revenues (see Box 2.1). This situation will be made more difficultby the public sector's need to bring salaries closer to those in the private sector inorder to attract and retain professional and technical staff.

Key sectors

The contractions in aggregate public spending over the past decade or twooften occurred too fast to plan cuts in a way that sustained national prioritiesacross functions and programs or that kept an efficient balance of labor, capital,and other inputs. Overall, the mandate is still too broad to allow adequateprovision in most areas of government activity. Redressing the situation requiresthree kinds of action: use national priorities to pick which functions should bestrengthened; reduce spending elsewhere; and make spending more efficient in allareas where the government remains active.

The three main goals of public expenditure in the Caribbean are publicsafety, human resource development, and adequate infrastructure for facilitatingprivate sector growth. This is reflected in the numbers; education, health, andinfrastructure together with public order and defense account for the bulk of publicexpenditure-on average, roughly 55 percent of total expenditures-in theCaribbean. Public spending on directly productive activities, such as agricultureand tourism, has been declining, although the level remains high, considering thatthe private sector has increased its involvement in these areas. In view of thechanging composition of public expenditure and the objectives of enhancingeconomic growth and alleviating poverty, this report focuses on two socialsectors-education and health-and infrastructure.4 Social security is an area thatwill need increased attention in the future, given the success of the health sector inincreasing life expectancy."

Education and health

Although education and health care are quite different activities, they sharesimilar patterns of success and problems in the Caribbean. Good education andhealth systems are both needed to achieve growth and reduce poverty. A study of116 economies from 1965 to 1985 found that education and low infant mortalityrates led to significantly higher growth (Barro and Lee 1993). A study of eighthigh- performing Asian economies found that primary education, measured byschool enrollment, was by far the largest single contributor to the predicted growthrate (World Bank 1993). The growth effects work both directly by improvingproductive skills and cutting down on illness and indirectly by making Caribbeancountries a more attractive place for entrepreneurs and educated workers to stayand raise families. The report on Prospects for Service Exports stresses that

14 This umbrella report draws on three sector-specific reports prepared from the CGCED:World Bank 1992a; Inter-American Development Bank 1996a, 1996b.

" See Reid and Mitchell, 1995.

20


human capital isthe main source of compartive advantage in service sectors, andtherefore improving the education system should have to priority.16

Box 2.1 Public sector employment and wage bill

The wage bill is the largest non-interest expenditure object in government budgets, andits share has been rising in most Caribbean countries, as shown below. This rise has typicallycrowded out operation and maintenance and even investment spending to the point of seriouslyreducing the efficiency of the public service and the effectiveness of programs. The public sectorhas been the employer of last resort in many countries, leaving a legacy of major overstaffing atlower levels. At the same time, workers at technical and managerial levels are rarely paidsalaries comparable to those paid in the private sector. As a result, it is difficult to retain skilledpeople in the public service and even more difficult to attract new ones. A notable exception isBelize, where most of the top third of the civil service is paid about 35 percent higher than theprivate sector, and the other two thirds earn over 60 percent more.

In the Eastern Caribbean states, for example, 40 to 60 percent of the labor force worksfor the public sector (Ferracho 1994). On average, the wage bill has fluctuated around 55 percentof current expenditure net of interest payments since early 1980s, with ranges from 45 percent inSt. Kitts and Nevis to nearly 62 percent in Dominica. In Jamaica, the central governmentemploys roughly 8 percent of the workforce, although its wage bill accounts for more than 60percent of the non-interest current expenditure. The structure of public sector employment inGuyana is similar to that in many other countries in the region; it is replete with manual andclerical workers but lacks adequate professional staff. In the past few years, however, the centralgovernment's employment policies in Guyana have moved in the right direction with a reductionin the number of redundant employees and some decompression of wages.

Central government wage bill as a ratio of current expenditure net of interest payments,1980-94

Country 198084 198589 1990-94

Antigua and Barbuda 36.6 41.8 68.6Bahamnas 42.3 50.4 60.3Barbados 42.6 44.6 53.2Belize 46.2 52.1 53.0Dominica 58.6 56.7 -Dominican Republic 48.1 39.4 --Grenada 52.0 52.4 58.8Guyana - 37.7 -Jamaica - - 66.0St. Kitts and Nevis 41.2 42.4 59.9St. Lucia 51.3 53.0 53.0St. Vincent and the Grenadines 44.6 51.8 57.6Suriname - - 43.8Trinidad and Tobago 40.6 40.6 41.9

-Not available.Sources: For 1980-89, World Bank country reports; for OECS, Bahamas, and Barbados, country financialand statistical bureaus; for 1990-94, Appendix I.

6 World Bank 1996a, p.vii.

21


Indicators of education and health place most Caribbean countries wellabove the average for other countries at similar levels of income. In the majorityof Caribbean countries, primary schooling is nearly universal, enrollment ratios forsecondary education are generally above the average for middle-income countries,and overall literacy rates are high. The improved health outlook in the Caribbeancan be seen in the low rate of infant mortality, declining incidence of infectiousdiseases, and long life expectancy. The discussion of Barbados in Box 2.2illustrates the costs as well as the benefits of strong public programs in socialsectors. Despite past successes, the provision of these services suffers fromdeclining quality, from inefficient allocation of resources within the sector, frominadequate coordination between public and private provision, and fromunderprovision of service to the poor.

PUBLIC SECTOR PROVISION. Government spending on the social sectors inthe Caribbean compares favorably with that in other developing and industrialcountries. See Figure 2.2. The shares of public funds going to primary (and basicsecondary) education and basic health services in most of the Caribbean are nearthe median for developing countries. Further increases, however, moving towardthe shares common in the fast-growing Asian economies, would probablyaccelerate growth and reduce poverty." In the Commonwealth Caribbean, accessto primary education is virtually universal, but the quality is often low. In theDominican Republic, Guyana, and Jamaica, test results indicate that manystudents-half of those finishing the sixth grade in Jamaica-are functionallyilliterate. Belize, Dominica, St. Lucia, and St. Kitts and Nevis spend more thanhalf of their education budgets on primary education, but the shares are only 30-40percent in Barbados, Jamaica, and Trinidad and Tobago. Improving basiceducation would contribute to more secondary and tertiary programs, which nowmust spend a lot of time on remedial work.

The health care sector has similar problems: some countries built largenumbers of clinics to make primary care universally available in the past, butcutbacks have fallen disproportionately on primary care and preventativeprograms. In Guyana, nearly one-third of total public expenditure during 1992-94was for major rehabilitation of the Georgetown Hospital. In Trinidad and Tobago,the ratio of expenditure on hospitals to primary care doubled during the I980s.Likewise in the Dominican Republic, the skewed distribution of public healthoutlays toward hospitals has left health centers and clinics short of supplies andstaff and reinforced a cultural preference for hospital-based curative care services.

17 For example, the share of funds allocated to tertiary education in East Asian countries hastended to be low, averaging roughly 15 percent during the past three decades (World Bank 1993).In the Caribbean, the share has been roughly 30 percent. However, when compared withcountries such as Brazil and Venezuela, the Caribbean provision looks equitable and efficient. InBrazil, the estimated cost per student at the university level is twenty-five times higher than it isat the primary level, and students pay no tuition at public universities, the country allocates 70percent of its public spending on health to hospitals. In Venezuela, spending on universities,which is nearly three-quarters of all spending for public education, shortchanges the system ofbasic education.

22


This pattern of resource allocation increases self-referrals to hospitals and raisesthe overall cost of health services. A few countries, however, such as Dominica,have successfully emphasized cost-effective primary and preventive healthprograms.

Box 2.2 Social sectors in Barbados

Economic growth in Barbados has been accompanied by a steady advance of all socialindicators. Human development in Barbados-measured as life expectancy, educationalattainment, and income-was recently ranked first among all developing countries (UnitedNations Development Programme 1994). Education at primary and secondary levels, providedfrec by the government, has been universal since 1985. Women have high educationalattaimnent, and literacy is the highest of any developing country.

Public spending on education has consistently been higher than 7 percent of GDP, thesingle largest category in the govemment budget, and nearly 60 percent is devoted to primarvand secondary levels. Expenditure on health, with significant outlays for disease control,accounts for the second largest category of government spending. The government spendsnearly 5 percent of GDP on health, providing all Barbadians with access to a universal healthcare system. According to the Pan American Health Organization (1994), while the avcragepublic health spending in 1990 for Latin America and the Caribbean was US$15 per capita(measured in 1988 US dollars), in Barbados it was US$225, and only part of this differential isdue to differences in the costs of provision.

Improving efficiency in the social sectors also requires shifting resourcestoward non-wage operation and maintenance. A recent study showed that eachextra dollar invested in teaching resources, such as textbooks, would lead to animmediate savings of more than ten dollars per student by speeding them throughschool (Hanushek, Gomes-Neto, and Harbison 1994). There is no uniqueprescription for allocating the education budget, but dedicating nearly all resourcesto teacher salaries is clearly not optimal," In Belize, Dominica, Jamaica, St. Kittsand Nevis, and St. Vincent and the Grenadines, among others, the bulk of therecurrent budget-up to 95 percent-goes to pay wages and salaries and very littlegoes for supplies and to maintain facilities. As a result, schools are in poorphysical condition and lack teaching aids and other equipment. In St. Vincent andthe Grenadines, only 2 percent of primary and secondary education expenditures inrecent years went for material and supplies. In Belize, the Dominican Republic,and the OECS countries, learning is hampered by the large proportion of teacherswho are not trained or are inadequately trained and by the paucity of teachingmaterials, particularly textbooks. 9

Spending by most health ministries also suffers because salary expensescrowd out non-wage recurrent spending. Doctors, nurses, and public health

IS Research does not support the notion that higher teacher salaries yield better education indeveloping countries. Resources spent to educate and train teachers have the most favorableimpact on the quality of education in developing countries (Hanushek 1995).

'9 The Dominican Republic has a project to address this problem, with World Bank support.

23


workers are important, but their effectiveness is limited by dilapidated buildingsand the scarcity of medications and functioning equipment. Governments areaware of the problem, and some have taken steps to address it. For instance,Barbados sustains spending on pharmaceuticals at about 10 percent of total healthspending, with favorable effects on effective health care delivery. Jamaica hasincluded the rebuilding of drug supplies as part of the public investment program,but it remains to be seen whether the effort will be sustained as external fundingends.

Figure 2.2 Central Government Expenditure on Education and Healthas a share of GDP, 1991-95

9.0 8.07.06.0

2uj 5.04.0uJ~-3.02.01.0

0.04 E E a C

.~~~~~~~~ ~ ~ ~~~~~.0 E

|UEDUCATION * HEALTH

PRIVATE SECTOR PROVISION. Although all of the Caribbean governmentshave virtually universal mandates in the social sectors, they have been unable tofulfill those mandates, and this inability has motivated the private sector to expandits involvement. In Jamaica, for example, public health expenditure as a share ofGDP has stayed around 3 percent over the last fifteen years, but total healthexpenditure has increased from 5 percent of GDP in 1980 to nearly 9 percent in1993-94, with the private sector providing all the increase. In 1990, the share ofthe private sector in total health expenditure in the Caribbean countries rangedfrom less than 30 percent in Trinidad and Tobago to more than 50 percent inJamaica, Suriname, St. Lucia, and probably Dominican Republic (Pan AmericanHealth Organization 1994; World Bank 1995b and 1995d; Inter-AmericanDevelopment Bank 1996a). In education the private sector, except in Guyanawhere it is forbidden by law, has expanded particularly into primary education, forreasons discussed below, and into technical and vocational training, where thepublic sector is traditionally weak and the immediate economic returns areobvious. The public sector in health and education needs to realign itself to takefull account of what the private sector can do and is doing.

EQUITY IMPLICATIONS. The uneven quality of public education and healthservices has interacted with the growing role of the private sector in a way thatresults, without intention, in serious inequality between rich and poor. The

24


achievement of almost universal access to public primary education and healthservices in the Commonwealth Caribbean provides an important floor for equality,but now the overall agenda is focusing on quality and level of service, and that iswhere the main inequities arise.20 Benefits to the non-poor account for the lion'sshare of public resources. Partly this is geographic, because the quality ofeducation and health service is generally lower in rural areas, which are alsopoorer. But much of the inequity arises because people with more incomerationally use the private education and health sectors to improve their access tothe best services provided by the public sector-traditional high schools,universities, university hospitals, and other specialized hospitals. Public supportper student and per patient is very high at these institutions. Costs per student at auniversity run thirty to fifty times the costs at a primary school. Theoretically, allcitizens have access to these facilities, and the ideal of equality is widely held, butsupply constraints mean that only a minority can use these institutions. Theminority includes some of the poor. But families who can afford it send theirchildren to private pre-primary and primary schools and hire private tutors. Thisgreatly increases their child's chances of passing the common entrance exam forgetting into the best high schools, which are virtual prerequisites for university.Similarly, patients who can afford it not only go to private clinics for primarycare-ven many of the poor do this in Jamaica-but also engage surgeonsprivately to perform operations and thus gain priority access to operating rooms inpublic hospitals.

Cost recovery by the public sector is usually insignificant, and increasing itat hospitals and universities could help raise resources to improve access andsubsidies for the poor. The University of the West Indies recently made animportant step in this direction by raising fees to cover 15 percent of economiccosts. The standards at the top will also need to be improved to meet internationalcompetition, while at the same time, the quality of service available to the poor willneed to be improved even more.

Infrastructure

There is a consensus on the importance of infrastructure for private sectorgrowth, but not on how much infrastructure should be provided and paid for bythe government.2' If anything, there is a growing consensus that a variety of mixesof private and public sector roles can be effective. The companion report to theCGCED, by the Inter-American Development Bank, discusses the issue in detail(see also Nicholls 1996; World Bank 1994b). Infrastructure is in poor physicalcondition in most Caribbean countries. Poorly maintained roads, power brown-and black-outs, inadequate water supply, and high number of faults per telephone

20 Access is lower in Haiti, the Dominican Republic, and rural areas of the mainlandeconomies of Belize, Guyana, and Suriname.

21 Infrastructure here refers to roads, ports, sea defenses, and public utilities. The broaderconcepts of institutional and social infrastructure are also important but are not included here.

25


line, for example, hamper economic growth. Overstaffing in public utilities andpoor maintenance of infrastructure facilities contribute to the high cost ofprovision. The delivery of service is also discouraged by inadequate tariffs. Inseveral Caribbean countries, for instance the Dominican Republic and Guyana,public utility deficits are a major fiscal drain on the budget.

Infrastructure is better in Barbados than in the rest of the region partlybecause of more favorable terrain and weather-relatively flat terrain and fewhurricanes-but also because of a strong infrastructure investment andmaintenance program that functioned in the context of an overall sustainable fiscalposition, as discussed above. The average share of infrastructure has been about20 percent in public capital outlays and about 10 percent in recurrent expenditure.Initially, the thrust of the investment program was on roads, but as tourismexpanded, emphasis shifted to the expansion of airport runways and a newpassenger terminal and to the improvement of port facilities. Telecommunicationslinks (including connections to computer data bases) between Barbados and therest of the world are good, although they would improve if regulations allowedcompetition. Information processing, banking, insurance, tourism, and otherservice export sectors depend on a high-quality infrastructure and have contributedstrongly to Barbadian growth-12

In the Caribbean region, the public sector has always provided water,sewerage, roads, and railways, but in most cases countries acquired electric power,telecommunications, and urban transport services only in the 1970s or 1980s(Nicholls 1995). Most telecommunications and some railroad and urban transportservices have been privatized recently. Problems in the power and water sectorsare prompting serious discussion of privatization there. Jamaica already has someprivate power generation and is developing a program to privatize water andsewerage partially. Although the smallness of the Caribbean economies raises theunit cost of some infrastructure, recent technological change has often reduced theeconomies of scale.'3 Even where there are economies of scale, they do not usuallyjustify public rather than private provision with appropriate regulation. Either way,the core issues of promoting efficiency, trimming excess workers, and having usercharges adequate to cover costs are politically difficult and yet need to beaddressed. Operation on a commercial basis has repeatedly proven to be not onlythe most economically efficient and fiscally prudent approach, but also the bestway to expand service to the population, including the poor.

During fiscal adjustment, public infrastructure investment and maintenanceoften took the biggest reduction (World Bank 1 992b). Although the initial declinein investment can be justified, repeated cutbacks are likely to impede the revival ofgrowth. In Trinidad and Tobago, the cost of fiscal adjustment-partly caused bydeclining oil revenues-has been borne disproportionately by infrastructure

22 The companion report on export services, World Bank 1996a, elaborates.23 For example, the latest steam-driven turbines and combined-cycle technologies have

reduced the economies of scale in electricity generation.

26


investment and maintenance, while at the same time large subventions continued tosupport the public water company's exceptionally large wage bill. Public capitalspending, which averaged around 15 percent of GDP during the oil boom in theearly 1980s, has barely averaged 2 percent of a much smaller GDP since 1988. Nonew investment, lack of maintenance, financially unsustainable tariffs, and poormanagement have severely eroded the country's infrastructure. Road conditionsare bad, serious problems exist in the sewerage system, and the water supply isleaky, with unaccounted-for water reaching more than 50 percent. The countryneeds to improve its infrastructure by increasing public sector investment andencouraging private sector participation to sustain the recent revival of growth. Inother countries, particularly group C countries and Antigua and Barbuda, thespending on infrastructure was not protected before or during the adjustmentprocess, and the resultant deterioration now threatens the prospects of growth.

A satisfactory return on infrastructure capital requires an effectiveoperations and maintenance strategy. 24 For example, the benefits of roadmaintenance are often difficult to discern in the short run, but the failure tomaintain roads increases rehabilitation costs exponentially. Lack of routinemaintenance increases the pressure on periodic maintenance, and neglectingperiodic maintenance as well leads to much higher rehabilitation costs, which attimes could be as high as the costs of new construction. The Jamaican experiencestarkly illustrates this. The country has had an extensive road network fordecades, but less than one-fifth of paved roads are in good condition now. Muchof the system has deteriorated in the last twenty years, some irreparably, due tolack of proper maintenance. As a result of past underfunding of road maintenance,nearly half of the Ministry of Construction budget goes for road rehabilitation. Ithas been estimated that the cost of restoring Jamaica's road network to amaintainable standard would be higher than 6 percent of GDP Among otherCaribbean countries, such as Grenada and St. Kitts and Nevis, not to mentionGuyana and Antigua and Barbuda, the frequency with which roads need majorrehabilitation and reconstruction also indicates lack of maintenance in the past.

Private management can help improve infrastructure enterprises. TheGuyana Electricity Company (GEC) illustrates how weak management, inefficientoperation, and low tariffs can lead to a near collapse of an infrastructure facility.The generation, transmission, and distribution facilities of the power utility havebeen worn out, supply has been unreliable, and the limited capacity does not meetdemand. The utility has burdened the public treasury, with transfers amounting toalmost 3 percent of GDP per year in 1989-92. Since then the revision of the tariffstructure and the introduction of private management on contract has reduced thedeficit to under one percent of GDP. Privatization is being considered as a way toenhance efficiency further. Similarly, the Corporacion Dominicana de Electricidad(CDE)-a state monopoly in power generation, transmission, and distribution until1989-has suffered from inefficient operation and management. With a longhistory of institutional and financial weaknesses, CDE has been draining precious

24Persaud, 1996; IDB. Infrastructure, 1996.

27


government resources. In the early 1990s, the actual power production at timeswas restricted to 30 percent of the installed capacity due to poor maintenance,precarious operating conditions, and technical inefficiency. The recently proposedreform toward privatization in the power sector is a step in the direction ofattracting private capital and management. If implemented, the private sectorwould handle distribution, manage transmission, and exclusively undertake all newgeneration capacity. This would allow scarce public resources to shift away fromthe power sector and toward much-needed spending for other infrastructure andhuman resource development.

In the Caribbean, as in most developing countries, full cost recovery forinfrastructure services is rare, due to inefficient high-cost production andinadequate tariff adjustments. Low user charges, infrequent adjustment forinflation, and poor enforcement often lead to major shortfalls in revenue. Theexperience of developing countries suggests that public enterprises such ashighway authorities, electricity, telecommunications, and water systems should berequired to cover a major portion, if not all, of their costs (Swaroop 1994).

Conclusions

Combining the discussions of aggregate spending and sectoral allocationinto one chapter illustrates the intimate connection that policy-makers confront andmust explain to the public. Fiscal and managerial constraints limit the number ofactivities that the govemment can successfully carry out. When people ask thatthe government take on an additional activity, they need to ask if this will improveefficiency of the economy and need to understand that people will have to paymore taxes or have the government give up some other activity. Similarly, whenpeople ask for some tax exemption or reduction, the government must explain toeveryone the cost in terms of some service forgone. Trying to stretch the same ordeclining resources to do more activities, as many countries in the Caribbean havedone, actually reduces the number of activities that the government carries outsuccessfully.

28

Institutionalframework

The Caribbean has the largest concentration of democratic developingcountries in the world, and although no system is perfect, most of the civil servicesare relatively free of corruption and political influence. There is thus much towork with and much to preserve. The problems outlined in the previous chaptersdo indicate, however, the need for some institutional reforms. Caribbeangovernments and their various advisers are still working to identify an effectivereform strategy. The core problem, which earlier reform efforts did not solve, isthe lack of a strong and transparent connection between performance and theallocation of public resources. The global movement toward market-basedeconomies reflects increased recognition of the importance of individual incentives;performance accountability applies the concept to the public sector, making peopleresponsible for results and not just the legally correct use of budget resources.

Constitutional and common law from the English colonial tradition definesthe division of power of the offices and agencies that govern and control the publicsector." Management of the public sector needs to achieve several tasks, for whichthe legal framework and common practice should provide adequate mechanisms:specifying the many activities in the public sector so that they correspond with theobjectives of the democratically elected government, allocating moneys broadly inadvance and in more detail during implementation according to the agreedobjectives, keeping allocations within the limits of revenue and authorizedborrowing, employing people and contracting with firms to carry out theseactivities, establishing public entities responsible for certain tasks, adjusting theallocation of resources to achieve the original objectives or to reflect newobjectives, assuring that moneys are spent for the approved purposes, andmonitoring the performance of the public agencies in fulfilling their assignedprograms. There are, of course, many possible channels for accomplishing thesetasks. Reorganizing them for greater effectiveness has been the aim of publicsector reform in many countries, upper income as well as developing.

Budget-formulation, implementation, and monitoring

The national budget is the instrument with which countries allocate scarceresources among competing programs and achieve effective and efficient financial

25 See Appendix 11. This chapter focuses on the legal frameworks of the English-speakingCaribbean, which are all similar. Given resource limitations, it was not possible to study thevaried legal frameworks and institutions of the Dominican Republic, Haiti, and Suriname.

PUBLIC SECTOR MODERNIZ4 MON IN THE CARBBEAN

management. The Eastem Caribbean Economic Management Programme(ECEMP) for OECS countries and World Bank-assisted administrative reformprograms (ARP) have identified some common issues critical to formulating andimplementing the budget. These issues include the capability of the budget systemto reflect priorities, to analyze and cost programs realistically, to allocate cash andcontrol expenditures in a way that makes managers accountable, and to providetimely and accurate financial and accounting information.

Budgetformulation

The process of formulating a budget is similar in most CommonwealthCaribbean countries. The minister of finance initiates the budget process byissuing a call for ministries and agencies to present annual estimates of revenue andexpenditure for the upcoming year and by specifying a timetable for submitting thereport. The estimates of expenditure form the basis for an appropriations bill thatthe finance minister submits to the house of assembly for consideration. Mostconstitutions include sections that allow for emergency expenditures in the eventthat the appropriations bill is not presented and approved by the start of thefinancial year, which is common. When the delay is more than a few weeks, thetime and the effective monetary envelope in which the government can execute thechosen budget are shortened, particularly for new programs. Constitutions alsoallow supplementary estimates and supplementary appropriations bills to besubmitted during the course of the financial year, as often happens. Two criticalchallenges in strengthening the budget process are to link allocations tomonitorable performance targets and to package spending decisions in a way thatallows the cabinet and parliament to see clearly whether spending allocationconforms with their fundamental priorities.

Line ministries must address internal priorities, but the format of the linebudget used in most countries does not facilitate the setting of priorities, therealistic costing of activities, or the monitoring of performance. To facilitate thesetasks, ECEMP is developing a program budget system for the OECS countries.Jamaica has implemented such a system under its ARP as a means to define theobjectives and expenditures of government programs and to determine the priorityallocation of resources. The system aims to link budget requirements to specificobjectives and capital allocations to future recurrent expenditure and to strengthenimplementation of the budget. The program budget system can facilitate a closerrelationship between implementation plans, input cost, expected output, and cashneeds. The emphasis on setting priorities should bring into bold relief the need toreview ongoing programs continually to determine current and future relevanceand the relationship to and attainment of program objectives; it exposes potentialduplication of agency programs; and it flags the potential to release resources byreformulating or abandoning programs. Medium-term economic strategy andpublic investment programs are rarely integrated into the budget process, but theyshould be. Undertaking these review and planning exercises is important ifcountries are to feel a sense of ownership of the results.

30

3 Institutionalframework

The ECEMP is also seeking to address the problems in the OECS oflagged response to the budget call and deficient content. One country hasaddressed such issues by using the budget call to provide guidance on how toformulate estimates. The document clearly states the government's sector andprogram priorities and outlines the strategy for allocating resources to nondebtprogram and investment expenditure. To ensure consistency, it establishes acommon approach to the personnel budget and gives pricing indexes for costingutilities and domestic and external goods and services, This general framework,tailored to meet the circumstances of each country, can make the response to thebudget call more timely and smooth the subsequent negotiating process.

The ECEMP and ARP aim to facilitate a results-oriented approach tofinancial management and performance monitoring. Jamaica has taken a first stepby requiring the executive head of line ministries to issue a corporate plan thatstates the ministry's corporate objectives and priorities for the fiscal year, sets outrelated performance targets and indicators of a qualitative or quantitative nature,outlines in broad terms the organizational arrangements for achieving success, andjustifies performance capability. This approach assigns to the executive headresponsibility for the performance and efficient and effective financial managementof the ministry's programs.

Implementation issues

Implementing the budget plan requires a multitude of decisions andconfirmations throughout the year. The first goal is to regulate the timing andamount of spending, so that it stays in line with the availability of tax revenue andother financing. As the fiscal situation evolves and becomes more constrained, thisconsideration becomes paramount, often to the point at which the actual spendingpattern no longer resembles the one intended. Furtherrnore, the budget as passedby parliament is often inconsistent with the patterns of revenue inflow and programimplementation that were presented consistently in the original budget.

The second goal of budgeting is to assure that moneys are spent for thepurposes intended by parliament, through a combination of ex ante and ex postcontrols. The tendency in recent reforms has been to move toward ex postcontrols. The third goal is to allow changes from the budget plan, which invariablybecome necessary, while assuring that the main intentions of parliament arefulfilled.

The public sector investment program often exceeds what can be financedrealistically in the annual budget, with the result that the collection of investmentsactually undertaken does not reflect the logic of the original program nor thedecisions made in Parliament. Furthermore, planning for the recurrent budgetrarely takes into account the costs of operating and maintaining projects after theinvestment phase. The lesson seems to be that the design of investment programsneeds to take account of the realistic level of funding in the budget both for theprogram (counterpart funding for externally financed projects) and for its post-

31

PUBLIC SECTOR MODERNI1Z TION IN THE CARIBBEAN

investment operation and maintenance. Perhaps public sector investment programscould be prepared with accompanying tables showing the amount of domesticfinancing needed and the amount of recurrent spending needed for operations andmaintenance over the next several years.

CASH MANAGEMENT CONTROL. Commonwealth Caribbean countries havea similar legal framework for financial management that provides for centralcontrol of cash and expenditure by the treasury/accountant-general office. Allgovernment receipts are deposited in a consolidated fund, although someconstitutions (for example, in the Eastern Caribbean) explicitly allow forcontingency and other special funds. Cash is released to ministries by way ofwarrants approved by the minister of finance. By law, the minister of finance'sauthority to issue these warrants is restricted by the appropriations bill, and inpractice the evolution of the fiscal envelope restricts that authority even more.This practice also introduces substantial uncertainty of allocations from theviewpoint of the implementing agency.

Normally ministries do not have their own bank accounts, and checks aredrawn on expenditure accounts held by the treasury/accountant-general. Aproblem in some countries is that spending ministries may issue checks in excess ofthe monthly or quarterly warrant limits, and these checks have to be honored.There is no applicable constraint other than disciplinary measures. Moreover,central control of cash and expenditures dilutes the responsibility of executiveheads for financial management (ECEMP 1994). Good cash managementpresumes that the government will not resort to monetary financing from thecentral bank, but frequently that has happened, as discussed in Chapter 2. Box 3.1discusses how strengthening the autonomy of the central bank can contribute toprice stability.

Jamaica has addressed these issues by providing each spending ministrywith a commercial bank account to which released resources are lodged on atimely basis. The executive head of the ministry is responsible and accountable formanaging the account. The banks do not provide overdraft facilities, and anyexcess of the account leads to checks "returned to drawer," which brings to bearthe discipline of the financial marketplace. The responsibility for the timing ofexpenditures rests with the executive head, and the associated benefit is prioritizingof commitments and more realistic projection of cash flows. Bank reconciliationstatements are timely and provide financial managers with a regular flow ofinformation on the status of ministry expenditure.

RESOURCE MOBILIZATION. Caribbean countries have recognized in theirrespective medium-term economic strategy papers the importance of taxadministration reform to optimize the collection of taxes and ensure the steadyflow of resources as planned by the national budget. Broadening the tax base is amajor issue, and most governments have decided to reduce the number ofexemptions and concessions granted by existing tax laws. To improve the taxassessment process and revenue yields, Jamaica and Dominica are introducingsystems to identify each tax-paying entity by a unique registration number, to

32


facilitate the reconciliation of accounts and the integrated assessment of all taxesfor each tax-paying entity. The system will also improve the maintenance andreliability of the tax data base. Box 3.2 discusses some experiences with taxadministration reform.

Box 3.1 Central banks in the Caribbean

After political independence, national policy-makers in the Caribbean usually tookcontrol of donestic monetary institutions. Except for the Eastern Caribbean Central Bank,which maintained the spirit of the multinational currency authority that once covered most of theWest Indian Federation, the new central banks had similar charters. They took over the issueand management of the domestic currency and were charged with maian mnonetarystability and promoting the orderly development of the economy. The goveming boards and thechief executives of these new institutions were appointed by, replaceable by, and accountable tothe political executive. The regular exchange of views and economic advice was expected toprovide the mechanism for the synchronization of monetary and fiscal policy. According to therating system developed by Cukierman, Webb, and Neyapti (1992), the central banks in theCaribbean have indexes of independence slightly above the median for banks in developing andindustrial countries. Despite the institutional similarities, the outcomes for monetary stabilityhave varied widely.

In several countries, the unpleasant expenences with inflation and foreign exchangecrises have elicited various proposals for institutional reform, which fall into two broad groups.Some propose to strengthen the autonomy of the central bank to pursue inflation targets,

presumably low ones. They would tighten the limits on lending to the public sector. Otherproposals would fix the exchange rate and, to varying degrees, make the central bank act like oractually become a monetary board. In that case, it would lend neither to the public nor to theprivate sector, since the only assets would be foreign exchange instruments. Both proposals areon the table for public debate in Jamaica. Barbados is considering enhancing the fixity of itsexchange rate by reinstituting a tighter monetary relation with the OECS.

Reforms of either type would yield their advantages only if the country stayed with theprogram in spite of the sometimes high short-run costs. The government would have to refrainfrom drawing on monetary financing and at crucial times (all the time with a currency board)support the central bank in refraining from lending to the private sector. Supervision andregulation of the financial sector would need to be strengthened, both in a technical sense and inthe sense of keeping politics out of the regulatory process. Worldwide research shows thatcentral bank reforms can help to channel policy in the right direction, but only if policy-makersrespect the rules.

THE COMMON EXTERNAL TARIFF. Regional trade arrangements oblige theCommonwealth Caribbean countries to adjust border tariffs to the lower (onaverage) common external tariff. Some countries have made the adjustment byapplying a GCTNVAT (general consumption tax/value added tariff) system toconsumption of goods and services, imported or domestically produced. TheG-CT/VAT facilitates the collection of revenues and reduces the cascading effectthat border taxes have on prices, but it also raises equity and regressivity issues.The wide application of the exemption could erode the tax base, and the provisionof subsidies under poverty alleviation policies would increase the pressure on the

33

PUBLIC SECTOR MODERNII4 TION IN THE CA RIBBEA N

national budget. Consequently, the prudent approach of administrations has beento introduce a carefully designed GCTNVAT tariff structure with low rates on basicnecessities and the minimum number of exemptions.

Box 3.2 Tax administration reform

In most Caribbean countries, deficiencies in tax administration remain serious.Although reform of the tax system was particularly important in the I 990s, somegovernments initiated reform of the tax administration, largely related to computerization.Tax collections still lag; tax compliance is low, with a high degree of non-filing andunderreporting of incomc; undervaluation of imports and substantial smuggling continue;tax evasion and illegal activities have become routine in some countries. Jamaica took theexceptional step of employing external professional investigators to combat the growingtrend of improper valuation practices and the high incidence of illegal activities at the portsand also to establish and train a core of local investigators to support the tax enforcementeffort.

All governments recognize the need to strengthen tax administration as a means ofensuring compliance with and enforcement of the tax laws and of enhancing tax collection.Some governments arc receiving support from the World Bank Group and the Inter-

American Development Bank. In Jamaica, the World Bank-supported program willaddress the organizational and managerial deficiencies of tax administration byrestructuring according to function rather than type of tax, as was traditional throughoutthe Commonwealth. The Inland Revenue Department will collect all taxes and enforcerelated penalties; and an assessment department will monitor and assess taxpayeractivities, audit returns, investigate and combat tax fraud, and prosecute tax evaders.Staff development will include performance-based incentive schemes and defined careerpaths. The legal tax framework will be improved to enhance enforcement capabilities. Asa major objective, improved voluntary tax compliance will be supported through taxpayerassistance units and special grievance units that will attend to complaints from taxpayers.ECEMP is supporting similar reforms in its Tax Project in Dominica, a pilot intended for

replication elsewhere.

DEBT MANAGE(ENT. Most governments have elementary systems formonitoring debt service and for meeting payments as contracted. Countryconstitutions provide that debt obligations be charged first on revenues and assets,and this is recognized in the budgets. Just giving priority to debt service is notenough, however. Debt management systems rarely realize their potential forgenerating information to support policy and strategy related to borrowing, fordeveloping a medium-term debt service profile, and for taking account ofacceptable ratios of external debt service to exports and of central governmentdebt service to revenue. Improving the management of debt, in order to have amore appropriate term structure and balance of external and internal debt, couldlower debt service, freeing resources for development activities.

34

3 Institutional framework

Monitoring issues

The constitutions of Commonwealth Caribbean countries establish theframework for public financial management. Responsibility and accountability forthe preparation and macro management of the national budget are placed with theminister of finance; the audit function is set up on an independent basis withresponsibility resting with parliament; the oversight function of parliament iscarried out by the finance committee, which assesses (ex ante) the requests for theappropriation of resources and by the public accounts committee, whichdetermines (ex post) the effective and efficient use of resources in achievingspecified objectives.

The financial administration and audit acts have been revised in somecountries in recent years, and one innovation has been to grant greater authority toauditor-generals to investigate the efficiency or value-for-money of theexpenditures of any government agency, including state-owned companies andstatutory boards. This sort of performance review needs to be actuallyimplemented, strengthened, and made more regular. The financial administrationand audit acts also establish the office of the accountant-general to provide regularreports on the accounting status of the public finances (in some countries, amonthly report is required by law). In principle, the regular reports of theaccountant-general, combined with the independent evaluations of the auditor-general, and the oversight of the parliamentary finance or accounts committeecould form a powerful force for scrutinizing and controlling government spending.In practice, however, the roles of these entities are poorly defined, leading to

informal arrangements that diminish their effect. Many countries perceive the needfor performance audits as well as financial audits. Performance targets and auditswould help improve accountability.

FIscAL REPoRTS. During the course of a budget year, the ministry offinance is responsible for monitoring fiscal operations to ensure that the plannedbudget programs and projects are on track and that the fiscal targets of themacroeconomic programs are met. Quarterly fiscal reports by the ministry offinance should provide policy-makers with information on significant developmentsin public finance operations and the macroeconomic environment that mightrequire corrective measures and action. Such reports are based on monthly orquarterly progress reports and accounts from line ministries that facilitate periodicreviews of actual expenditures, analyses of variations from and lags in budgetaryestimates, and the matching of financial and physical progress of projects. Theproblem common to most countries is the lack of regular, accurate, and timelyfinancial information within line ministries and from them to the ministry offinance. This deficiency hampers effective monitoring by permanent secretariesand the political directorate, not to mention parliament, the media, and the public.

The second phase of the Administrative Reform Program in Jamaica issetting up a comprehensive information system to link the budget, accounting, cash

35

PUBLIC SECTOR MODERNIZA TION IN THE CARIBBE4N

management, and financial reporting processes.26 This should benefit, in particular,the management of both line ministries and the ministry of finance. Available up-to-date, timely, and accurate accounting and financial information will assistmanagement with the supervision, performance monitoring, and review ofprograms and projects. The OECS countries through ECEMP, and possiblyTrinidad and Tobago, may implement similar financial management informationsystems.

PARLIAMENTARY OVERSIGHT. The independent audit of governmentaccounts and annual financial statements is established by the respective countryconstitutions to ensure that the resources appropriated by parliament are used forthe intended purposes. Although most audits are eventually done in a competentand professional manner (ECEMP, 1994), the audited accounts and statements areoften very late, because of delays in the submission of appropriate information byministries and departments. This seriously weakens the oversight function ofparliament and its public accounts committee. Countries need to set upcomprehensive financial management information systems, which integrate budget,accounting, and financial processes, in order to strengthen the audit and reviewprocess, and these need to be complemented with credible performance reviews.

Public service management

A positive legacy from the colonial period in the English-speakingCaribbean is the concept of a professional civil service --the Westminster model--which bases employment on skill and qualifications rather than on politicalexpediency. In the Commonwealth countries, the constitution provides for theestablishment of at least one public service commission.2" See Appendix II. Somecountries also have separate commissions for the police, educational, or judicialservice. Members of the public service commission are appointed by thegovernment (governor-general, president, or prime minister or with consultationamong some combination of these).28 Line ministers are responsible for establishingpublic service positions, the number of such positions, the qualifications required,the responsibilities, and remuneration. The power to appoint individuals to thesepositions lies with the public service commission in most countries. Reality fallsshort of the ideal model in several ways, however. In some cases the systemshields unmotivated bureaucrats from accountability In a growing number ofcases, it is breached by politicians' appointing permanent secretaries and otherstaff for political reasons. Most Caribbean countries are too small to have two fullteams of qualified senior technocrats, who would switch at every change ofgovernment. Many governments rely increasingly on statutory bodies outside the

26Several countries in Latin America have also begun such projects, see Asselin, 1995.27 The Dominican Republic does not have a public service commission but is considering

establishing one.2 1 In some cases (Belize, for example), there are also ex officio members like the chief justice

of the supreme court or the commissioner of police.

36

3 Institudionalframework

purview of the civil service commission or on the appointment of people tounscheduled posts in the government. The scale and frequency of theseshortcomings indicate a need for fundamental redesign of the system in manycountries.

The public service commission must maintain a delicate balance betweenthe need to preserve the rights of public sector employees (political independence,protection against unfair dismissals) and the need for public servants to respond topolicies decided by the political directorate and, ultimately, the public. The legalframework for the operation of public service commissions is quite general.Reforms in the implementation of the commissions' responsibilities have occurredin a number of Commonwealth Caribbean and other British Commonwealthcountries without significant legal or constitutional reforms. Two possible reformsof the legal framework should be considered: (1) the consolidation of multiplepublic service commissions into one commission and (2) clearer legislation ondelegation of the responsibility to appoint, remove, and discipline civil servants.Delegation would facilitate the development of executive agencies and othermanagement innovations. In view of the large numbers of statutory bodies and thepossible introduction of executive agencies, the role of the public servicecommissions needs some rethinking.

Several countries in the Caribbean are in the process of reforming their civilservice. Four principles guide these efforts. First, they are decentralizing themanagement of certain human resources, subject to budget constraints andperformance standards. A 1992 study by the Caribbean Centre for DevelopmentAdministration (Burton and Associates 1992) recommends "promoting delegationand decentralization of maximum feasible decisional authority to operatingagencies, subject to the standards and oversight of the Ministry of the PublicService and Office of the Service Commissions."29 This delegation of personneldecisions is needed to complement the enhanced accountability of governmentagencies for their performance. The second guiding principle is to follow clear"rules of the game" for public employees: detailed job descriptions andrequirements, detailed and objective criteria for performance evaluation, clearlydelineated career paths for advancement, a transparent appeals process for disputesover performance evaluation, and specific and openly stated penalties for poorperformance or corruption. Putting such rules on paper is not enough; they mustalso be followed and not subordinated to seniority or ad hoc union pressure. Thethird and fourth principles are familiar: training opportunities and pay based onmerit. These two issues are expensive and take time to implement; however, asmaller but well-paid, well-trained civil service can be more effective and lessexpensive than an overstaffed, less-qualified, and underpaid service.

To be more efficient and to take on new roles, civil servants will needimproved training opportunities. They should involve not only specific technicalskills, but also should inculcate new attitudes of customer service and performance

29 Barbados, 1996, recommends this approach as well.

37

PUBLIC SECTOR MODERNIZ TION IN THE CARIBBEAN

motivation. In this area, like several others, the international donors and lenderscould support the needed programs.

Paying adequate salaries to managers and staff and granting autonomy andresponsibility to managers are necessary elements of a system of accountability forresults, in tandem with tight controls on overall cost. Although this approachshould be evident throughout the public service, it is rare. Previous administrativereform programs in the Caribbean-in Dominica, Jamaica, St. Lucia, and St.Vincent and the Grenadines-started, logically enough, with exercises to regradepositions and upgrade salaries. Too often, however, these exercises did notreorient incentives or finish restructuring the administration. They were expensiveand reduced the motivation for many civil servants to complete structural andperformance reform. Thus Caribbean governments are understandably reluctant tosupport system-wide solutions without some assurance on the limit to cost and theprospect of success.

The challenge is to initiate a task that is undeniably necessary but also riskyand possibly too expensive to accomplish all at once. Recent reform efforts in theCaribbean have proceeded with more care and focus. Trinidad and Tobagoimplemented a Voluntary Separation of Employment Program that succeeded inreducing the civil service rolls without demoralizing staff or arousing too muchpolitical opposition, although at a cost of losing more of the good staff thananticipated. In considering another phase of the program, they see the need forselectivity and control on who may exit under the plan and for a good personneldata base to assure that those who exit under the plan are not rehired somewhereelse in the public sector. In Belize the retrenchments in 1995 came after extensiveconsultations with permanent secretaries in order to have the exercise contribute toproductivity improvement. Another strategy is to begin on a modest scale withpilot projects that, if successful, could be replicated more widely. This is beingtried in the latest phase of the Administrative Reform Program in Jamaica andinvolves thoroughly reforming a few agencies, particularly those concerned withthe collection of revenue, and pilot ministries, while continuing to developgovernment-wide financial and personnel management and information systems.Trinidad and Tobago is implementing the pilot agency approach to reform in deptha few agencies, such as the post office. Guyana and some OECS countries areimproving their information systems and their revenue collection agencies with thepilot strategy.

Public enterprises and statutory agencies

The commitment to private sector-led economic growth is prompting theprivatization or extensive reform of state-owned enterprises, reflecting a pragmaticresponse to economic and financial circumstances. Statutory agencies and state-owned companies in many countries are not covered by the financial controlsestablished by the constitution. They have a large degree of autonomy in that theymay retain their own revenues outside of the consolidated funds and the onlyexpenditure controls depend on the informal relationship with the ministry having

38

3 Institutional fiamework

oversight responsibility. They thus have more scope for flexibility and efficiency,but also more scope for mismanagement and corruption. Their budget processesare less transparent and subject to less oversight than the government budget.

State-owned entities have typically posted many years of deterioratingperformance with mounting financial losses and increasing reliance on budgetaryresources. In many instances, plant and equipment are in disrepair, andrehabilitation costs are beyond the financial capability of the enterprises or thegovernments. Weak management and the potential for political interference inoperational activities have led to inefficient production and high unit costs that arenot covered by pricing policies and practices. Liberalization and the opening of thedomestic market would place public entities in the consumer goods market undercompetitive pressure. Public entities in the export market are already facingincreasing competition as regional trade arrangements have loosened marketprotection. Utilities need a strong operational and financial base if they are toexpand with the demands of growth led by the private sector. The reform of stateenterprises is born of necessity.

The options for reform include the structural and operational adjustment ofenterprises within public ownership, the hiring of private sector auditors (whowould report to the accountant-general and the oversight ministries andparliamentary committees), the contracting of management to the private sector,and privatization through the lease or sale of state-owned assets. See Table 1. 1.Reform programs commenced in the 1 980s and have varied in pace and coverage.

Since 1990, substantial progress has been made with reforming publicenterprises in Commonwealth Caribbean countries, particularly with theprivatization of state-owned assets. Generally, the size of the sector was reduced,and the efficiency and effectiveness of entities were improved. This improvementwas reflected in operational performance. While most governments retainedownership of utilities and enterprises within the energy and bauxite sectors, theyimproved efficiency by arranging joint ventures, contracting out enterpfisemanagement to the private sector, or rationalizing and restructuring operations,including reducing the workforce. The reform efforts have been greatest in someof the countries that were the first to expand the scope of public enterprises-Grenada, Guyana, and Jamaica.

Grenada disposed of nineteen out of twenty-seven enterprises by 1993,sold majority shareholdings in two, and listed three for divestment in 1994-95.Budget transfers were minimal (average of 0.18 percent of GDP) and largelysupported the reduction of external and domestic debt. Enterprises generatedsavings averaging 1.5 percent of GDP, which with external grants averaging 0.7percent of GDP maintained a modest investment program without building updebt. Other OECS countries addressed enterprise reform only in 1994. Althoughthe medium-term economic strategies in 1994 named a few enterprises fordivestment, emphasis was placed on achieving operational and financial viabilitythrough improved management practices. The Bahamas concentrated onimproving efficiency by reducing the workforce and enhancing financial controls

39

PUBLIC SECTOR MODERNIZATION IN THE CARIBBE4N

and accounting practices. The divestment of hotel property, the sale of thenational airline, and private sector participation in electric and telecommunicationutilities, are planned. In 1995, the Dominican Republic decided to direct reform atthree areas: the power sector will be rationalized, and some aspects privatized withWorld Bank assistance; reform of the transport sector will focus on deregulation,outsourcing, and improvement of the management of maintenance and the planningof transport. A proposed expansion of port facilities also anticipates private sectorparticipation.

In Guyana, public enterprises once covered most economic activities.Enterprise reform was implemented in 1988 as an integral part of an economicrestoration program, and, by 1992, fourteen public enterprises, including all therice mills except one were divested. Sector performance for the four years prior to1992 indicates an improvement in public enterprise operations as reform gainedmomentum by selling assets and contracting management to the private sector. By1992 the current account balance rose to almost 15 percent of GDP, comparedwith the average of 6 percent over 1989-90. The overall deficit was sharplyreduced to 1 percent of GDP compared with an average deficit of almost 16percent in earlier years; see Table 3.1 below. The management contract methodwas applied to the sugar, bauxite and electric power enterprises. As a result, sugarproduction increased in efficiency and output, and the bauxite export marketrequirements were met. Some thirty state-owned enterprises still control a largepart of economic activities, including the financial sector, and further progress hasbeen slow, although the government has articulated and published its privatizationpolicy. Ten other enterprises were listed for sale as of 1995, and most financialinstitutions with government participation will be considered for privatizationwithin a sequenced program.

Table 3.1 Guyana Public Enterprise Finances, 1989-92 (percentage of GDP)

Type of finance 1989-90 1991 1992

Current account balance 6.4 9.9 14.6Overall balance before grants' 15.5 6.0 1.2Budget transfersb 3.8 4.0 4.3Divestment proceeds 1.5 8.2 1.4

a. Average.b. Largely to meet the deficits of the electric utility.

The Jamaican reform program focused initially on restructuring entitiesand, where possible, leasing assets or contracting the management of assets to theprivate sector. The sale of hotel properties was given priority, because that sectorevidenced private sector growth. Transactions were tailored to a number ofseparate objectives: reducing outstanding external public sector commercial debtby way of debt-for-equity swaps, recovering the investment undertaken by thegovernment, and minimizing the impact on employees. In the mid-1980s, publictransportation and garbage collection in Kingston were privatized. The experienceurban transport did not go smoothly, in part because of inadequate fares and poorregulation, but there have been recent improvements. Otherwise progress was

40

3 Institution al framework

slow due to the steep learning curve, the slow pace of sectoral adjustment andderegulation, and the low level of private sector confidence in the restoration ofthe economy. Eventually, a comprehensive, transparent, and publicized processbased on clearly stated government policy and narrowly defined objectives led tothe sale of eight hotel properties by 1989. In the past six fiscal years, more thanforty enterprises were sold, including the major financial sector firms, two airlines,and all government sugar companies. The government has signaled the offer ofseventy entities, almost all the remaining state-owned enterprises, for sale by fiscal1997. Domestic private investors dominate the divestment market, and the majorplayers are financial institutions other than the World Bank. Savetelecommunications, the utilities remain in public ownership, although incrementalpower-generating capacity has been opened to private sector ownership. Theelectric utility retains its monopoly on power transmission and distribution and willpurchase power from privately owned plants.

Barbadian public enterprises never had a phase of ideological expansion.Nevertheless, their commercial activities covered the oil sector, hotels, someutilities, and broadcasting. The government has sold two hotels and interests in acement joint venture, and the remaining hotel is operated under contract by aninternational hotel chain. The commercial group of entities constantly registeredmodest current and overall surpluses, below 1 percent of GDP, but the non-commercial entities with regulatory and executive functions require support fromthe budget. Belize has successfully pursued reform and divestment for ten years.The government privatized its interest in banana plantations, telecommunications,and the electric utility. For the future, the divestment list targets port and airportutilities, marketing corporations, the sugar sector, and government-owned lands.Its completion would mark the transfer of almost all the assets of state enterprisesto the private sector. Sectoral performance has been strong: constant currentsurpluses have been sufficient to fund, on average, 60 percent of investment.

Public enterprise reform in Trinidad and Tobago began in earnest in 1990.Of the ninety public enterprises held in 1990, more than one-fourth were privatizedby 1994, and half of the remainder were privatized in 1995. Of the largemanufacturing enterprises, only the sugar company and one oil company remain ingovernment hands. In most cases, the government sold a majority share andretained a minority share. The iron and steel company was contracted to privatemanagement in 1988 and was recently sold outright.

Despite the substantial progress in public enterprise reform and divestment,many enterprises still remain under public ownership as indicated in the abridgedlist for 1995 in Appendix III. The list covers entities that are engaged in activitiesrelating to the production and sale of goods and services in the marketplace.Excluded are agencies, both statutory and corporate, largely, if not fully, fundedfrom budgetary resources; with functions ranging from the administration of localaffairs to the promotion of exports and tourism. The figures below indicate thesize of transfers to the major enterprises. See Table 3.2. The substantial resourcesdevoted to these agencies justify a thorough evaluation of each agency's raison

41


d'etre, efficiency, and effectiveness in any review of the operations of the publicsector directed at improving fiscal performance.

Table 3.2 Resource Transfers to Selected Agencies, 1990-94 (percentage of GDP)

Country 1990 1991 1992 1993 1994

Barbados 1.8 1.5 1.5 2.0 2.1Belize 0.1 0.3 1.8 1.8 2.2Grenada 0.1 0.1 0.1 0.1 0.5Jamaica 1.0 0.7 0.6 0.8 0.6Trinidad and Tobago 2.7 4.2 2.6 - -- Not available.Source: Appendix 1, Table Al. 19.

The main instrument for rationalizing a refocused state enterprise sectorhas been privatization through the sale of physical and financial assets. In anumber of cases, participation with the private sector rather than outright sale hasbeen the preferred choice, and some use has been made of contractingmanagement and discrete segments of operational activities to the private sector.Some governments have committed themselves to the acceleration of ongoingdivestment programs over the medium term and on a comprehensive basis. Othergovernments, now at the initiating stage, have targeted a few enterprises forprivatization. Some common issues emerge from past experience.

UTILITIES. Except in telecommunications, Caribbean countries haveusually opted to retain their interests, in whole or in part, in utility operations.Joint ownership arrangements with an accredited and experienced utility operatoror a modicum of private sector participation are the accepted route. Contractingout management or specific operational activities to the private sector iscontemplated or undertaken in some instances. In Jamaica, the privatization ofincremental power generating capacity is taking place. Regardless of the degree ofprivatization, the decisions on pricing policy should be removed from the ambit ofpolitical influence and placed within an independent regulatory framework. Theregulatory mechanism would ensure that the rates permit a return on assetssufficient to service the enterprise's debt and provide intemally generated funds tosupport a determined portion of ongoing investment and that the efficiency andquality of service meet acceptable standards. Most countries have regulatorymechanisms for the electric utility, and similar arrangements should be extended toother utilities.

MNsERAL RESOURCES. Oil and gas in Trinidad and Tobago,bauxite/alumina in Guyana, Jamaica, and Suriname, and gold in Guyana fall in thiscategory. Public ownership or participation has usually remained, but in somecases it is for symbolic and monitoring purposes, rather than financial. Trinidadand Tobago's policy in the energy sector is to seek joint venture arrangements forcertain operations, while accelerating divestment of the noncore assets, unrelatedto oil and gas activities. Guyana now uses the contract management technique forbauxite, and the government is adopting a policy for privatizing mining operations.Jamaica has a minority interest within joint venture arrangements with one of the

42


four external bauxite/alumina operators. A small body of trained professionalsmonitors operations of the sector and applies the tax and levy regimes. Themonitoring tool provides the government with a basis for holding meaningfuldiscussions with operators on critical issues confronting the sector.

CORPORATE STATUS. Many public enterprises have been established asstatutory corporations. Their independence is critical to operational and financialsuccess but is harder to achieve when the entity functions as a statutorycorporation that requires ministerial approval for certain actions and does notoperate under the company laws of the country. In the latter case, the governmentwould act only as a shareholder, with the exercise of rights and limitation ofliability as prescribed by the company law. The mission and objectives set out inthe company memorandum and articles of association would form the broad policyframework for the responsible and accountable board of directors. Corporatedirectors would be adequately remunerated (directorship is an honorableprofession), and their obligations and responsibilities would be governed by theprovisions of the company law. An advantage of the corporate vestment is that itfacilitates the many techniques for improving the efficiency of company operations.Experienced directors can closely monitor the management contract, the operatinglease, or contracts covering discrete activities to ensure compliance with theirrespective terms. Another advantage is that the government as shareholder canpursue, at its discretion and pace, private sector participation through phasedofferings of shares to the public-at times linked to plant expansion-and perhapsachieve total sale of the assets as a going concern without any abrupt change oflegal status.

PRIVATIzATION. The varied experience of the past decade makes sometelling points. First, there should be a clear expression of intent by the governmentas to policy, areas for divestment, and modalities-sale or lease of assets and offerof shareholdings or management contract. The objectives to be achieved should beprecisely defined and narrowly focused. The process should be transparent, andthe procedures should conform to applicable and accepted commercial practicesthat fit the circumstances of the enterprise. These steps accompanied by apublicized, though tentative, timetable would enable interested parties tounderstand the nature of the potential transactions and prepare to act. Second, theJamaican experience points up the crucial support of the non-bank financial sectorin financing the resources needed for privatization. It is important that budgetaryresource demands should not conflict with the divestment program, or crowdingout will result. Third, the resolve of the government to pursue privatization mustbe firm and sustained; if not, the momentum will die, and investor interest will turnelsewhere. Belize is the classic case of sustained resolve for privatization, andTrinidad and Tobago is not far behind, given the substantial progress since 1990.

Regional organizations

In the Caribbean, many publicly owned enterprises and entities areinternational and regional in scope and membership, rather than national. They

43


have been set up to foster international cooperation and integration, as well as torealize the benefits of a larger scale and scope of operations than would be possibleat the national level in such small economies. More than forty regionalorganizations in the English-speaking Caribbean receive funding from nationalgovernments. The lead regional organization is the Caribbean Community, orCARICOM, which has a membership of fourteen countries and was created in1973 to enhance the economic, social, and cultural development of the people inthe Commonwealth Caribbean. Among the smallest states of CARICOM, theOECS has brought about closer integration through monetary union and a varietyof institutions to offer common services and strengthen administrative capacity.

Country expenditure data on regional institutions indicate that less than Ipercent of national GDP and slightly less than 3 percent of total governmentexpenditures go to support these institutions, although the share is expected torise. Institutions range across sectors, but experience has shown that certainfunctional areas, namely education (tertiary and testing), pharmaceutical testingand purchasing, development finance, meteorology, agricultural research, andtourism promotion, are more suitable to regionalization than others. Regionalinstitutions in agricultural production, export promotion, and trade have been lesssuccessful. The governments should close the ones that are not performing andhave no credible program to increase cost-effectiveness, so that they no longertake valuable financial and personnel resources and do not impede the activity ofnational government agencies or the private sector. Regional institutions have notbeen especially active in the area of environmental protection, but there is need fora more regional approach to protecting oceanic and other shared aspects of theenvironment. 30

Why do institutions in some areas succeed, while others fail? How cancountries determine which functional areas lend themselves to regionalization? Theappropriate functional areas are those sectors in which

D Regional activities would complement, rather than replace orduplicate, activities that are better done at the national level or through the privatesector,

* National public sectors are traditionally weak, as in tertiaryeducation, and there is an advantage in developing regional expertise,

* Highly skilled staff are required, who train others and provideexpertise throughout the region,

* Regional standards must be set, testing is required, or a regulatoryfunction is needed for the whole region,

* A linking role is needed within the region and with externalfinancial markets or multilateral lending agencies, as in the case of the CaribbeanDevelopment Bank, and

* Lumpy investment in equipment is required and benefits can beshared easily within the region, such as with meteorology.

30 See World Bank 1994c.

44

3 Institutional framework

A telling indicator of the value of service provided by an agency is the mixof revenues it receives. See Table A3. 1. Institutions that rely on donorcontributions alone (either grants or soft loans) often are not sustainable.Similarly, institutions unable or unwilling to derive income from the private sector(through user fees, training programs, or renting of facilities) are facing severefinancial constraints as government budgets shrink and demand for scarce nationalresources increases. Institutions that draw revenue from all three main sources-country governments, fees for service, and donors-seem to be the most healthyand the most easily monitored and held accountable for performance.

Donors have tremendous influence in the operation of regional institutions,which makes the issue of accountability even more important. Yet their supportalone is not sufficient to sustain the activities of regional organizations; donorsshould include other criteria to ensure that their funds are used properly. Onesolution, as implemented in many programs funded by the Pan American HealthOrganization, is to stipulate decreasing yearly contributions as a criteria for donorsupport. Through this mechanism, institutions would have to prove theiraccountability at the national level or their ability to meet market demand in theprivate sector. Another solution would be to require cofinancing or user fees topay for regional institutions. This would hinder the creation of supply-ledorganizations that have little country support or long-term financial viability.

Arrears in country contributions impair the financial health and efficiency ofmany regional institutions. In some cases, this reflects a valid judgment by nationalgovernments that the regional organization does not deliver value for service, inwhich case it should be reformed or closed. In other cases, some nationalgovernments are free riding on the contributions of others. Although the situationappears to have stabilized in recent years, it remains a problem. There is noregional authority to enforce the payment of dues. Although CARICOM workswith regional organizations through its standing committees, it has no regulatoryauthority to force countries to pay their commitments. It could play a strongerrole in monitoring and at least annually could publish lists of payments and arrearsfor each country and institution. CARICOM also lacks a formal mechanism forensuring that regional institutions are run efficiently, although the secretariat playsan ad hoc role in coordinating the activities of these institutions.

Many observers, including the West Indian Commission in A Time forAction, 1992, have identified implementation as the greatest weakness ofCARICOM. This seems to be a more urgent problem than the need for unanimityin making all decisions. The implementation process could be improved if therewere more consultation among CARICOM staff and Permanent Secretaries at thenational level prior to presenting proposals to the heads of government, so thatthey would better understand the operational implications and implementationsteps for regional decisions. The secretariat could also encourage implementationof past decisions by preparing semiannual reports on compliance by nationalgovernments. A further step could be to exclude from corresponding benefits(such as the recently agreed-to free movement of labor across countries)

45

PUBLIC SECTOR MODERNIZATIONIN THE CARIBBEAN

govermments who fail to comply. In 1994, an attempt was made, without success,to give CARICOM, under the revised Treaty of Chaguaramas, the authority toenforce decisions of heads of govemment. More consultation by the secretariatwith national governments could improve the process of implementation andenable the secretariat to assess governments' needs more accurately in the area ofregional coordination.

46

APPENDICES

Appendix I

Table Al.I: Central Government Revenues: percent of GDP**Avg Avg 1990 1991 1992 1993 1994# Avg.80/84 85/89 90/94

Antigua 20.3 21.5 21.0 19.3 20.6 20.1 20.7 20.3Bahamas 19.3 18.4 17.0 17.2 17.4 17.1 n. a. 17.2Barbados 24.5 25.9 26.9 28.5 28.1 27.6 27.0 27.7Belize 24.8 26.5 26.1 24.7 25.3 23.6 24.7 24.9Dominica 31.2 31.3 29.8 28.7 27.1 27.14 28.0 28.1Dominican Republic 11.6 15.9 9.8 10.1 15.4 16.3 15.4 13.4Grenada* 32.6 24.0 23.9 24.0 23.4 24.2 22.6 23.6Guyana 41.2 39.3 40.9 40.8 48.6 54.9 50.4 47.1Jamaica 25.7 28.5 28.7 27.3 27.0 28.7 31.4 33.0St. Kitts-Nevis 31.5 24.4 24.6 22.1 23.3 24.3 25.5 24.0St. Lucia 26.6 24.9 25.1 24.3 24.9 25.6 25.7 25.1St. Vincent 29.2 30.4 28.4 27.9 26.0 26.2 27.5 27.2Suriname 24.6 27.5 32.4 28.3 23.1 12.5 n aTrinidad & Tobago. 38.2 30.2 28.2 32.7 29.2 26.7 26.7 28.8

Memo notes: ** Includes capital revenue(a) * includes Grants 80/84.(b) # Budget estimates.(c) Fiscal YearsSources: Ministries of Finance and Central Banks; IMF, World Bank and 1DB staffestimates.

Table A1.2: Taxes - Income, Profits & Property, percent of GDP1990 1991 1992 1993 1994

Antigua 7.7 9.0 9.3 8.7 9.0Bahamas 0.6 0.7 0.5 0.6 n.aBarbados 9.5 10.8 10.4 9.6 8.1Belize 5.3 5.3. 6.3 5.7 5.8Dominica 26.9 26.2 24.6 23.8 n.a.Dominican Republic 2.5 2.4 2.5 2.7 2.2Grenada 1.9 4.1 5.0 5.4 5.0Guyana 11.5 9.2. 12.8 12.9 11.3Jamaica 11.3 9.8 10.4 10.8 12.2St. Kitts-.Nevis 5.2 4.6 4.6 4.7 5.2St. Lucia 6.2 6.4 6.3 6.5 6.7St. Vincent 6.2 6.5 7.3 7.5 6.9Suriname 11.8 11.6 8.7 4.6 n.aTrinidad & Tobago 5.2 6.6 7.9 n.a n.a

Memo Notes:(a) The Bahamas does not have hicome & Profit tax, data represent Property tax.(b) Jamaica: Fiscal Years(c) Belize: Fiscal Years.Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.


Table A1.3: Taxes - International Trade & Transactions, percent of GDP1990 1991 1992 1993 1994

Antigua 7.1 6.2 6.2 6.4 5.4Bahamas 11.2 11.1 11.9 11.6 n.a.Barbados 3.3 2.5 2.1 2.1 2.2Belize 13.3 12.7 11.8 11.5 11.7Dominica 15.6 14.3 14.2 13.8 n.a.Dorniican Republic 3.8 3.9 5.7 5.6 4.9Grenada 7.6 5.0 5.4 5.0 4.3Guyana 4.6 4.0 4.4 5.8 4.6Jamaica 5.0 5.3 6.1 8.0 7.9St. Kitts-.Nevis 12.9 12.1 11.8 12.7 13.1St. Lucia 8.2 7.4 7.1 6.6 6.9St. Vincent 14.8 13.6 14.0 12.9 11.7Suriname 6.1 5.8 4.9 1.9 n.a.Trinidad & Tobago 2.2 2.5 2.5 n.a. n.a.

Memo Notes: (a) VAT excluded. Such data included in Table Al 4Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.

Table Al.4: Taxes on Domestic Production & Consumption, percent of GDP1990 1991 1992 1993 1994

Antigua 3.2 2.0 3.1 3.1 3.8Bahamas 2.6 2.7 2.9 3.0 n.a.Barbados 8.3 9.7 9.5 10.5 10.8Belize 2.5 2.3 2.1 2.7 2.6Dominica 4.0 3.6 3.6 3.7 n.a.Dominican Republic 3.6 4.3 5.9 6.6 6.9Grenada 12.0 11.0 10.4 10.7 11.1Guyana 8.9 8.7 9.9 11.1 10.4Jamaica 7.5 7.8 8.4 9.3 9.5St. Kitts-.Nevis 1.9 2.5 2.7 2.7 2.9St. Lucia 8.0 9.0 8.6 9.1 9.2St. Vincent 3.0 3.2 3.0 2.9 2.8Suriname 8.8 9.0 7.7 3.6 n.a.Trinidad & Tobago 7.4 7.1 7.8 n.a. n.a.

Memo notes: (a) includes VAT.Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.

50

Appendix I

Table A1.5: Non-tax Revenues: percent of GDP1990 1991 1992 1993 1994

Antigua 2.6 2.1 2.0 2.5 2.5Bahamas 2.6 2.7 2.1 2.0 2.5Barbados 1.6 1.9 1.5 1.7 1.9Belize 4.3 3.8 4.1 2.9 2.8Dominica 3.4 4.3 3.9 4.4 n.a.Dominican Republic n.a. 4.9 3.7 3.6 3.4Grenada 2.1 2.5 2.1 2.5 11.1Guyana 1.3 2.2 1.4 2.1 2.0Jamaica 1.7 1.6 1.6 1.5 1.6St. Kitts-.Nevis 4.4 2.5 3.7 4.0 4.2St. Lucia 4.9 5.4 5.8 6.7 6.5St. Vincent 3.2 3.8 3.5 3.8 3.9Suriname 11.9 7.7 6.7 4.2 n.a.Trinidad & Tobago 1.1 2.4 1.8 n.a n.a.

Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.

Table A1.6: Petroleum and Bauxite Levies, percent of GDP1990 1991 1992 1993 1994

Guyana n.a. n.a. n.a. n.a. n.a.Jamaica 1.8 2.5 2.1 1.7 1.8Suriname 0.1 --- --- --- ---Trinidad & Tobago 9.5 11.2 6.4 n.a. n.a.


Table A1.7: Total Central Government Expenditure: percent of GDPAvg. Avg. 1990 1991 1992 1993 1994# Avg.80/84 85/89 90/94.

Antigua n. a. 26.6 21.6 21.5 20.6 21.5 23.2 21.7Bahamas 22.4 20.4 19.5 20.7 20.6 20.9 19.8. 20.5Barbados 29.4 30.6 34.2 29.4 28.1 28.5 27.5. 28.3Belize 32.8 32.4 27.9 35.1 36.4 31.4 32.7 33.9Dominica 49.2 40.7 39.8 37.5 32.8 35.8 43.5 37.4Dom. Rep. 14.6 15.3 15.6 16.4 17.8 20.0 19.8 18.5Grenada 62.8 50.0 36.4 33.4 25.3 27.0 27.8 28.4Guyana 86.0 80.1 93.5 73.8 69.2 59.0 65.5 66.9Jamaica 39.6 34.5 33.1 33.9 27.1 34.1 35.7 32.7St. Kitts-Nevis 42.5 30.5 25.7 25.9 25.3 26.2 28.6 26.5St. Lucia 34.7 27.1 26.0 23.8 24.9 26.8 30.6 26.5St. Vincent 33.3 32.9 32.2 35.1 34.3 31.9 37.2 34.6Suriname 44.3 48.7 42.5 47.7 42.5 40.5 61.9 48.2Trinidad & Tobago 42.4 35.2 29.8 31.0 32.0 26.9 27.2 29.3

Memo notes: a) # EstimatesSources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.

51


Table Al.8: Central Government Current Expenditure: percent of GDP1990 1991 1992 1993 1994

Antigua 21.0 19.3 20.6 20.1 20.7Bahamas 16.8 17.6 17.0 17.6 17.1.Barbados 27.4 26.0 25.2 25.3 25.0Belize 17.2 17.8 19.3 20.7 21.5Dominica 28.7 27.2 26.5 28.9 28.1Dom. Rep. 8.8 9.0 8.7 9.6 8.9Grenada 26.9 24.5 23.9 22.6 22.5Guyana 76.1 65.1 57.2 51.2 47.2Jarnaica 22.5 21.2 21.4 24.7 26.5St. Kitts-.Nevis 22.2 22.0 22.0 21.9 24.8St. Lucia 19.5 18.6 18.7 18.6 19.4St. Vincent 23.6 23.7 23.5 22.4 24.0Suriname 38.5 46.1 40.2 37.0 n.a.Trinidad & Tobago 28.2 29.6 30.1 25.5 25.1


Table Al.9: Central Government Wages & Salaries, percent of GDP1990 1991 1992 1993 1994

Antigua 10.9 10.7 11.3 11.4 12.1Bahamas 9.3 9.6 9.3 9.1 n.a.Barbados 12.9 11.6 10.7 11.2 10.9Belize 9.5 9.4 10.5 11.3 11.8Dominica 17.8 16.0 15.3 17.0 n.a.Dominican Republic 3. 2.6 3.1 3.6 n.aGrenada 13.7 12.7 13.1 12.2 11.2Guyana n.a n.a n.a n.a n.aJaniaica 8.6 7.8 5.1 10.1 8.6St. KiUs-.Nevis 12.6 11.1 11.0 11.9 12.8St. Lucia 9.7 9.5 9.4 9.7 n.aSt. Vincent 12.6 12.9 12.5 12.5 n.aSuriname 17.5 17.8 17.7 10.9 n.aTrinidad & Tobago 9.2 10.2 11.0 n.a n.a


52

Appendix I

Table Al.10: Fiscal Interest Payments, percent of GDP1990 1991 1992 1993 1994

Antigua 4.3 4.0 3.7 4.1 3.5Bahamas 1.9 2.4 2.1 2.3 n.aBarbados 3.7 4.8 4.6 4.0 4.1Belize n.a n.a n.a n.a n.aDominica 1.9 2.3 2.4 2.4 n.aDominican Republic n.a n.a n.a n.a n.aGrenada 3.4 3.0 2.5 2.4 2.2Guyana n.a n.a n.a n.a n.aJamaica 11.7 10.6 7.6 11.5 10.8St. Kitts-.Nevis 3.0 2.8 2.7 2.5 2.7St. Lucia 0.8 0.7 0.8 0.8 n.aSt. Vincent 1.1 1.5 1.3 1.7 n.aSuriname 4.6 4.8 4.0 2.7 n.aTrinidad & Tobago. 4.6 4.8 5.4 n.a n.a

Sources: Ministries of Finance and Central Banks; [MF, World Bank and IDB staffestimates.

Table A1.11: Capital Expenditure, percent of GDP1990 1991 1992 1993 1994

Antigua 0.6 2.2 --- --- 2.5Bahamas 2.6 2.9 3.2 3.2 n.a.Barbados 6.8 3.4 2.9 3.2 2.5Belize 10.7 17.6 17.1 10.7 11.2Dominica 11.1 10.3 5.9 6.9 15.4Dominican Republic 6.8 7.4 9.1 10.4 11.9Grenada 9.5 8.9 1.4 4.4 5.3Guyana 17.4 8.7 12.0 7.8 18.3Jamaica 5.3 6.0 3.9 5.3 6.9St. Kitts-.Nevis 3.5 3.8 3.2 4.3 3.8St. Lucia 6.1 5.2 6.,2 8.2 11.2St. Vincent 8.6 11.4 10.8 9.5 13.2Suriname 4.0 1.6 2.4 3.5 5.6Trinidad & Tobago. 1,.6 1.5 1.9 1.4 2.1


53


Table A1.12: Current Fiscal Balance, percent of GDPAvg. Avg. 1990 1991 1992 1993 1994# Avg.80/84 85/89 90/94

Antigua 0.54 0.42 (1.3) (0.8) (2.2) (0.71) (---) (1.0)Bahamas 1.4 0.76 (0.1) (0.6) --- (1.4) n. a.Barbados 1.64 1.9 (0.2) 2.7 2.3 0.5 2.1. 1.5Belize (0.02) 2.9 8.9 7.2 6.0 2.9 3.2 5.6Dominica (3.4) 3.2 1.0 1.5 0.2 (1.8) (0.1) 0.16Dominican Republic 1.25 5.4 1.0 1.1 6.7 6.7 6.5 4.4Grenada* 1.2 (5.8) (3.0) (0.6) (0.5) 1.6 0.1 (0.36)Guyana (21.7) (34.3) (35.2) (24.3) (8.6) 3.7 3.2 (12.2)Jamaica (4.9) 2.2 2.8 8.3 6.6 2.4 0.8 4.2St. Kitts- Nevis (3.34) 0.08 2.5 --- 1.3 2.4 0.7 1.4St. Lucia (1.02) 3.94 5.6 5.7 6.2 7.0 6.2 6.1St. Vincent 0.02 3.4 4.8 4.2 2.5 3.8 3.5 3.8Suriname (5.8) (19.4) (6.1) (17.8) (17.1) (24.5) n. a.Trinidad & Tobago. 3.6 0.63 -------- 3.1 (0.9) 1.5 1.6 1.1

Memo notes: (a) ' after Grants 80/84(b) # Estimates

Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staff estimates.

Table A1.13: Overall Fiscal Balance, percent of GDPAvg. Avg. 1990 1991 1992 1993 1994# Avg.80/84 85/59 90/94

Antigua n. a. (5.2) (1.9) (2.0) (2.2) (2.2) (2.5) (2.2)Bahamas (2.7) (2.04) (2.5) (3.5) (3.2) (3.8) n. a.Barbados (4.9) (4.7) (7.1) (0.9) -- (0.9) (0.4). (1.8)Belize (8.7) (6.4) 1.2 (2.9) (6.9) (6.4) (5.5) (4.1)Dominica (18.1) (2.4) (10.0) (8.8) (5.8) (8.7) (15.5) (9.8)DominicanRepublic (2.03) (0.18) (5.8) (6.3) (2.4) (3.7) (4.4) (4.5)Grenada* (30.3) (26.0) (11.9) (9.3) (1.3) (2.3) (4.2) (5.8)Guyana (47.0) (48.6) (52.6) (33.0) (20.6) (4.1) (15.1) (25.1)Jamaica (13.5) (2.5) (2.5) 2.4 2.6 (1.5) (3.7) (0.54)St. Kitts- Nevis (5.4) (3.2) (1.0) (3.8) (2.0) (2.0) (3.1) (2.4)St. Lucia (8.5) (0.16) 0.5 0.5 (1.2) (5.0) (1.1)St. Vincent (4.1) (1.8) (3.8) (7.2) (8.3) (5.7) (9.7) (6.9)Suriname (13.5) (21.0) (10.1) (19.4) (19.5) (28.0) n. a.Trinidad & Tobago. (4.2) (5.9) (1.2) (0.3) (2.8) 0.2 (0.3) (0.88)

Memo notes: (a) ' 80/84 after Grants.Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staff estimates.

54

Appendix I

Table Al.14: Real GDP, percent rates of growth1990 1991 1992 1993 1994

Antigua 3.5 4.4 1.1 3.4 4.2Bahamas 1.3 (3.1) 0.1 2.0 n.aBarbados (3.8) (5.4) (2.9) 2.2 2.9Belize n.a 6.8 6.8 4.2 2.2Dominica 6.3 2.3 2.9 0.9 2.2Dominican Republic (4.8) 0.7 7.9 3.0 4.0Grenada 5.2 3.6 1.2 0.9 2.5Guyana (5.3) 6.0 7.8 8.3 8.8Jamaica 4.7 4.1 0.8 1.8 2.0St. Kitts-.Nevis --- 3.9 3.0 4.5 3.2St. Lucia 4.1 2.3 7.1 3.1 2.2St. Vincenl 5.4 3.1 4.9 1.4 n.aSuriname 0.1 2.9 4.3 (3.0) (1.0)Trinidad&Tobago. 1.5 3.1 (1.7) (1.7) 4.0


Table AI.15: Consumer Price Index, annual average percent change1990 1991 1992 1993 1994

Antigua 7.0 5.7 3.0 3.1 3.4Bahamas 4.6 7.2 5.7 2.7 n.aBarbados 3.0 6.8 5.3 -- --

Belize 3.3 4.5 2.4 1.4 2.3Dominica 2.0 6.2 5.3 1.3 1.7Dominican Republic 59.4 53.9 4.6 4.8 9.3Grenada 2.8 2.6 3.8 2.8 2.6Guyana 75.9 101.5 28.2 11.7 10.4Jamaica 29.8 80.2 40.2 30.1 26.7St. Kitts-.Ncvis --- 4.2 2.9 1.8 2.6St. Lucia 5.2 7.2 3.2 0.7 n.aSt. Vincent 7.3 6.0 3.8 4.2 .44)Suriname 21.8 26.0 43.7 143.4 n.aTrinidad & Tobago. 9.5 2.3 8.5 10.8 8.3


55


Table Al.16: Extemal Debt Stock, percent of GDP1990 1991 1992 1993 1994

Antigua 83.2 83.6 82.2 79.2 81.3Bahamas 6.3 11.3 11.8 11.0 11.0Barbados 26.5 27.3 27.6 24.1 21.8Belize 50.4 33.5 * 33.5 * 35.1 n.aDominica 54.4 54.0 51.4 50.4 55.5Dominican Republic 58.0 57.0 52.4 48.7 38.9Grenada 51.3 54.1 50.5 65.9 58.7Guyana n.a n.a 744.0 857.0 675.0Jamaica n.a 90.0 95.0 83.0 n.aSt. Kitts-.Nevis 25.9 23.7 23.1 22.7 21.6St. Lucia 20.5 19.5 21.1 27.2 30.2St. Vincent 30.7 29.8 27.1 38.8 37.5Suriname 37.6 42.1 41.6 42.2 n.aTrinidad & Tobago. 49.5 46.6 43.5 45.7 39.1

Memo Notes: a) * two year average.Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.

Table Al.17: External Debt Service, percent of exports of goods and servicex1990 1991 1992 1993 1994

Antigua 15.0 12.4 12.3 9.0 5.8Bahamas 2.4 4.2 4.7 n.a n.aBarbados 14.4 24.3 11.9 14.2 13.8Belize 9.1 6.8 6.8 * 8.8 8.6Dominica n.a 8.3 12.5 14.1 15.1Dominican Republic 40.0 32.0 32.0 29.0 41.0Grenada 11.0 5.9 7.1 4.7 2.7Guyana 89.0 48.0 39.0 32.0- 28.5Jamaica n.a n.a n.a n.a n.aSt. Kitts-.Nevis n.a 3.8 3.5 3.2 3.9St. Lucia 3.2 3.5 4.8 4.7 n.aSt. Vincent 2.6 3.6 3.7 4.7 n.aSurinameTrinidad & Tobago. 33.0 20.6 28.3 34.8 27.8

Memo Notes: a) * two year average.Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.

56

Appendix I

Table A1.18: Public Enterprises' Total Expenditure, percent of GDP1990 1991 1992 1993 1994

Antigua 16.8 15.4 10.8 11.9 12.3Bahamas 14.4 16.3 14.8 13.2 n.a.Barbados 8.4 7.8 7.2 7.7 6.8Belize 3.8 4.1 1.4 1.2 2.8Dominica 24.9 23.9 21.7 17.4 16.6Dominican Republic n.a. n.a. n.a. n.a. n.a.G:-enada 1.0 9.3 9.3 12.0 10.3Guyana 72.7 66.4 65.3 57.8 48.7Jamaica 24.0 23.0 -- 23.0 --

St. Kitts-Nevis 12.6 14.3 12.2 16.1 14.4St. Lucia 15.0 16.0 15.0 13.0 n.a.St. Vincent 16.5 13.9 11.8 11.0 n.a.Suriname -- -- -- -- --

Trinidad & Tobago. 40.5 42.2 40.5 n.a. n.a.Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.

Table A1.19: Central Government Transfers to Public Enterprises, percent of GDP1990 1991 1992 1993 1994

Antigua 0.24 0.58 0.10 0.33 0.07Bahamas 0.5 0.9 1.1 1.2 n.a.Barbados 1.8 1.5 1.5 1.5 2.1Belize 0.1 0.3 1.8 1.8 2.2Dominica n.a n.a. n.a. n.a. n.a.Dominican Republic n.a. n.a. n.a. n.a. n.a.Grenada 0.1 0.1 0.1 0.08 0.5Guyana 4.7 4.0 4.3 1.9 n.a.Jamaica 1.0 0.72 0.6 0.8 0.6St. Kitts-.Nevis -- -- -- -- 2.8St. Lucia 0.3 0.4 2.6 2.3 n.a.St. Vincent 0.8 -- -- --

Suriname 2.1 2.9 1.7 1.7 n.a.Trinidad & Tobago. 2.7 4.2 2.6 n.a. n.a.


57


Table A1.20: Public Enterprises' Capital Expenditure, perment of GDP1990 1991 1992 1993 1994

Antigua 1.3 0.6 -- 0.25 --

Bahanas 2.6 4.7 3.3 3.1 n.a.Barbados 1.8 0.7 0.4 0.8 0.9Belize 3.8 -- 2.0 1.7 1.6Dominica 7.6 -- .74 .02 (0.09)Dominican Republic n.a. n.a. n.a. n.a. n.a.Grenada 1.5 0.9 0.8 3.1 2.5Guyana 19.1 14.4 9.2 n.a. n.a.Jamaica 5.2 3.2 -- 4.0 --

St. Kitts-.Nevis 0.8 1.0 0.5 3.9 3.1St. Lucia 7.0 7.8 7.4 4.6 n.a.St. Vincent 3.8 2.3 1.9 2.0 n.a.Suriname n.a. n.a. n.a. n.a. n.a.Trinidad & Tobago. 3.2 4.4 3.7 n.a. n.a.


Table A1.21: Public Enterprises' Current Balance, percent of GDP1990 1991 1992 1993 1994

Antigua (4.2) (4.6) (5.4) (5.2) (4.0)Bahamas 0.4 0.7 0.2 0.6 n.a.Barbados (1.0) (0.1) -- 0.1 0.4Belize 1.4 -- 1.4 1.3 1.2Dominica .64 0 (1.0) (0.2) 0.9Dominican Republic n.a. n.a. n.a. n.a. n.a.Grenada 1.3 1.3 1.8 1.4 1.9Guyana 3.9 9.9 14.6 n.a. n.a.Jamaica 1.9 2.1 -- 5.0 --

St. Kitts-.Nevis (0.1) (0.8) 1.0 0.1 (0.5)St. Lucia 2.7 2.2 2.2 2.0 n.a.St. Vincent 2.1 2.1 3.0 3.2 n.a.Suriname n.a. n.a. n.a. n.a. n.a.Trinidad & Tobago. 5.6 6.1 4.8 n.a. n.a.


58

Appendix I

Table A1.22: Public Enterprises' Overall Balance, percent of GDP1990 1991 1992 1993 1994

Antigua (5.2) (5.1) (5.4) (5.4) (4.0)Bahamas (1.9 (4.1) (2.8) (1.4) n.a.Barbados 2.7 0.8 0.4 0.8 0.5Belize (2.4) (0.6) (0.4) (0.4)Dominica (4.8) 0 (1.6) (0.2) 1.0Dominican Republic n.a. n.a. n.a. n.a. n.a.Grenada (0.2) (0.4) (0.9) (1.7) (0.7)Guyana (20.8) (4.7) (1.2) n.a. n.a.Jamaica (0.4) 0.2 -- (0.73 --

St. Kitts-.Nevis (0.9) (1.9) 0.5 (3.8) (3.6)St. Lucia (4.4) (5.7) (5.3) (2.7) n.a.St. Vincent (1.6) (0.25) 1.1 1.2 n.a.Suriname n.a. n.a. n.a. n.a. n.a.Trinidad & Tobago. 2.4 1.7 1.1 n.a. n.a.

Memo notes: a) Overall balance before Central Government and Enterprise transfers.Sources: Ministries of Finance and Central Banks; IMF, World Bank and IDB staffestimates.

Table Al.23: Public Sector Employment in the Caribbean (1994, or as noted)Countries Public Services Rest of Public Sector Total Public Sector

Civil Other PublicService Service Total SOEs Util. Total (% of total labor force)

(% of total labor force) (% of total labor force) 1989-91') 1994(or as noted)

Bahamas,1995 N/A N/A 13.4 1.0 2.7 3.7 18.5 17.1

Barbados, 1995 11.1 1.2 12.3 6.2 1.3 7.5 21.4 19.8

Belize 6.8 5.7 12.5 2.1 1.7 3.8 N/A 16.3

Dominucan 5.5 2.0 7.5 2.1 1.6 3.7 10.2 11.2Republic

Guyana 4.2 11.6 15.8 11.6 0.6 12.2 5 8 .8 b) 28.0

Jamaica, 1992 3.1 4.9 8.0 N/A N/A 3.7 14"c 11.7

St. Kitts-Nevis 13.7 3.7 17.4 16.1 2.7 18.8 38.7 36.2

Trinidad & Tobago N/A N/A 14.9 5.3 1.8 7.1 28.0 22.0a) One year inthe 1989-91 periodb) 1980c) 1982Sources: National governnent agencies, IMF, World Tables

59

PUBLIC SECTOR MODERIZA TION IN THE CARIBBEAN

Table A1.24: Central Government Expenditure on Education and Healthpercent of GDP, 1981-95

Education Health1981-85 1986-90 1991-95 1981-85 1986-90 1991-95

Bahamas 3.2 0.0 0.0 2.8 0.0 0.0Barbados 6.6 7.6 8.3 4.5 5.0 5.2Belize 4.8 5.6 5.7 2.5 1.9 2.7Dominican Republic 2.2 1.8 1.3 1.6 1.3 1.5Eastern Caribbean States N/A 4.7 4.3 N/A 3.5 3.3Guyana 6.7 4.3 3.2 4.1 3.1 2.4Jamaica 6.5 4.8 4.5 2.8 2.6 2.8Suriname 7.1 8.1 0.0 1.7 2.5 0.0Trinidad & Tobago 3.5 4.1 4.2 1.8 2.6 2.5Lower-middle-income 4.1 3.8 3.5 1.8 1.8 1.8Upper-middle-income 2.6 2.5 2.5 1.8 1.8 1.8OECD 3.2 3.2 3.2 3.6 3.7 3.8Sources: Various World Bank reports and viF Goverunent Financial Statistics.

Table Al.25: Education Social Indicators (most recent estimate between 1987 and 1992)

Primary Enrollment Secondary Enrollment Education Attainment*(% of school age population)

Antigua & Barbuda N/A N/A 2.2The Bahamas 99.0 93.0 2.4Barbados 106.0 87.0 2.6Belize 90.0 54.0 2.2Dominica 95.0 N/A 2.3The Dominican Republic 95.0 51.0 2.0Grenada N/A N/A 2.3Guyana 112.0 57.0 2.3Jamaica 106.0 62.0 2.3St. Vincent N/A N/A 2.3St. Kitts & Nevis 98.0 N/A 2.4St. Lucia N/A N/A 2.1Suriname 127.0 54.0 2.2Trinidad & Tobago 96.0 81.0 2.5Latin America & the Caribbean 106.0 47.0 N/ALower-middle-income 107.0 N/A N/AUpper-middle-income 107.0 53.0 N/A* Defined as = ( 2(adult literacy) + (mean years of schooling/15)) / 3Sources: World Bank staff estimates and UNDP, 1994.

60

Appendix I

Table A1.26: Health Social Indicators (most recent estmate between 1987 and 1992)Infant Mortality Life Expectancy

(per thousand (years)live births)

Antigua & Barbuda 20.0 74.0The Bahamas 25.0 71.9Barbados 10.0 75.3Belize 41.0 68.0Dorninica 18.0 72.0The Dominican Republic 41.0 67.0Grenada 28.0 70.0Guyana 48.0 64.6Jamaica 14.0 73.3St. Vincent 20.1 71.0St. Kitts & Nevis 34.0 70.0St. Lucia 18.5 72.0Suriname 36.5 69.9Trinidad & Tobago 15.0 70.9

Source.: World Bank staff estimates, UNDP 1994.

61

Appendix HThe legalframeworkfor publicsector expenditure and personnelmanagement in the commonwealthCaribbean

Introduction

This paper examines the legal framework for expenditure and personnelmanagement in the Commonwealth Caribbean public sector with a view todetermining whether there are legal barriers to efficient management and torecommending appropriate reforms.'

Sections 2 and 3 present the frameworks for expenditure and personnelmanagement and Section 4 makes various conclusions and recommendations. Tounderstand the significance of the institutional arrangements for public expenditureand personnel management, each section starts with a summary of the tasks thatany such system needs to fulfill.

The legal framework for public sector expenditure management

A public expenditure management system has three basic goals. Thegovernment has decided somehow on a spending plan -- Parliament passes anannual budget in all the Commonwealth Caribbean countries -- but implementingsuch a plan requires a multitude of decisions and confirmations throughout theyear.

THE FIRST GOAL IS TO REGULATE THE TIMING OF SPENDING, so that it staysin line with the availability of tax revenue and other financing. Although manyexpenditure have regular and predictable timing, eg., wages, utilities, and intereston debt, many other expenditures have irregular and flexible timing, eg.,investments and other special projects and purchases of supplies and equipment,and this timing has to be controlled so that expenditures do not bunch-up andexceed the monthly or quarterly financing envelopes. The Caribbean countriestypically handle this by having some sort of a Consolidated Fund and a requirementthat line ministries and agencies have a warrant from the Ministry of Finance andthe Accountant General in order to draw from the Consolidated Fund.

' This paper was researched and drafted by Aubrey Garcia.


THE SECOND GOAL IS TO ASSURE THAT MONEYS ARE SPENT FOR THE

PURPOSES INTENDED BY PARLLAMENT. This can be done with ex ante or ex postecontrols, or some combination of the two. For items like investment projectswhere there is not a pre-existing contract (as for debt or salary payments), ex antecontrol by a Tender Commnittee or even Cabinet is common. Ex post checks bythe Auditor General are required by law, and the Minister of Finance submits toParliament revised then actual expenditure figures for each year, with all the detailin the original budget.

THE THIRD GOAL IS TO ALLOW CHANGES FROM THE PLAN, which invariablybecome necessary, while assuring fulfillment of the main intentions of Parliament.These changes become necessary because (a) revenue or other financing comes indifferently from projected, (b) changes in interest rates, wages or prices makeunavoidable payments more (or less) costly than expected, or (c) new needs arise(like hurricane reconstruction) or planned ones become unnecessary. Each ofthese requires at least two changes -- one of the item in question and a secondcorresponding adjustment elsewhere in the budget to make it all add up again.Some initial budgets contain substantial "unallocated" lines in order to facilitatethese reallocations.

For each country, the provisions in the Constitution are first presented.The sections on expenditure management and the procedure for altering them areidentified. The provisions with respect to budgeting, expenditure, types of fundsand the role of the Auditor-General are then discussed. The relevant finance andaudit Acts are analyzed - the types of funds; the primary responsibilities of theCabinet, the Minister of Finance, the Director of Finance, the Accountant-Generaland the Auditor-General; the degree of delegation of responsibility; reportingrequirements; and the adequacy of the regulations under the Acts.

The Barbados legislation is discussed in detail. Then the variations fromthe Barbados legislation are presented for the other territories.

Barbados

Chapter IX of the Constitution of Barbados provides the basic legalframework for public sector financial management in Barbados. Alteration ofthese provisions requires an Act of Parliament supported in both the House ofAssembly and the Senate by at least two-thirds of all members.2

Before the end of each financial year, the Minister of Finance is required toprepare annual estimates of revenue and expenditure for the succeeding financialyear.3 The estimates of expenditure, "under appropriate heads for the severalservices required", are reflected in an Appropriation Bill which must be introduced

2 Constitution of Barbados, Section 49.3Ibid, Section 108.

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in the House of Assembly.4 While the sums voted on the estimates by the Houserepresent the expected limits on expenditure, there are provisions forsupplementary estimates and Supplementary Appropriation Bills.5 Cash-flowmanagement is centred around the Consolidated Fund; "subject to the provisionsof any law for the time being in force in Barbados", all revenue must be paid into aConsolidated Fund.6 Payments out of the Consolidated Fund require a warrantsigned by the Minister of Finance or someone authorized by him and must be inaccordance with the approved estimates.7

The accounts of "all departments and offices of the Government . . shall,at least once in every year, be audited and reported on by the Auditor-Generalwho, with his subordinate staff, shall at all times be entitled to have access to allbooks, records, returns and reports relating to such accounts . . . The Auditor-General shall submit his reports . .. to the Speaker who shall cause them to be laidbefore the House of Assembly".8 In the exercise of the above functions, "theAuditor-General shall not be subject to the direction or control of any other personor authority".9 Sub-section 113(6) widens the possible scope of the Auditor-General by stating that nothing in section 113 "shall prevent the performance bythe Auditor-General of such other functions in relation to the accounts of theGovernment and the accounts of other public authorities and other bodiesadministering public funds . . . as may be prescribed by or under any law for thetime being in force . . ".

The Financial Administration and Audit Act expands on the provisions inthe Constitution. Cabinet is given the power to make rules "prescribing the dutiesof the Accountant-General and accounting officers; . . . prescribing the procedurefor the reporting by the Auditor-General of delays and irregularities; . . .prescribing the responsibilities and liabilities of all accounting officers, . . .prescribing generally for the proper and efficient keeping of the public accounts . .. and generally for the proper carrying out of the provisions of this Act". 1

The Act provides for a Director of Finance and Planning who may issueinstructions "respecting the preparation of estimates; . . . the collection,management and administration of, and the accounting for public moneys; . . . thepurchase, receipt, custody, issue, sale, transfer or delivery of any stamps,securities, stores or other property of the Crown; . . . the keeping of records of theCrown; . . . for any other purpose necessary for the efficient adrninistration of thefinancial business of the Crown".

4Ibid, Section 109(1).5Ibid, Section 109(2) to (5).6 Ibid, Section 107.

Ibid, Section 110.[ Ibid, Section 113(1) to (3).

9 Ibid, Section 113(4).0 Financial Administration and Audit Act, Section 39.

Ibid, Section 10.

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The Act also provides for an Accountant-General "charged with thegeneral management and supervision of the cash transactions and accountingoperations of the Crown and . . . accountable for all public moneys received byhi.' 12

The role of the Auditor-General is elaborated.'3 In addition to the annualaudit of the public accounts, he is required to report immediately to the Director ofFinance and Planning on irregularities he discovers.'4 He is also required to auditthe accounts of statutory bodies, when the House of Assembly by resolution sodirects, and to transmit his reports via the appropriate Minister, or the Speaker ifnecessary, to the House of Assembly.'5 In his 1994 report, the Auditor-Generalhas commented on the need for "value-for-money auditing" and has suggested thatthe Act "be amended to explicitly permit the Auditor-General to carry outexaminations into the economy, efficiency and effectiveness with which anyGovernment department, authority or other body uses its resources".1 6

The Act facilitates some delegation. "Where any function is, by this Act orby any subsidiary legislation made thereunder, required, permitted or otherwise tobe performed by the Minister, or the Director of Finance and Planning or theAccountant-General, that function may be performed by some person authorized inthat behalf by the Minister, or the Director of Finance or the Accountant-General,as the case may be". 17 The Act also permits the Director of Finance and Planningto designate officers to be accounting officers or collectors of revenue, however,although the accounting officer is permitted to delegate, he is not relieved of hisaccountability.'8 The Auditor-General, with the concurrence of the AppropriateMinister, may also delegate his responsibility for auditing the accounts of statutorybodies to "any person publicly carrying on the profession of accountant". '9

The Act requires various monthly statements prepared by the Accountant-General to be laid before the House of Assembly.20 It also requires accountingofficers, collectors of revenue, the Accountant-General and the Minister of Financeto prepare various annual statements and accounts to be laid before the House.2 'In addition to his annual report on the public accounts, the Auditor-General "mayat any time, if it appears to him to be desirable, transmit to the House of Assemblya special report on any matter incidental to his power and duties under this Act".22

12 Ibid, Section 18.13 Ibid, Sections 31 to 33.14 Ibid, Section 31.'5 Ibid, Section 32(1) to (3).16 Report of the Auditor-General, Barbados, 1994, p. 11.1' Financial Administration and Audit Act, Section 2(2).

[ Ibid, Section 9.'9 Ibid, Section 32(4).20 Ibid, Section 18(2) to (3).21 Ibid, Section 12.22 Ibid, Section 28.

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Appendix HI

While the above reports are referred by the House to the Public AccountsCommnittee, the basis for this is not the Act but Standing Orders permitted bysection 50(1) of the Constitution.23

With respect to regulations under the Act, the Cabinet has made FinancialAdministration and Audit (Financial) Rules, 1971 and Financial Administration andAudit (Supplies) Rules, 1971. These rules appear to have been designed for amanual system and therefore need to be updated for a computerized one. Thelower limit on expenditure in respect of the supply of goods and the undertaking ofworks or services, which requires a tendering process, also needs to be increased.

Belize

Part V of the Belize Constitution provides a similar basic legal frameworkfor public sector financial management to that of Barbados; however, there aresome differences. Alteration of the relevant provisions requires the support oftwo-thirds of all the members of the House and a simple majority in the Senate.24

Section 116 facilitates authorization of expenditure from the ConsolidatedRevenue Fund if the presentation of estimates and the passage of theAppropriation Bill do not take place before the commencement of the financialyear. In addition to the provisions for supplementary estimates and SupplementaryAppropriation Bills, there is one for a Contingencies Fund which serves a similar

25purpose_

The Finance and Audit Act is in some respects different from the BarbadosFinancial and Administration Act. There are provisions for Special Funds and aDevelopment Fund which may be managed somewhat differently from theConsolidated Revenue Fund.26

There is no role stated for the Cabinet. The Minister of Finance issuesinstructions "for the better carrying out of the provisions" of the Act,27 and theFinancial Secretary's primary responsibility is confined mainly to the administrationof surcharges.2 8 The responsibility of the Accountant-General is narrowlydefined.29 The Auditor-General appears to have the power to refuse to undertakeduties outside those pertaining to his post.3 0 Delegation of the responsibilities ofthe Minister, Financial Secretary, Accountant-General and accounting officersreceives no mention.

23 Standing Order 59.24 Belize Constitution, Sections 55, 69(1) and (4), and 73.25 Ibid, Section 117.26 Finance and Audit Act, Sections 10 and 11.27 Ibid, Section 23.28 Ibid, Sections 18 to 22.

29 Ibid, Section 16.30 Ibid, Section 13.

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Unlike the Barbados Act, the Belize Act does not require monthlystatements by the Accountant-General to be laid in the House. While it is similarin its requirements for annual statements from the Accountant-General and theAuditor-General,3 ' it does not require annual statements and accounts fromaccounting officers, collectors of revenue and the Minister of Finance to be laidbefore the House.

With respect to regulations under the Act, it is not clear whether the Minister ofFinance has issued Financial Orders and Stores Orders as he is permitted to dounder the Act.32

Dominica

Chapter V of the Constitution of the Commonwealth of Dominica alsoprovides a basic legal framework for public sector financial management which issimilar to that of Barbados but with some differences. Alteration of the relevantprovisions requires the support of three-quarters of all the elected members of theHouse and approval by a majority of the votes cast at a referendum.3 3

Sections 78 and 79 facilitate authorization of expenditure from theConsolidated Fund if the presentation of estimates and the passage of theAppropriation Bill do not take place before the commencement of the financialyear. In addition to the provisions for supplementary estimates and SupplementaryAppropriation Bills, there is one for a Contingencies Fund which serves a similar

34purpose.

There are separate finance and audit Acts which are in some respectsdifferent from the Barbados Financial Administration and Audit Act. The Finance(Administration) Act makes provision for Special Funds established byAppropriation Acts35 and Trust Funds.36

There is no role stated for the Cabinet. The Minister of Finance"supervises the finances of the Government" and has "full responsibility for themanagement of the Consolidated Fund"; he makes regulations and gives"directions and instructions as appear to him to be necessary and expedient for theadvantage, economy and safety of public moneys and public property" .37 TheFinancial Secretary has a secondary responsibility in this respect; his primaryresponsibility is confined mainly to the administration of surcharges. The

31 Ibid, Sections 16 and 17.32 Ibid, Section 23.3 Constitution of the Commonwealth of Dominica, Section 42(2) and (3).34 Ibid, Section 80.35 Finance (Administration) Act, 1994, Section 10.36 Ibid, Section 11.3 Finance (Administration) Act, Section 3.38 Ibid, Section 4 and Part XII.

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Accountant-General, "in the discharge of his duties as the officer charged with thecompilation and management of the accounts of the government", may with theprior approval of the Financial Secretary issue accounting instructions.39 TheDirector of Audit appears to have the power not to comply with a request by theMinister of Finance to inquire into the affairs of the Government or of a statutorybody, if in his opinion such an assignment interferes with his primary functions.40The Audit Act also requires "value-for-money" auditing.4 '

With respect to delegation, the Acts do not seem to give the wide powersof delegation to the Minister of Finance, the Director of Finance and theAccountant-General that are given in the Barbados Act. Furthermore, while thereare provisions for the Minister to designate accounting officers and for accountingofficers to delegate to accountable officers, personal accountability remains withthe accounting officer, who is "answerable to the Public Accounts Committee ofthe House of Assembly for the efficient management of and accounting for publicfunds entrusted to him as accounting officer".4 2 On the other hand, the Director ofAudit, besides being able to contract for professional services, may also "authorizeany officer in his department to sign on his behalf'.4 3

Unlike the Barbados Act, the Finance (Administration) Act does notrequire monthly statements by the Accountant-General to be laid in the House;however, its requirements for other statements are similar.44 It also requires thatstatutory bodies submit annual reports, through the respective Ministers underwhose portfolios they fall, to be laid in the House.45

With respect to regulations, the Act provides that "the FinancialRegulations (1976) and the Financial (Stores) Regulations (1980) shall, in so far asthey are not inconsistent with this Act, remain in force .. 46 These regulationssuffer from similar inadequacies to those of the Barbados regulations.

Guyana

The Constitution of the Co-operative Republic of Guyana also provides asimilar basic legal framework for public sector financial management to that ofBarbados but with some differences. Alteration of the provisions regarding theoffice and functions of the Auditor-General requires the support of either two-thirds of the elected members of the National Assembly or the majority at a

39 Ibid, Section 5.40 Audit Act, Section 9.

41 Ibid, Section 6.42 Finance (Administration) Act, 1994, Section 6.43 Audit Act, Sections 16 and 17.44 Ibid, Sections 17 to 19.45 Finance (Administration) Act, Section 53.46 Ibid, Section 56.

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referendum; alteration of the other provisions requires a simple majority of theelected members of the Assembly.47

Section 219 facilitates authorization of expenditure from the ConsolidatedFund if the presentation of estimates and the passage of the Appropriation Bill donot take place before the commencement of the financial year. In addition to theprovisions for supplementary estimates and Supplementary Appropriation Bills,there is one for a Contingencies Fund which serves a similar purpose.45

While the role of the Auditor-General appears to be similar to that stated inthe Barbados Constitution, section 223(4) seems to place some limitations on hisautonomy by making it subject to section 118(2). Section 118(2) provides for afinance sub-committee of Cabinet to be assisted by experts and advisers, includingthe Auditor-General, and charged "with responsibility for supervising the financialaffairs of the State and for instituting, monitoring and enforcing systems offinancial control and discipline throughout the service of both central and localgovernment, including the service of corporations, boards and agencies establishedthe Government".

The Financial Administration and Audit Act is in some respects differentfrom the Barbados Act. It makes provision for a Deposits Fund "into which shallbe paid . . . the balances held on deposit in respect of any special funds establishedby law . . . other than trust funds or the balances of the Consolidated Fund".49

There is no role stated for the Cabinet, the Minister of Finance is given thepower to issue instructions and make regulations "for the efficient administrationof the financial business of the Governrment"." The primary responsibility of theSecretary to the Treasury is confined mainly to the administration of surcharges.5 'The role of the Accountant-General is narrowly defined.5 2 The Auditor-Generalhas the wider responsibility to examine and audit the accounts of all statutorybodies and state corporations.5 3 However, in his 1993 report, he has suggestedthat the legislation be amended to give him the power to carry out value-for-money audits.54

With respect to delegation, there are no provisions for delegation ofresponsibility by the Minister of Finance, the Secretary to the Treasury, theAccountant-General or accounting officers. However, the Auditor-General "mayauthorize any officer of his department to perform on his behalf any of his duties or

47 Constitution of the Co-operative Republic of Guyana, Section 164.48 Ibid, Section 220.49 Financial Administration and Audit Act, Section 23.5 Ibid, Section 5.51 Ibid, Sections 8 to 12.52Ibid, Section 7(2).53 Financial Administration and Audit (Amendment) Act, 1993, Section 3.54 Report of the Auditor-General. 1993, p. 184.

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functions under this Act or any other Act other than the certifying and reporting ofaccounts for Parliament".55 The Auditor-General is also permitted to engage theservices of a Chartered Accountant publicly carrying on the profession ofaccountant to examine and audit the accounts of statutory bodies and statecorporations. 16

Unlike the Barbados Act, the Guyana Financial Administration and AuditAct does not require monthly statements by the Accountant-General to be laid inthe House; however, its requirements for other statements are similar.57 Withrespect to regulations under the Act, the current ones are the Financial Regulations1955; they suffer from similar defects to the Barbadian regulations.

Jamaica

Chapter VII of the Constitution of Jamaica also provides a similar basiclegal framework for public sector financial management to that of Barbados butwith some differences. While alteration of most of the relevant provisions requiresthe support of at least two-thirds of all the members in each House, someprovisions require only a simple majority; furthermore, there are provisions for theuse of a referendum if alteration is being blocked in the Senate."8

Section 117(4) facilitates authorization of expenditure from theConsolidated Fund if the presentation of estimates and the passage of theAppropriation Bill do not take place before the commencement of the financialyear. In addition to the provisions for supplementary estimates and SupplementaryAppropriation Bills, there is one for a Contingencies Fund which serves a similarpurpose.59

The Financial Administration and Audit Act is in some respects differentfrom the Barbados Act. It provides for a Deposit Fund, a Supplies Fund and TrustFunds.60

There is no role stated for the Cabinet. The Minister of Finance makes"regulations for the purpose of giving effect to the provisions of this Act. . Inaddition to his role as "custodian of the Consolidated Fund",62 any shares acquiredby a government company are vested in the Accountant-General.6 3 In performinghis constitutional functions, the Auditor-General is required to ascertain whether

55 Financial Administration and Audit Act, Section 29.56 Financial Administration and Audit (Amendment) Act, 1993, Section 3.57 Financial Administration and Audit Act, Sections 7, 30 and 32.58 Constitution of Jamaica, Section 49.59 rbid, Section 118.60 Financial Administration and Audit Amendment) Act. 1992, Sections 14, 14A and 40.61 Ibid, Section 50.62 Ibid, Section 15(2).63 Ibid, Section 47(2).

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payments of public money have been incurred with due regard to the avoidance of64waste and extravagance. He may also, "if he thinks fit, audit the accounts of any

public body and shall do so if the House of Representatives so directs" .65 publicbody is defined to mean a statutory body or authority or any governmentcompany.66 The Act also requires each government department to establish asystem of internal audit and gives the Minister of Finance the power to require a

67public body to appoint an Audit Committee.

With respect to delegation, the Act does not seem to give the wide powersof delegation to the Minister of Finance, the Director of Finance and theAccountant-General that are given in the Barbados Act. The Minister of Financedesignates accounting officers who are responsible for the financial administrationof the departments specified in such designations and are accountable to theMinister.68 The Act also provides for "accountable officers" who are "concernedin or responsible for the collection, receipt, custody, issue or payment of publicmoneys or other public property";69 an accountable officer who approves orcertifies any payment in contravention of the relevant regulations is personallyliable for any impropriety in relation to such payment.'°

The Auditor-General may authorize any officer of his department toperform on his behalf "any of his functions under this Act or any other enactment,other than the administering of oaths and the certifying and reporting of accountsfor the House of Representatives".7' He may also authorize any person registeredunder the Public Accountancy Act "to inspect, examine or audit the books andaccounts of any public body".72

While the reporting requirements are similar to those under the BarbadosAct, there are some differences. "The Accountant-General shall submit to theMinister such statements of account on the financial position of the ConsolidatedFund, at such times and in such form as the Minister may require".73 Governmentcompanies are also required to submit annual reports and audited financialstatements to the appropriate Minister for presentation to the House.74

With respect to regulations under the Act, the current regulations are theFinancial Administration (Supplies) Regulations, 1963 which suffer from similarinadequacies to the Barbados regulations.

64 Ibid, Section 25(1)(c).65 Ibid, Section 30(1).66 [bid, Section 2(d).67 Ibid, Sections 33 and 34.68 Ibid, Section 16.69 Ibid, Section 2(a).'° Ibid, Section 19(b).71 Ibid, Section 25(7).72 Ibid, Section 31.7 bid, Section 15(4).74 Ibid, Section 46.

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Saint Lucia

Chapter V of the Constitution of Saint Lucia also provides a similar basiclegal framework for public sector financial management to that of Barbados butwith some differences. Alteration of the relevant provisions requires the supportof three-quarters of all the elected members of the House and approval by amajority of the votes cast at a referendum.7 5

Section 80 facilitates authorization of expenditure from the ConsolidatedFund if the presentation of estimates and the passage of the Appropriation Bill donot take place before the commencement of the financial year. In addition to theprovisions for supplementary estimates and Supplementary Appropriation Bills,there is one for a Contingencies Fund which serves a similar purpose.76

With respect to the role of the Auditor-General, section 84 gives him widerpowers than does the similar provision in the Barbados Constitution. He isrequired to audit and report on the "public accounts of Saint Lucia, the accounts ofall officers and authorities of the Government, .".

There are separate finance and audit Acts which are in some respectsdifferent from the Barbados Financial Administration and Audit Act. The FinanceAct, 1988 makes provision for trust funds and "other funds administered by theGovemment ." . 77

There is no role stated for the Cabinet. The Minister of Finance isresponsible for making Financial Regulations.78 There is minimal responsibilitygiven to the Director of Finance; his primary responsibility under the Act appearsto be the imposition of surcharges.7 9 The responsibilities of the Accountant-General are not explicitly stated in the Finance Act, however, they are stated in theFinancial Rules850 The Director of Audit is required to audit the public accounts,which are defined to include "the accounts of public bodies, statutory bodies andgovernment companies".S" He also appears to have the power not to comply witha request by the Minister of Finance to inquire into any matter related to thefinancial affairs of Saint Lucia, if in his opinion such an assignment interferes withhis primary responsibilities.82

7 The Constitution of St. Lucia, Section 41.76 Ibid, Section 81.

Finance Act. 1988, Sections 7 and 13.78 Ibid, Section 28.

79 Ibid, Section 22.so Financial Rules, Section 1(5).81 Audit Act, 1988, Sections 2 and 5.82 Ibid, Section 10.

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With respect to delegation of responsibilities, although the Finance Actprovides for accounting officers and accountable officers,8 3 it is silent on the matterof delegation. However, the Audit Act permits the Director of Audit to "authorizeone of his deputies or any other member of his senior staff to sign on his behalf anyopinion that he is required to give . 84

Unlike the Barbados Act, the Saint Lucia Finance Act does not requiremonthly statements by the Accountant-General to be laid in the House.Furthermore, while the requirements for annual statements from the Accountant-General"5 and the Auditor-General are similar to those of Barbados86, there are nosuch requirements from accounting officers, collectors of revenue and the Ministerof Finance. The Finance Act also requires that statutory bodies submit annualreports, through the respective Ministers under whose portfolios they fall, to belaid in the House.87

It should be noted that, while section 7 of the Audit Act requires an annualreport on the public accounts by the Director of Audit and section 5 defines thepublic accounts to include the accounts of public bodies, statutory bodies andgovernment companies, the Director of Audit is not required to audit the booksand accounts of statutory bodies or Government companies for which anotherauditor is appointed. The other auditor is required to provide the Director ofAudit with the necessary annual report; failing this, the Director of Audit has thenecessary power to conduct his own audit.88

With respect to regulations under the Act, the current regulations are theFinancial and Store Rules of the Windward Islands, 1952. Although these havebeen amended to increase the lower limits on expenditure requiring a tenderingprocess, they nevertheless suffer from the other defects of the Barbadosregulations.

Trinidad and Tobago

Chapter 8 of the Constitution of the Republic of Trinidad and Tobago alsoprovides a similar basic legal framework for public sector financial management tothat of Barbados but with some differences. While alteration of most of thesections related to finance requires the support of two-thirds of all the members ineach House, alteration of the section related to the Contingencies Fund requiresthe support of three-fourths of the House of Representatives.89

83 Finance Act. 1988, Section 2.84 Audit Act, 1988, Section 19.8 Finance Act, 1988, Section 14.86 Audit Act. 1988, Sections 6 and 7.87 Finance Act. 1988, Section 21.88 Audit Act, 1988, Section 16.89 Constitution of the Republic of Trinidad and Tobago, Section 54.

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The provisions with respect to estimates and appropriation are similar tothose of Barbados. However, in addition to the provisions for supplementaryestimates and Supplementary Appropriation Bills, there is one for a ContingenciesFund which serves a similar purpose.90 The Expenditure in Advance ofAppropriation Act further facilitates authorization of expenditure from theConsolidated Fund if the presentation of estimates and the passage of theAppropriation Bill do not take place before the commencement of the financialyear.

The Auditor-General is given wider scope. In addition to his functions withrespect to the "public accounts", he is "empowered to carry out audits of theaccounts, balance sheets and financial statements of all enterprises that are ownedor controlled by or on behalf of the State".9'

The Constitution also makes specific provision for a Public AccountsCommittee and a Public Accounts (Enterprises) Committee, which are required toconsider and report to the House of Representatives on the public accounts andthe accounts of state enterprises respectively, as well as the respective AuditorGeneral's reports.92

The Exchequer and Audit Act is in some respects different from theBarbados Financial and Administration Act. Section 43 facilitates theestablishment of an unlimited number of funds managed independently of theConsolidated Fund.

There is no role stated for the Cabinet. The Minister of Finance is giventhe responsibility for managing the Consolidated Fund and "the supervision,control and direction of all matters relating to the financial affairs of the Statewhich are not by law assigned to any other Minister".93 Section 45 also gives himthe power to make regulations "for the proper carrying out of the intent andprovisions of this Act." The Treasury is given the responsibility to "so superintendthe expenditure of public moneys as to ensure that proper arrangements foraccounting to the House for such expenditure are made".94 Treasury is defined tomean "the Minister, and includes such officer or officers in the Ministry of Financeas may be deputed by the Minister to exercise powers and to perform duties underthis Act".95

No major primary responsibility is specifically assigned to the PermanentSecretary, the Minister or the Comptroller of Accounts. In fact, the Auditor-General has been given some of the responsibility of the Barbados Accountant-

90 Ibid, Section 115.91 Ibid, Section 116.92 Ibid, Section 119.93 Exchequer and Audit Act, Section 3.94 Ibid, Section 4(3).95 Ibid, Section 2.

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General: "Where moneys are authorized by an Appropriation Act to be withdrawnfrom the Consolidated Fund, the Treasury may, by requisition from time to time,authorize and require the Auditor-General to grant credits on the ExchequerAccount not exceeding on the whole the amount authorized by the Treasury. TheAuditor-General if satisfied . . . shall grant the credit on the Exchequer Account."96In his traditional role, he has similar duties to those of the Barbados Auditor-

General; however, he is also required to "satisfy himself that all money expendedhas been applied to the purpose or purposes for which the same was granted byParliament and that such expenditure conforms to the authority which govems itand has been incurred with due regard to the avoidance of waste andextravagance" .

With respect to delegation, the definition of "Treasury" referred to earlierimplies that the Minister of Finance has the power to delegate, however, no suchpower appears to be given to the Permanent Secretary or the Comptroller ofAccounts. The Financial Regulations also provide for the appointment by theTreasury of accounting officers responsible for ensuring "that the financial businessof the State for which he is responsible is properly conducted ,,;98 however, theregulations also state that "no accounting officer shall be relieved fromresponsibility for an act which he is required by the Act, these Regulations and anyinstructions to perform, the performance of which he has delegated to an officersubordinate to him".99 On the other hand, the Auditor-General is authorized todelegate to any officer of his staff anything which is directed to be done by him"other than the certifying and reporting of accounts required by this Act or theConstitution to be laid before the House."]00

The reporting requirements are somewhat different from those required bythe Barbados Act. Monthly statements laid before the House by the Treasury arenot required; annual statements are required from accounting officers, the Treasuryand the Auditor-General.'01 Every statutory body is also required to submit annualreports to the appropriate Minister for laying in the House. 102 While the Act doesnot appear to address the matter of annual reports from state enterprises, theMinister of Finance (Incorporation) Act, which vested the shares of most stateenterprises in "a corporation sole by the name of the Minister of Finance", providesthat the corporation shall be audited by the Auditor-General in accordance with theprovisions of the Exchequer and Audit Act.'03

96 Ibid, Section 18.97 Ibid, Section 9(2)(c).9 Financial Regulations, Sections 3, 4 and 5.99 Ibid, Section 7.'00 Exchequer and Audit Act, Section I 1.'1° Ibid, Sections 24 and 25.102 lbid, Section 40.

103 Minister of Finance (Incorporation) Act, Sections 3 and 10.

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With respect to regulations under the Act, the Financial Regulations sufferfrom similar deficiencies to those of the Barbados regulations.

Legal framework for public sector personnel management

Personnel management procedures concern both the establishment of postsin the public service and the selection and subsequent treatment of persons fillingthose posts. Decisions taken under these procedures have many importantimplications for expenditure management, but those implications are formally leftfor the expenditure procedures.

Concerning the public service posts, procedures need to provide for theirestablishment and dis-establishment.

Concerning the persons, procedures have three objectives:1. The first goal is to assure that only qualified people are hired.2. The second objective of the personnel procedures is to assure that civil

servants are not arbitrarily fired or transferred, and particularly not forreasons of partisan politics.

3. The third objective is to provide procedures for promotion or and forother mobility (lateral or even downward), for career development or toaccommodate the changing needs of the agency.

4. The fourth objective is to provide procedures by which a person'semployment can be terminated for unsatisfactory service.

For each country, the provisions in the Constitution are first presented.The sections on the Service Commissions are identified. The role of the PublicService Commission, its power to delegate its functions, the constraints on itspowers and the regulation of its procedures receive particular attention. The otherrelevant legislation and regulations with respect to the appointment, removal anddiscipline of public officers are also examined.

As in the earlier section, the Barbados legislation is discussed in detail, thenthe variations from the Barbados legislation are presented for the other territories.

Barbados

Chapter VIII of the Constitution of Barbados provides the basic legalframework for public sector personnel management in Barbados. Alteration ofthese provisions requires an Act of Parliament supported in both the House ofAssembly and the Senate by at least two-thirds of all members. 10 4

The Constitution provides for a Judicial and Legal Service Commission, aPolice Service Commission, a Teaching Service Commission and a Public Service

104 Constitution of Barbados, Section 49.

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Commission. 105 In particular, section 90(1) provides for a "Public ServiceCommission . . . which shall consist of a Chairman and not less than three normore than five other members, who shall be appointed by the Governor-General,acting on the recommendation of the Prime Minister after consultation with theLeader of the Opposition".

The role of the Public Service Commission is stated at section 94(1):"Subject to the provisions of this Constitution, power to make appointments topublic offices and to remove and to exercise disciplinary control over personsholding or acting in such offices is hereby vested in the Governor-General, actingin accordance with the advice of the Public Service Commission". Among thepublic offices exempted from this provision are those of the Director of PublicProsecutions and the Auditor-General and those which fall under the jurisdiction ofthe other Commissions. 106

The power of the Commission is limited by section 64 which gives theCabinet the responsibility for the "general direction and control of the government"and section 72 which provides for assignment "to the Prime Minister or any otherMinister responsibility for any business of the Government, including theadministration of any department of the Government". Section 2 of the CivilEstablishment Act more specifically gives the relevant Minister the power toestablish offices in the public service, to determine the number of persons who maybe appointed to such offices, to prescribe the qualifications to be possessed bypersons appointed to such offices, and to determine the emoluments to be attachedto such offices. In accordance with this provision, various Civil EstablishmentOrders have been passed. The range of the Minister's power in this respect wasconfirmed in a recent decision of the Privy Council which held that this Act evengave the Minister the power to reduce emoluments. 107

The Commission's power with respect to appointments is also somewhatrestrained in respect of the appointment of higher-level public officers.Appointments to the following offices require that the Governor-General act onthe recommendation of the appropriate Service Commission, made after thatCommission has consulted the Prime Minister: Solicitor-General, Director ofFinance and Planning, Secretary to the Cabinet, Permanent Secretary,Commissioner of Police, Chief Establishments Officer, Chief Personnel Officer,Chief Training Officer, chief or deputy chief professional or technical adviser orofficer in a Ministry, and head or deputy head of a department. 18 In the case ofappointments to the office of a Permanent Secretary on transfer from another

05 Constitution of Barbados, 1966, Sections 89, 89A, 90 and 91.015 Ibid, Section 94(3).1O King v Attorney-General (P.C.), Weekly Law Reports, November 25, 1994.1"8 Barbados Constitution (Amendment) Act, Section 26.

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office carrying the same salary, the appointment must be in accordance with thePrime Minister's recommendation.'09

The power with respect to removal and discipline is also constrained.Before a public officer is removed from office or any disciplinary penalty imposedon him, the Governor-General is required to inform him of the advice he hasreceived from the Commission and the officer may have the matter referred to thePrivy Council of Barbados. The Privy Council must consider the case and advisethe Governor-General what action should be taken, the Governor-General mustthen act in accordance with such advice."° The officer also appears to have analternative route; the Administrative Justice Act provides for judicial review of theCommission's decisions.

As regards delegation of powers, section 95(1) of the Constitutionprovides as follows: "The Governor-General, acting in accordance with the adviceof the Public Service Commission, may . . . direct that . . the powers, other thanthe power to remove from office, vested in him by section 94(1) shall . . . beexercisable by such one or more members of the Public Service Commission or bysuch public officer as may be so specified".

With respect to the procedure of the Commission, section 92(1) of theConstitution provides that "in relation to any Commission established by thisChapter, the Governor-General, acting in accordance with the advice of theCommission, may by regulation or otherwise regulate its procedure and, subject tothe consent of the Prime Minister, confer powers and impose duties on any publicofficer or any authority of the Government for the purpose of the discharge of thefunctions of the Commission". Section 7 of the Service Commissions Act, whichmakes provisions in relation to the functions of the Commissions, also gives theGovernor-General the power, acting in accordance with the advice of theCommission, "to make any regulations which he considers necessary or expedient .

for giving effect to this Act". In accordance with this provision, the Governor-General has made the Service Commissions (Public Service) Regulations, 1978.

These regulations address the Commission's internal procedures.Provision is made for the Chief Personnel Officer to perform a secretarial role tothe Commission as well as to give effect to its decisions." ' The broaderprocedures with respect to the exercise of its powers of appointment, removal anddiscipline of public officers, and the exercise of the powers of appointment anddiscipline by officers to whom these powers have been delegated, are alsoaddressed.

'09 Constitution of Barbados, Section 99(l)(b).10 Ibid, Section 98.

Service Commissions (Public Service) Regulations. 1978. Section 9.

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PUBLIC SECTOR MODERNMZ TION IN THE CARIBBEAN

It has been observed that the regulations are being bypassed in the area ofappointments through the creation of "temporary" positions. The disciplinaryprocedures are also perceived to be cumbersome.

Belize

Part VIII of the Belize Constitution provides a similar basic legalframework for public sector personnel management to that of Barbados; however,there are some differences. Alteration of most of the relevant provisions requiresthe support of two-thirds of all the members of the House and a simple majority inthe Senate;' 12 however, some provisions require the support of three-quarters of allthe members of the House."3

The Constitution provides for one Public Service Commission, consistingof a Chairman and twelve other members, with four sections - judicial and legalservices, police services, military services and other public services; each of thetwelve members is allocated to one of the four sections and, with the Chairman, isresponsible for matters related to that section. 114 There are five ex officiomembers: the Chief Justice, a justice of the Supreme Court designated by him, thePermanent Secretary to the Minister of Defence, the Commandant of the BelizeDefence Force, and the Commissioner of Police. All of the members, except theex officio ones, are appointed by the Governor-General, acting in accordance withthe advice of the Prime Minister given after consultation with the Leader of theOpposition. 115

While the role of the Commission is similar in content to that of theBarbados Commission, it is different in form. The powers are vested directly inthe Commission"'6 unlike the Barbados situation where they are vested in theGovernor-General who is required to act in accordance with the advice of theCommission. There does not appear to be legislation of a similar nature to theBarbados Civil Establisnment Act, which gives the relevant Minister the major rolein the management of the public service. However, section 41 of the Constitutionhas similar provisions to section 64 of the Barbados Constitution with respect tothe responsibility of Cabinet and Ministers for management of the government andits departments.

Furthermore, section 106(3) gives the Governor-General the power to"make regulations on any matter relating to . . . the formulation of schemes forrecruitment to the public service; . . . the determination of a code of conduct forpublic officers; . . . the fixing of salaries and privileges; . .. the principles governing

B12 Belize Constitution, Section 69(4).113 Ibid, Section 69(3).

4 Ibid, Section 105(1) and (11).15 Ibid, Sections 105(1) and (2).

1 6 Ibid, Section 106(1).

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the promotion and transfer of public officers; . . . measures to ensure discipline,and to govern the dismissal and retirement of public officers, including theprocedures to be followed; . . . the procedure for delegation of authority by and topublic officers, and . . . generally for the management and control of the publicservice"' In accordance with this provision, the General Orders for the PublicService Regulations have been passed.

The Prime Minister has a greater influence on personnel matters at thehigher levels of the public service than applies in Barbados. Where in Barbadosthe Governor-General appoints on the recommendation made by the Commissionafter it consults the Prime Minister, in Belize the Governor-General acts inaccordance with the advice of the Prime Minister. Furthermore, the PrimeMinister's influence extends beyond appointments to discipline and removal."17

With respect to discipline and removal of public officers, there is a similarappeal process to that in Barbados. However, the appeal is to the Belize AdvisoryCouncil, which may affirm or set aside the decision appealed against."8

As regards delegation of its powers, the Commission has similar power tothat which exists in Barbados. However, delegation to a public officer requires theconsent of the Prime Minister. "9

With respect to the Commission's procedure, Section 105(14) of theConstitution provides that "the Commission may by regulation make provision forregulating and facilitating the performance of its functions under this Constitution".In accordance with this provision, the Public Service Commission Regulationshave been passed. These regulations suffer from similar defects to the Barbadosregulations.

Dominica

Chapter VI of the Constitution of the Commonwealth of Dominica alsoprovides a basic legal framework for public sector personnel management which issimilar to that of Barbados but with some differences. Alteration of most of therelevant provisions requires the support of three-quarters of all the electedmembers of the House and approval by a majority of the votes cast at areferendum. 120

The Constitution provides for a Police Service Commission and a PublicService Commission.'2' In particular, the Public Service Commission consists of

1 [bid, Section 107.118 [bid, Section 111.'19 Ibid, Section 106(5).20 The Constitution of the Commonwealth of Dominica, Section 42.

121 Ibid, Sections 84(1) and 91(1).

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seven members, all appointed by the President in accordance with the advice of thePrime Minister. However, two members are appointed "from amongst personsselected by the appropriate representative body" and five appointments require thatthe Prime Minister consult the Leader of the Opposition. 122

While the role of the Commission is similar in content to that of theBarbados Commission, it is different in form. The powers are vested directly inthe Commission,123 unlike the Barbados situation where they are vested in theGovernor-General who is required to act in accordance with the advice of theCommission.

Section 41 of the Constitution has similar provisions to section 64 of theBarbados Constitution with respect to the responsibility of Cabinet and Ministersfor management of the government and its departments. The Public Service Act1991, while similar in some respects to the Barbados Civil Establisnment Actwhich gives the relevant Minister the major role in the management of the publicservice, is also wider in scope.

The Public Service Act establishes the public service for Dominica.'2 4 Itgives the relevant Minister the power, after consultation with the Chief PersonnelOfficer and "the representative body" to make regulations prescribing inter alia"administrative orders and instructions for the public service; . . . terms andconditions of employment in the public service; . . . qualification and remunerationof public officers; ... duties and conduct of public officers . 125 It preservedthe General Orders which existed under the Civil Service Act, 1973 which itrepealed.

The Public Service Act 1991 also established a Committee of PermanentSecretaries "to coordinate the management functions of the public service".'26 Itcreated a Public Service Board of Management, consisting of a Chairman selectedby the Prime Minister from the Committee of Permanent Secretaries, the ChiefPersonnel Officer, the Financial Secretary, another Permanent Secretary and a legalofficer, with the responsibility inter alia "to advise the Minister on all mattersaffecting the management, direction and control of the public service ..27

It also established an Establishment, Personnel and Training Department,headed by the Chief Personnel Officer, with responsibility for maintaining aclassification of the offices in the public service, reviewing salaries and allowances,ensuring the administration of the regulations under the Act and establishing

122 Ibid, Section 84(1).123 Ibid, Section 85(1).124 Public Service Act 1991, Section 4(1).125 Ibid. Section 39.126 Ibid, Sections 21 and 22.127 Ibid, Sections 19 and 20.

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Appendix I

"procedures for treating with the representative body or with public officers asrequired or permitted by this Act". 128

The Prime Minister has a greater influence on appointments at the higherlevels of the public service than applies in Barbados. Where in Barbados theGovemor-General appoints on the recommendation made by the Commission afterit consults the Prime Minister, in Dominica the President acts in accordance withthe advice of the Commission which must first consult with the Prime Minister andnot advise an appointment to which the Prime Minister objects. Furthermore, thePrime Minister's influence in this respect also extends to discipline and removal. 129

With respect to discipline and removal of public officers, the appeal processis somewhat different from that of Barbados. Section 93 of the Constitutionprovides for a Public Service Board of Appeal which "may affirm or set aside thedecision appealed against or may make any other decision which the authority orperson from whom the appeal lies could have made". Section 13 of the PublicService Board of Appeal Act further provides that "any officer who is a party to amatter brought before the Board dealing with the dismissal of such officer shall beentitled as of right to appeal to the Court of Appeal on a point of law, from anydecision, order or award of the Board confirming the dismissal of such officer ...The decision of the Court of Appeal . . . shall be final".

As regards delegation of its powers, the Commission has similar power tothat which exists in Barbados. However, delegation to a public officer requires theconsent of the Prime Minister. 130

With respect to the Commission's procedure, section 84(13) of theConstitution provides that "the Commission may by regulation or otherwiseregulate its own procedure . . .". In accordance with this provision, the PublicService Commission Regulations have been passed. These regulations suffer fromsimilar defects to the Barbados regulations.

Guyana

Chapter XII of the Constitution of the Co-operative Republic of Guyanaalso provides a basic legal framework for public sector personnel managementwhich is similar to that of Barbados but with some differences. Alteration of mostof the relevant provisions requires the support of two-thirds of all the electedmembers of the National Assembly or approval by a majority of the votes cast at areferendum. 131

128 Ibid, Sections 17 and 18.

129 The Constitution of the Commonwealth of Dominica, Section 86.130 The Constitution of the Commonwealth of Dominica, Section 85(2).3 Constitution of the Co-operative Republic of Guyana, Section 164.

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The Constitution provides for a Judicial Service Commission, a PoliceService Commission, a Teaching Service Commission, and a Public ServiceCommission.'3 2 In particular, the Public Service Commission consists of not lessthan five and not more than six members. Three are appointed by the Presidentacting after consultation with the Minority Leader. Two are appointed by thePresident acting after consultation with "such bodies as appear to him to representpublic officers or classes of public officers". One is appointed by the President "ifhe deems it fit". 133

While the role of the Commission is similar in content to that of theBarbados Commission, it is different in form. The powers are vested directly inthe Commission,'34 unlike the Barbados situation where they are vested in theGovernor-General who is required to act in accordance with the advice of theCommission.

There does not appear to be legislation of a similar nature to the BarbadosCivil Establishment Act, which gives the relevant Minister the major role in themanagement of the public service. However, section 106 provides for a Cabinet,consisting of the President, the Prime Minister, the Vice-Presidents and "suchother Ministers as may be appointed to it by the President", with the responsibilityto "aid and advise the President in the general direction and control of theGovernment of Guyana". Section 107 also provides that "the President may assignto any Minister responsibility for any business of the Government of Guyana,including the administration of any department of Government, and shall becharged with all responsibility not assigned to any Minister".

The President has less influence on personnel matters at the higher levels ofthe public service than applies to the Prime Minister in Barbados. In Guyana, thePresident appoints and removes the Solicitor-General, Permanent Secretaries andthe Secretary to the Cabinet,'35 however, appointments at lower levels do notrequire that the Commission consult with him.'36

With respect to the Commission's powers to remove and discipline otherofficers, section 202 of the Constitution provides that, where the Commission hasdelegated its powers, any person in respect of whom the power is exercised -including a person who has failed to obtain an appointment - may appeal to theCommission from the decision of the person exercising the power; the decision ofthe Commission on such an appeal will be final. The Public Service AppellateTribunal Act, 1984 amended the Constitution to provide for appeals against thedecisions of the Commission.

132 Ibid, Section 134.33 Ibid, Section 200(1).

134 Ibid, Section 201(1).135 Ibid, Section 205.'36 Ibid, Section 199(1).

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Appendix II

As regards the Commission's power to delegate, it is wider than that ofBarbados in that it includes delegation of the power to remove officers; however,delegation to a public officer requires the consent of the President. 137

With respect to the procedures of the Commission, section 226(2) of theConstitution provides that "the President may, after consulting a Commission,make rules relating to the procedure of the Commission and to disciplinaryoffences within the jurisdiction of the Commission, including the punishments forsuch offences and the procedure relating thereto . . . ". In accordance with thisprovision, the Public Service Commission Rules, 1985 were created. These rulesappear to suffer from the same deficiencies as the Barbados regulations.

Jamaica

Chapter IX of the Constitution of Jamaica also provides a basic legalframework for public sector personnel management which is similar to that ofBarbados but with some differences. While alteration of most of the relevantprovisions requires the support of at least two-thirds of all the members in eachHouse, some provisions require only a simple majority; furthermore, there areprovisions for the use of a referendum if alteration is being blocked in theSenate. 138

The Constitution provides for a Judicial Service Commission, a PoliceService Commission and a Public Service Commission. 139 With respect to thePublic Service Commission, the provisions for the appointment of the Commission,its composition and its role are almost the same as those in Barbados with someexceptions."40 One such exception is that one of the members of the Commissionmust be selected from a list of persons submitted by the Jamaica Civil ServiceAssociation or such other body that succeeds it. i41

As in Barbados, the power of the Commission is limited by theresponsibiity given to Cabinet for "the general direction and control of theGovernment" 142 and to Ministers for "any subject or any department ofgovernment" with which they are charged.'43 There is also a Civil ServiceEstablishment Act which gives the Minister responsible for the public servicesomewhat wider powers than obtain under the Barbados Act. He is given thepower to issue orders to constitute or abolish offices; to determine the numbers ofany office specified thereunder; to determine the emoluments to be attached to anyoffice; and to amend enactments "relating to the appointment, powers, duties,

13' Ibid, Section 201(2).13F Constitution of Jamaica, Section 49.'39 Ibid, Sections 111, 124 and 129.140 Ibid, Sections 124(1) and 125(1)..14' Ibid, Section 124(2).142 Ibid, Section 69.

143 Ibid, Section 77.

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rights or liabilities of any officer holding any office specified in an order. . ." Inaccordance with these provisions, several Civil Service Establishment (General)Orders have been issued.

The Commission's power with respect to appointments of higher-levelpublic officers is much less restricted than it is in Barbados; the Prime Minister'sinvolvement is confined to the following positions. Appointment of the Secretaryto the Cabinet requires the recommendation of the Prime Minister from a list ofpublic officers submitted by the Commission.'45 Appointments to the office ofPermanent Secretary - other than transfers from another such office carrying thesame salary - are made on the recommendation of the Commission; before theGovernor-General acts on such a recommendation, he must consult the PrimeMinister who may require that each new recommendation be referred back to theCommission for reconsideration.'46 Appointments to the office of PermanentSecretary on transfer from another such office carrying the same salary must be inaccordance with the Prime Minister's recommendation. 147

With respect to removal and discipline of officers, there are similarprovisions for appeal to the Privy Council as exist in Barbados; however, theGovernor-General, acting on the advice of the Commission, may suspend anofficer pending the decision of the Privy Council. 14S Officers also have recourse tothe courts using the "natural justice argument".

As regards the Commission's power to delegate, it is wider than that ofBarbados in that it includes delegation of the power to remove officers. 149

With respect to the procedure of the Commission, section 135(1) of theConstitution provides that "in relation to any Commission established by thisConstitution, the Governor-General, acting in accordance with the advice of theCommission, may by regulation or otherwise regulate its procedure and, subject tothe consent of the Prime Minister or such other Minister as may be authorised inthat behalf by the Prime Minister, confer powers and impose duties on any publicofficer or any authority of the Government of Jamaica for the purpose of thedischarge of the functions of the Commission". The current regulations are thePublic Service Regulations, 1961, which were made under section 81 of theJamaica (Constitution) Order in Council, 1959 and were preserved by section 2 ofthe Jamaica (Constitution) Order in Council, 1962. These regulations appear tosuffer from similar deficiencies to the Barbados regulations.

144 Civil Service Establishment Act, Sections 2 and 3.145 Ibid, Section 92(1).'4bid, Section 126(1) and (2).147 Ibid, Section 126(3).14S hbid, Sections 125(3) and (4).14 Ibid, Section 127.

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Appendix 1I

Saint Lucia

Chapter VII of the Constitution of Saint Lucia also provides a basic legalframework for public sector personnel management which is similar to that ofBarbados but with some differences.

Alteration of most of the relevant provisions requires the support of three-quarters of all the elected members of the House and approval by a majority of thevotes cast at a referendum.150

The Constitution provides for a Teaching Service Commission and a PublicService Commission. 5 ' With respect to the Public Service Commission, theprovision for the appointment of its members is the same as in Barbados; however,its minimum membership is two and its maximum four. 15 2

While the role of the Commission is similar in content to that of theBarbados Commission, it is different in form. Some powers are vested directly inthe Commission and some in the Governor-General acting in accordance with theadvice of the Commission.'5 3

There does not appear to be legislation of a similar nature to the BarbadosCivil Establisnment Act, which gives the relevant Minister the major role in themanagement of the public service. However, as in Barbados, the power of theCommission is limited by the responsibility given to Cabinet "to advise theGovernor-General on the government of Saint Lucia"'54 and the responsibility ofM-.iisters "for any business of the Government, including the administration of anydepartment of government" to which they are assigned. '55

The Prime Minister has a greater influence on appointments at the higherlevels of the public service than applies in Barbados. Where in Barbados theGovernor-General appoints on the recommendation made by the Commission afterit consults the Prime Minister, in Saint Lucia the Governor-General acts inaccordance with the advice of the Commission which must first consult with thePrime Minister and not advise an appointment to which the Prime Minister objects.Furthermore, the Prime Minister's influence in this respect also extends todiscipline and removal. 156

With respect to discipline and removal of public officers, the appeal processis somewhat different from that of Barbados. Section 95(1) of the Constitutionprovides for a Public Service Board of Appeal consisting of four members

150 The Constitution of St. Lucia, Section 41.151 Ibid, Sections 85 and 92.152 Ibid, Section 85(1).

153 Ibid, Sections 86(1) and 87.154 Ibid, Section 61(3).X ss Ibid, Section 62.156 Ibid, Section 87.

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appointed by the Governor-General - one in accordance with the advice of thePrime Minister and two in accordance with the advice of bodies representingpublic officers. "The Board may affirm or set aside the decision appealed againstor may make any other decision which the authority or person from whom theappeal lies could have made".1'5 Section 96(5) also gives the Board the power toregulate its procedure, in accordance with this provision, the Public Service Boardof Appeal Regulations, 1982 were created.

As regards the Commission's power to delegate, it is wider than that of theBarbados Commission in that it includes delegation of the power to removeofficers, however, delegation to a public officer requires the consent of the PrimeMinister. 5s

With respect to the Commission's procedure, section 85(13) of theConstitution provides that "the Commission may by regulation or otherwiseregulate its own procedure . . .". The Public Service Commission Act, 1967,which is described as "an Act to provide for the remuneration, privileges andfunctions of the Public Service Commission . . .", further provides that "theCommission, with the consent of the Premier, may make any regulations which itconsiders necessary or expedient for providing for all or any of the followingmatters: . . . the organisation of the work of the Commission; . . . generally to giveeffect to the provisions of this Act".'59 The current Public Service Regulationswere made under the authority of the Public Service Commission Ordinance,which was repealed by the Public Service Commission (Amendment) Act 1969;160the regulations are somewhat inadequate.

Trinidad and Tobago

Chapter VIII of the Constitution of the Republic of Trinidad and Tobagoalso provides a similar basic legal framework for public sector personnelmanagement to that of Barbados but with some differences. While alteration ofmost of the sections related to personnel requires the support of two-thirds of allthe members in each House, alteration of the General Provisions on ServiceCommissions and the provisions with respect to the Public Service Appeal Boardrequires a simple majority.'6 '

As in Barbados, the Constitution provides for a Judicial and Legal ServiceCommission, a Police Service Commission, a Teaching Service Commision and aPublic Service Commission.'6 2 In particular, section 120 provides for a PublicService Commission "which shall consist of a Chairman, a Deputy Chairman,and

151 Ibid, Section 96(3).'5 Ibid, Section 86(2).5 9 Public Service Commission (Amendment) Act, Sections 2 to 4."so Ibid, Section 5.161 Constitution of the Republic of Trinidad and Tobago, Section 54.162 Ibid, Sections 110, 122, 124 and 120.

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Appendix 11

not less than two nor more than four other members". Unlike the Barbadossituation, the members of the Commission are appointed by the President "afterconsultation with the Prime Minister and the Leader of the Opposition". 163

While the role of the Commission is similar in content to that of theBarbados Commission, it is different in form. The powers are vested directly inthe Commission16 4 unlike the Barbados situation where they are vested in theGovernor-General who is required to act in accordance with the advice of theCommission.

As in Barbados, the power of the Commission with respect toappointments is limited by the responsibility given to Cabinet for "the generaldirection and control of the Government"'6 5 and to Ministers for "any business ofthe Government of Trinidad and Tobago, including the administration of anydepartment of government" to which they are assigned.'66 There is also a CivilService Act which gives the Minister responsible for the public service the powerby order to "add to, vary or amend the classification of offices in the Civil Service,... determine the pay in respect of any office . . . (and) establish the allowancesthat may be paid in addition to pay". 167

Section 28 of the Civil Service Act further gives the Minister the power to"make regulations prescribing all matters which are required or permitted to beprescribed . . . for carrying out or giving effect to this Act, and in particular . .. forprescribing the terms and conditions of employment in the Civil Service . . . (and)for regulating the duties and the conduct of civil servants . . .". In accordance withthis section, Civil Service Regulations have been issued. However, theseregulations are lacking in the areas of terms and conditions of employment andcodes of conduct; in fact, provisions with respect to terms and conditions ofemployment are to be found in the Act itself468 and not in the regulations.

Part III of the Civil Service Act also establishes a Personnel Departmentunder the general direction and control of the Minister and headed by a ChiefPersonnel Officer. The Department is given the responsibility to administer theCivil Service Regulations and to establish procedures for consultation withrecognized associations of public officers on classification of offices, remuneration,terms and conditions of employment and grievances. Part V of the Act makesprovisions for the recognition of such associations and Part VI establishes aSpecial Tribunal to hear and determine disputes between the Personnel Departmentand those associations; awards of the Special Tribunal are final.

163 Ibid, Section 120(2).164 lbid, Section 121(1).165 Ibid, Section 75(1).166 Ibid, Section 79(1).167 Civil Service Act, Sections 3 and 4.168 Ibid, Sections 6 to 12.

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The Prime Minister has a greater influence on appointments at the higherlevels of the public service than applies in Barbados. Where in Barbados theGovernor-General appoints on the recommendation made by the Public ServiceCommission after it consults the Prime Minister, in Trinidad and Tobago theCommission must first consult with the Prime Minister and not appoint a person towhom the Prime Minister objects. 16 9

With respect to disciplinary proceedings against public officers, the appealprocess is somewhat different from that of Barbados. Section 130 of theConstitution provides for a Public Service Board of Appeal consisting of threemembers appointed by the President - one after consulting the Chief Justice andtwo after consulting the Prime Minister and the Leader of the Opposition. "TheBoard may affirm or set aside the decision appealed against or may substitute anyother decision which the Service Commission or the person from whom the appeallies could have made".'170 Section 132(5) also gives the Board the power toregulate its procedure; in accordance with this provision, the Public Service Boardof Appeal Regulations were created.

As regards the Commission's power to delegate, it is wider than that ofBarbados in that it includes delegation of the power to remove and disciplineofficers; however, the approval of the Prime Minister is required. 17'

With respect to the Commission's procedure, section 129 (1) provides that"a Service Commission may, with the consent of the Prime Minister, by regulationor otherwise regulate its own procedure . .". In accordance with this provision,the Public Service Commission Regulations, 1966 were passed.

The constitutional validity of these regulations - and indeed the body oflegislation governing public sector personnel management in Trinidad and Tobagoand the rest of the Commonwealth Caribbean - has come under scrutiny followingthe decision of the Privy Council in Endell Thomas v Attorney-General ofTrinidad and Tobago.'72 The Privy Council held that the power of a commissionto make regulations to regulate its own procedure did not include the power tomake regulations concerning the conduct of public officers or the terms andconditions of service of such officers. On the matter in question, it was furtherheld that those regulations of the Police Service Commission Regulations whichimposed a code of conduct on police officers were ultra vires and that, in theabsence of a comprehensive code of conduct embodied in the Police Service Actor in regulations under the Act, the only misconduct with which the plaintiff couldhave been charged was wilful neglect or breaches of duties imposed upon him bythe implied terms of his contract of employment.

169 The Constitution of the Republic of Trinidad and Tobago, Section 121.170 Ibid, Section 132(3).

'1' Ibid, Section 127.172 (1982) AC 113.

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In response to the above decision, Public Service Commission(Amendment) Regulations, 1990 were passed in Trinidad and Tobago; theamendment revoked those sections of the Public Service Commission Regulations,1966 which dealt with the conduct of public officers. It has been further suggestedthat the Privy Council decision reveals "the existence of a considerable body ofunconstitutional provisions in the Service Commission Regulations and Delegationof Powers Orders, and also in some related statutes . . .".'73 This problem ofunconstitutionality also seems to extend to other Commonwealth Caribbeanjurisdictions. 17

Conclusions and recommendations

The legal frameworks presented above provide many examples of good practicesin public sector management but also suggest many areas requiring reform.

Legal framework for expenditure management

Since alteration of the relevant sections of the Constitutions generallyrequires at least a two-thirds majority in Parliament - sometimes a referendum - itis suggested that legislative changes should focus as much as possible on thefinance and audit Acts and the regulations under these Acts.

To facilitate decentralization and flexibility in the management of funds, itseems to be desirable, where this is not already the case, to make provision for aContingencies Fund and other Special Funds in addition to the Consolidated Fund.Such funds are provided for in Belize, Dominica, Jamaica and Trinidad and

Tobago.

For a similar reason, Barbados may wish to consider introducing legislationto facilitate authorization of expenditure if presentation of the estimates andpassage of the Appropriation Bill do not take place before the commencement ofthe financial year. Such legislation exists in the other territories considered.

In most of the territories considered, the relative roles of the Cabinet, theMinister of Finance, the Financial Secretary or Director of Finance, theAccountant-General and accounting officers is not clear. It may be useful to havelegislation which clarifies these roles as exists in Barbados.

The legislation in some of the territories does not clearly provide fordelegation of responsibility by the Minister of Finance, the Director of Finance, theAccountant-General or accounting officers. Where there is delegation of

13 Carla Herbert, Caribbean Public Service Reform: A Legal PersDective from Trinidad andTobago, Commonwealth Law Bulletin, April 1994, p. 694.

See E. H. Watkins, Examination of the Laws of Saint Lucia Which Deal with theManagement of Personnel in the Public Service.

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responsibility to accountable officers, there is not delegation of accountabilityexcept in Jamaica. It is recommended that provision be made in the legislation fordownward delegation of both responsibility and accountability to the level ofaccountable officers.

With the exception of Barbados, the reporting requirements are inadequatefor timely financial management decisions. It is recommended that the legislationrequire quarterly statements by the Minister of Finance, the Director of Finance,the Accountant-General, accounting officers, accountable officers, statutory bodiesand state enterprises. These quarterly statements should be transmitted to theAuditor-General, the Minister of Finance and the Public Accounts Committee.

In order to facilitate the production of such reports, the financial rulesshould be updated to provide for computerization. They should also be updated tofacilitate expenditure by raising the limits in respect of the requirement fortendering for the supply of goods and services.

Jamaica has introduced some provisions for internal audit. There has beena trend in other Commonwealth countries -- for example, in Canada,'75

Malaysia,'7 6 and the United Kingdom'7 7 -- towards making this a requirement ingovernment departments, statutory bodies and state enterprises. It isrecommended that such requirements be introduced in the CommonwealthCaribbean legislation.

With respect to external auditing, "value-for-money" auditing has beenintroduced in Dominica, Jamaica and Trinidad and Tobago. There has been atrend to making this a requirement in other Commonwealth countries - forexample, in Malaysia'77 and the United Kingdom'79 - and it is recommended thatsuch requirements be introduced in the Commonwealth Caribbean legislation.

It is further recommended that the scope of the Auditor-General's activityshould encompass all government departments, statutory bodies and stateenterprises without any requirement for directions from Parliament or a Minister.He now has such scope in Guyana, St. Lucia and Trinidad and Tobago.

With respect to delegation of his responsibility by the Auditor-General, heis permitted to do this in Guyana and Jamaica without requiring anyone's consent.

1'5 Commonwealth Secretariat, A Profile of the Public Service of Canada, 1994, p. 145.176 Commonwealth Secretariat, A Profile of the Public Service of Malaysia, 1995, p. 131-

133."' Commonwealth Secretariat, A Profile of the Public Service of the United Kingdom, 1995,

p. 167.178 Commonwealth Secretariat, A Profile of the Public Service of Malaysia, 1995, p. 131-

132.179 Commonwealth Secretariat, A Profile of the Public Service of the United Kingdom, 1995,

p. 172-175.

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Appendix H

It is recommended that this power to delegate be provided for in the legislation ofthe other Commonwealth Caribbean territories.

Legal framework for personnel management

As with the framework for financial management, alteration of the relevantsections of the Constitutions generally requires at least a two-thirds majority inParliament and sometimes a referendum. It is therefore suggested that legislativechanges should, where possible, focus on the other Acts related to personnelmanagement and on the regulations and orders.

Of much relevance to reform in this area is the Privy Council decision inEndell Thomas v Attorney-General of Trinidad and Tobago which wasreferred to earlier. The decision suggests that a starting point for reform should bean examination of the constitutionality of the existing laws particularly with respectto their treatment of terms and conditions of employment and codes of conduct.

It has also been suggested that "the provisions of the Constitutions whichestablished Public Services (in the Commonwealth Caribbean) were neversupported by the enactment of appropriate and comprehensive statutory regimes.Some Service Commissions have not enacted rules to govern their procedure.Some states have not enacted regulations pertaining to the conduct of publicofficers. Reliance is placed on General Orders which were introduced by thecolonial authorities. Many of the provisions of these General Orders areunconstitutional .

A legal regime for the Public Service should comprise the following:1. A Public Service Act with provisions, inter alia, for a modern Personnel

Department, creation and abolition of public offices, and treating with thePublic Service. The Act should also empower the Minister to makeregulations governing the conditions of employment including the code ofconduct.

2. Regulations made by the Minister to govern conditions of employment ...3. Regulations enacted by Service Commissions under the appropriate

provisions of the Constitutions to govern their procedure in respect ofmatters of appointment, disciplinary procedure and removal of publicofficers". "'

Similar recommendations with respect to Saint Lucia are made in theWatkins Report.'8 ' Furthermore, while Barbados, Dominica, Jamaica and Trinidad

IBO Kenneth Anthony, Unpublished Paper, Caribbean Centre for DevelopmentAdministration, 1995.

181 E. H. Watkins, Examination of the Laws of Saint Lucia Which Deal with theManagement of Personnel in the Public Service, Chapter X.

93


and Tobago have made some headway in this regard, their legal regimes arenevertheless still incomplete.

With respect to the role of the Service Commissions in particular, alterationof the Constitutions appears to be an unavoidable step in order to accomplishnecessary reform.'8 2 Various recommendations for reform are now suggested.

Most of the countries considered have four Commissions - a Judicial andLegal Service Commission, a Police Service Commission, a Public ServiceCommission and a Teaching Service Commission. This creates the need for morethan one set of Service Commission regulations and various administrative bodies.It is recommended that there be one Service Commission with one set ofregulations, with various sections all chaired by the same Chairmman as in Belize,and with one secretariat administered by the Chief Personnel Officer as inBarbados.

In many of the territories, appoitments to the Commission are determinedsolely by the Prime Minister (President in Guyana). It is recommended thatconfidence in the Commission requires that its composition reflect the interests ofother stakeholders such as public service staff associations and oppositionmembers of Parliament; this is currently the case to some extent in Dominica,Jamaica and Trinidad and Tobago.

The Prime Minister also seems to have excessive control in many of theterritories over higher-level appointments in the Public Service, this createscynicism among public servants about the applicability of the merit principle in theappointment and promotion processes. It is recommended that this degree ofcontrol exercised by the Prime Minister be restrained as it is in Barbados andJamaica.

Related to this is the use of "temporary" appointments as a device tobypass the Commissions. It is recommended that the power of the Commissionsbe extended to bring such appointments under their purview.

As regards the power of Commissions to delegate, in some countries thispower extends only to appointments. It is recommended that effectiveness of thedisciplinary process requires that the power of the Commissions to delegate beextended also to the disciplining and removal of officers; this is currently the casein Guyana, Jamaica, Saint Lucia and Trinidad and Tobago.

The modem trend to delegate the powers to appoint, remove anddiscipline'8 3 is apparently not being followed by Commonwealth Caribbean

182 See Sir Carlisle Burton and Associates, The Role of the Public Service Commission inManagement of Human Resources, Caribbean Centre for Development Administration, 1992 fora management perspective on this area.

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Appendix II

Commissions - even when they have the necessary power. It is thereforereecommended that consideration be given to legislating such delegation.

If such legislation were in existence, the Commissions themselves couldfunction as appeal bodies. In the absence of such legislation, there is a need toextend the powers of the appeal bodies to permit them to review not only theremoval and disciplining of public officers but also their appointment andpromotion; such is the case in Guyana. There is also the need to provide forsuspension of officers while their appeals are being processed; Jamaica is the onlyone of the countries considered which currently provides for this.

While the above changes in the roles of the Commissions generally requireconstitutional amendments, the Commissions themselves need to revise theirregulations in order to make procedures less cumbersome.

183 See Commonwealth Secretariat, A Profile of the Public Service of Canada, 1994, p. 38and A Profile of the Public Service of the United Kingdom, 1995, pp. 43-46.

95

Appendix IIICaribbean regional institutions

The cultural and linguistic ties of the English-speaking Caribbean countriescreate a spirit of regional unity, yet attempts to create a formal political andeconomic union have been less than successful. In the period prior todecolonization, the West Indies Federation was established, including all theCommonwealth Caribbean states that are today independent, with the exception ofBelize (then British Honduras) and Guyana (then British Guiana). The federationlasted from 1958 to 1962, when Jamaica chose to withdraw. From the start, thetwo largest members of the federation had reservations about union: Trinidad andTobago objected to the free movement of individuals, and Jamaica objected to abinding customs union (Knight, 1996 p. 302). Shortly after the demise of thefederation, its former members began seeking independence from Britain on acountry-by-country basis.

Since independence, there have been three major trends in the regionalpublic sector: movement toward economic integration via a common market,proliferation of regional organizations with specific sectoral mandates, and fasterprogress toward integration on the "subregional" level in the Eastern Caribbean.'8 4

In the first area, the initial framework for moving toward a common market wasthe Caribbean Free Trade Association (CARIFTA) established in 1968, which waslater transformed into the Caribbean Community and Common Market(CARICOM) comprising all the independent states of the English-speakingCaribbean plus Montserrat and the recently enrolled Suriname. 185 The Associationof Caribbean States, created in 1994, aims eventually to develop a common marketand forum for economic cooperation among the CARICOM countries, theSpanish-speaking Caribbean countries (including Cuba), Haiti, Mexico, CentralAmerican countries, Colombia, and Venezuela.

More than forty regional organizations in the English-speaking Caribbeanreceive funding from national governments. Some are classified as nonprofitorganizations (Caribbean Conservation Association, Caribbean Natural ResourcesInstitute Corporation, Caribbean Natural Resources Institute), some are subsidiaryorganizations of the OECS (Eastern Caribbean Drug Service); and some areregional centers for international organizations (Caribbean Food and NutritionInstitute of the Pan American Health Organization). There are also autonomousorganizations of the Caribbean Community, such as the Caribbean Agricultural

184 This appendix draws on material and concepts from Persaud, 1996.185. Bahamas is a member of the Caribbean Community but not the Common Market. The

Dominican Republic and Haiti are members of the CARICOM states in a unit calledCARIFORUM, mainly for the purpose of dealing with the European Union on the Lome Treatyand related matters.


Research and Development Institute or the Caribbean Environmental HealthInstitute. These organizations were established by agreement of the member statesof CARICOM and have a governing body composed of one of the standingcommittees of the ministers of CARICOM (for example, the Standing Committeeof Ministers of Agriculture in the case of the Caribbean Natural ResourcesInstitute Corporation). They are autonomous organizations, however, withseparate boards of directors. They usually collect revenues independently, directlyfrom CARICOM member governments, from the private sector, or from externaldonors.

Expenditures and funding

National government spending for regional institutions ranges from 0.03 to1.03 percent of GDP, three-fourths of which is for the University of the WestIndies. See Table A3.4, which along with Table A3.1 illustrates the sort ofsummary reporting that could be done annually to make the situation of regionalinstitutions more transparent to the member governments186* Although theremaining expenditures are not large, they merit extra attention, because somecountries spend considerably more than the average, because the expenditures areused for scarce personnel, or because much of the funding comes from donors inthe form of grants.

Regional organizations must submit annual reports to their board ofdirectors and budget proposals for the upcoming year. The quality of analysis informulating the budget, the tightness of controls in accounting for expenditures,and the attention paid to performance in monitoring expenditures vary dramaticallyfrom one organization to another. The relative importance of the sources offtunding-national governments, external donors, user fees-also varies widely.See Table A3. 1 Regional organizations that receive all or most of their resourcesfrom international donor organizations are primarily accountable to these extra-regional entities in presenting their budgets and reports on previous years'expenditures. Regional organizations that depend primarily on governmentcontributions, with the exception of the University of the West Indies, eachcommands only a minuscule share of any one country's government revenues. Asa result, national governments do not usually monitor the finances of theseorganizations closely.

Countries tend to concentrate their contributions in institutions locatedwithin their own boundaries. See Table A3.4. A large share of Trinidad andTobago's contributions, for example, goes to the Caribbean Industrial ResearchInstitute, the Eastern Caribbean Institute of Agriculture and Forestry, and theCaribbean Epidemiology Centre, all of which are located within Trinidad andTobago and staffed predominately by nationals. While some extra payment by the

186 Not all countries responded to our requests for data for Table A3.4.

98

Appendix III

host country may be justified by extra benefits, going too far with this trend maynot be healthy for true regional collaboration. In any case, changing circumstancescall for restructuring CARICOM's formula to set each country's contributions toits regional organizations and for giving CARICOM greater authority to monitorand report on country contributions to regional institutions.

Table A3.1 Contribution to Regional Organizations, by Source, Average for 1993-94(thousands of US dollars)

Country DonorSector and Institution Contribu- Funding Other

tions

AgricultureCaribbean Agricultural Research and Development Institute (CARDI) 3,259 3,191 209Caribbean Food Corporation (CFC)' - 814 558Agricultural Venture Trust (AVT) - 2,400 -

Eastern Caribbean Institute of Agriculture and Forestry (ECIAF)b 94 - 202

EducationCaribbean Examinations Council (CXC) 2,481 - 5,435University of the West Indies 63,820 20,702 9,073

EnvironmentCaribbean Conservation Association (CCA)' 127 515 2,425Caribbean Natural Resources Institute (CANARI)b 553 404Caribbean Environmental Health Institute (CEH)' 240 290Natural Resources Management Unit (NRMU/OECS)' 170 34

General and/orfinancialCaribbean Centre for Development Administration (CARICAD)b 78 140 0Caribbean Financial Services Corporation (CFSC) - - 1,669Eastern Caribbean Organisation of Development Foundations (ECODEF)b - 1,509 68Economic Affairs Secretariat/Organisation of Eastern Caribbean States 1492 132 23

(EAS/OECS)

FlealthCaribbean Epidemiology Centre (CAREC)b 1,117 1,476 -

Caribbean Food and Nutrition Institute (CFNI)b 328 1,324 71Caribbean Regional Drug Testing Laboratory (CRDTL) 49 - IEastem Caribbean Drug Service (ECDS) - - 314

Industry and export promotionCaribbean Association of Commerce and Industry (CAIC)' - 124 422Caribbean Export Development Project/Caribbean Export Development - 2,060 -

Agency (CEDP/CEDA)'Caribbean Tourism Organization (CTO)' 1,229 10 1,482Eastern Caribbean Investment Promotion Services (ECIPS)' 296 51 -

Leeward Islands Air Transport (LIAT) 16,747 - NREastern Caribbean States Export Development Agency (ECSEDA) d 750 NR -

Technical and scientificCaribbean Meteorological and Operational Hydrology Institute (CMI)b 570 83 99

Grand total 92,677 35,544 22,488a. Only 1993; b. Only 1994. c. Donorftunding, 1995 contribution.d. Country contributions funneled through OECS secretriat- means not reported, probably zero.

NR means not reported, but not zero.Note: Country contribution to the Caribbean Tourism Association also includes private sector membership dues. For AVT,funding is given in the United Nations Development Programme's report on donor flows. For CARIRI, data are for 1992.

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A large share of donor financing in the region goes to regionalorganizations; in 1993 the United Nations Development Programme reported thatthis amounted to 27 percent of all donor funding in the OECS subregion. Manyinstitutions are funded predominately by donors; these include the CARICOMExport Development Agency, which in 1995 received a grant of $14 million fromthe European Community, enabling it to evolve from a program of CARICOMinto an independent agency. Other largely donor-financed institutions include theAgricultural Venture Trust, the Caribbean Centre for Development Administration,the Caribbean Food Corporation, the Caribbean Environmental Health Institute,the Caribbean Epidemiology Centre, the Caribbean Food and Nutrition Institute,and the Caribbean Association of Commerce and Industry. Of these, theAgricultural Venture Trust has since gone out of business. The Caribbean FoodCorporation is facing severe financial constraints and has been forced to put itssubsidiary agency, CATCO, into receivership. The Caribbean EpidemiologyCentre and the Caribbean Food and Nutrition Institute are funded largely by thePan American Health Organization and have a good track record of providingneeded services to the region. They are well managed and have changed the mixof services they provide from child nutrition to more long-term preventive adultcare.

General regional organizations

Caribbean Community and Common Market (CA RICOM)

CARICOM was established in 1973 under the Treaty of Chaguaramas,with the objective of enhancing the economic, social, and cultural development ofthe people in the Commonwealth Caribbean. Its original membership consisted ofall the states of the Commonwealth Caribbean that today are independent, plusMontserrat. IK7 Recently, CARICOM admitted its first non-English-speakingmember state-Suriname-bringing total membership to fourteen countries.

The general objectives of the Caribbean Community are the creation of acommon market, the coordination of foreign policies, and the achievement ofregional functional cooperation. Functional cooperation is defined as the efficientoperation of common services and activities as well as the advancement of social,cultural, and technological development in the region.

The CARICOM secretariat promotes economic integration in four areas:(I) coordination of common policies for trade, (2) movement of capital and labor,(3) rights of establishment (that is, the right of CARICOM citizens to buy land andestablish enterprises in any member territory), and (4) external political relations,i.e., to strive for a common front for foreign policy with non-CARICOM countries

187 At the time of the treaty, Anguilla was part of the territory of St. Kitts-Nevis-Anguillaand, as such, was part of CARICOM.

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Appendix I11

and intemational organizations. The CARICOM secretariat has no legal authorityto enforce agreements reached during meetings of CARICOM members: eachmember state's government is responsible for enacting appropriate nationallegislation to put into effect CARICOM agreements. Of these four areas, mostprogress has been made in the coordination of trade and external political relations.The initiation of reciprocal bilateral agreements is the most practical way ofadvancing the movement of capital and labor, and this approach is expected to bepromoted in the region. The legacy of the failed West Indian Federation inhibitsprogress in attempting to develop a CARICOM parliament with regional legalauthority. The secretariat is responsible for policy discussions and coordination atthe regional level, while the other regional organizations implement certainfunctions that the regional governments have decided to centralize at the regionallevel.

The CARICOM secretariat's base budget, financed by member states, wasapproximately $6 million in 1993 (see Table A3.2). In addition, CARICOMadministered about $2 million in international donor projects that year. Totalstaffing is a little over 200 established posts.

Table A3.2 Sources of Funding for the CARICOM Secretariat's Budgetand Programs, 1984-95 (millions of US dollars, unless otherwise noted)

Contribution Grants from Total Contribution ofYear of Member External Funding Donors

States Agencies (percentage)

1984 3.3 1.6 5.0 32.71985 3.8 1.2 5.0 24.61986 4.1 1.1 5.2 21.71987 3.9 1.4 5.3 26.21988 3.8 1.3 5.1 26.01989 4.1 1.2 5.3 23.11990 4.2 1.5 5.8 27.11991 4.5 2.9 7.4 39.11992 4.7 2.4 7.2 34.21993 5.7 2.0 7.7 26.61994 6.3 2.4 8.8 28.31995 6.4 6.2 12.6 49.1

Source: CARICOM Secretariat.

CARICOM has recently made some advances toward developing acommon market and economy for the Caribbean. In 1992 the heads ofgovernment of CARICOM set in place a regime of common external tariffs thatcalled for reducing industrial tariffs by 20 percent by 1998 and droppingrestrictions on trade within the region. In 1995, they agreed to the free movementof CARICOM nationals who are graduates of accredited universities and are goingto work in CARICOM states. These important decisions will only benefit theregion if they are implemented.

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The Mills Committee and the West Indian Commission recently evaluatedthe institutional structure of CARICOM and found it to be deficient, particularly inthe areas of decision-making and implementation. The West Indian Commissionreferred to implementation as the Achilles heel of the regional integrationmovement. National governments have never granted CARICOM the authority toenforce even the agreements made unanimously by the CARICOM heads of state,much less the authority to establish a regional parliament (similar to the EuropeanUJnion's parliament) that could create regional laws enforceable by the regionalexecutive agency. Although national governments carry much of the responsibilityfor implementing their own decisions, there is a role for the CARICOM secretariat.

The secretariat could encourage implementation by preparing semiannualreports on compliance by national governments. It could also exclude countriesthat fail to comply from benefits such as the recently agreed-to free movement oflabor across countries. An attempt in 1994 to incorporate changes in the revisedTreaty of Chaguaramas that would have given CARICOM the authority to enforcedecisions of heads of government lacked adequate support and failed. Moreconsultation by the secretariat with national governments could smooth theprocess of implementation and improve the secretariat's ability to assessgovernments' needs in the area of regional coordination. Such consultation couldalso improve coordination among regional institutions, which are now devisingtheir own channels for funding from donors and dealing with national governmentson an individual basis.

The objective of creating functional cooperation is important in consideringregional reform of the public sector, because it applies to CARICOM's relationshipwith regional institutions. CARICOM has no formal enforcement mechanism forensuring that regional institutions are run efficiently, although the secretariat playsan ad hoc role in coordinating the activities of these institutions. A specialmeeting of the conference of heads of government in October 1992 recommendedincreasing the number of functional areas of the CARICOM secretariat. Thiscould be counterproductive if it dilutes or distracts from a mandate to improveimplementation of decisions made by the Caribbean Community on trade andfactor market integration. Rather than expanding CARICOM's responsibilities andbureaucracy, much could be accomplished by streamlining CARICOM's functionsto focus on areas such as trade and economic policy. Regular monitoring ofactivities and outside assessments of its reporting and work program could alsobenefit the organization.

On the grounds that its mandate was being expanded, the secretariat hasadded three managers at the level of assistant secretary-general plus a director ofcorporate services, an internal auditor, a corporate planner, and an executiveassistant to the secretary-general. The CARICOM Regional Institutional Project,or CRISP, was launched in 1993 to improve the capacity of the secretariat toimplement decisions made by the conference of heads of government and theCommon Market Council. To accomplish this, it is devising a new, more efficient

102

Appendix IiI

administrative system; training staff in the area of management and strategicplanning; undertaking studies and activities related to regional integration; andproviding field experts to assist member states in implementing policy decisionsmade at the regional level. The project has a relatively high level of funding-Can$4. 1 million from the Canadian International Development Agency over fiveyears, with cofinancing of Can$1.0 million from national governments. CRISPhas the difficult task of trying to bring about changes from within the organization.

Organization of Eastern Caribbean States (OECS)

Although the treaty establishing the Organization of Eastem CaribbeanStates has a legal structure similar to the Treaty of Chaguaramas, the OECSsecretariat has more authority to monitor and enforce activities among itsmembers. Like the Treaty of Chaguaramas, the main objectives are economicintegration, foreign policy coordination, and functional cooperation. LikeCARICOM, the OECS treaty establishes an authority of heads of government anda central secretariat, and the organization has full legal personality. Threeadditional institutions were established: the Foreign Affairs Committee, theDefense and Security Committee, and the Economic Affairs Committee (later to benamed a secretariat).

The OECS treaty differs from Chaguaramas in important ways. First of all,it defines in much greater detail the areas targeted for policy harmonization orfunctional cooperation: financial and technical assistance from external sources,international marketing of goods and services including tourism; currency andcentral banking; audit; the judiciary; statistics, mutual defense and security; incometax administration; matters relating to the sea and its resources; and so forth. TheOECS treaty established initial agreement for some of today's successful EasternCaribbean regional arrangements: the Eastern Caribbean Central Bank, jointoverseas representation, the Regional Security System, and coordination of WorldBank-financed and other externally financed development projects. By giving thesecretariat oversight over economic decisions and banking affairs, the treatyensures that the regionalization effort will be strong and that the secretariat willnot become irrelevant to national governments.

The secretariat of the OECS is responsible for the entire structure of theorganization; seven units report to the central secretariat. The treaty establishingthe organization gives it authority for economic matters, foreign affairs, anddefense; as time has passed, these responsibilities have increased substantially. TheEconomic Affairs Secretariat (based in Antigua) manages the Eastern CaribbeanCommon Market.

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Table A3.3 Member Contributions to tbe OECS Secretariat and Institutions, 1992-93

Contributions of other governments to otherContributions of governments to OECS institutions (excluding embassies and

OECS secretariat high commissions)In millions of As a percent of In millions of As a percent

Country US dollars GDP US dollars of GDP

Antigua and Barbuda 0.63 0.15 0.49 0.11Dominica 0.76 0.43 0.47 0.26Grenada 0.77 0.37 0.49 0.23Montserrat 0.25 0.42 0.13 0.22St. Kitts and Nevis 1.08 0.63 0.49 0.28St. Lucia 1.08 0.26 0.49 0.11St. Vincent and Grenadines 1.08 0.51 0.49 0.23British Virgin Islands 0.14 0.08 0.09 0.05

Total 5.79 0.31 0.08 0.16Source: OECS 1993.

Of the total budget, six countries contribute 16 percent each, while theBritish Virgin Islands contributes 3 percent, and Montserrat contributes 4 percent

(see Table A3.3). Over time, the secretariat's budget has increased considerably,

and there is a consensus that these increases should be kept in check in the future.

Donor support is received in the following areas: Canadian International

Development Agency-fisheries, civil aviation, education, U.S. Agency for

International Development-health, help with the Eastern Caribbean Drug Service,

Tropro, and Eastern Caribbean Investment Promotion Services; European

Union-education (tertiary), British Development Division-education (primary);

Germany-environment (Caribbean Environmental Health Institute), education;

Caribbean Development Bank-no funds earmarked but participates in certain

programs. Countries within the secretariat's activities seem to work well together;

the heads of state meet twice yearly. OECS is more hands-on than CARICOM,

and the secretariat asserts itself more freely.

Caribbean Development and Cooperation Committee (CDCC/ECLA C)- Trinidad

CDCC is the Caribbean branch of the Economic Commission of Latin

America and the Caribbean, an agency affiliated with the United Nations. Recent

activities of the CDCC include coordinating with the U.N. representation at U.N.

global conferences, conducting studies on issues of economic cooperation and

development (the relationship between the North American Free Trade Agreement

and the General Agreement on Tariffs and Trade, structural adjustment and

privatization in the region, and the situation in Haiti); increasing awareness of the

newly created Association of Caribbean States; and improving the cooperation

between Latin America and the Caribbean.

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Appendix 111

Regional organizations by sectors: Financial

Caribbean Financial Services Corporation (CFSC)-Barbados

CFSC, launched in 1984, provides a range of financial services to theCARICOM private sector community. The corporation invests in commerciallyviable projects, making medium- and long-term loans and equity investments.CFSC finances projects with developmental impact, emphasizing projects that willcreate employment and generate foreign exchange earnings. It also seeks toidentify impediments to the formation of capital markets and to become involved inprograms that address these needs. In support of this, the corporation undertakesinvestment brokerage activities.

The corporation has shown marked success, with total assets growing fromUS$2.969 million in 1985 to US$29.289 million in 1992. In line with itsdevelopment mandate, it lends largely in the area of tourism (70 percent of itsprojects). Essentially, it serves as an intermediary between the public sector andthe private sector, dispersing public money to viable private sector operations. Itslending is mostly asset based, with an equity portfolio of more than US$10 millionspread among thirty-five to forty investments. It has three groups of shareholders:the West Indian private sector, commercial banks, and external lenders(International Finance Corporation, Commonwealth Development Corporation,and so forth). It began with a US$15 million start-up loan from the U.S. Agencyfor International Development. CFSC is aided greatly by a well-experienced boardof directors from the private sector who are familiar with many of the companiesseeking funding from the corporation.

Agriculture

Caribbean Agricultural Research Institute (CARDI)-Trinidad

CARDI was established in 1975 as an autonomous organization withinCARICOM. The organization provides for the research and development needs ofthe region as outlined in national plans and policies; extends the application of newtechnologies in production, processing, storage, and distribution of agriculturalproducts to member countries; and coordinates and integrates the research anddevelopment efforts of member countries. Its governing body is the standingcommittee of ministers responsible for agriculture in the CARICOM secretariat.

CARDI was recently restructured and now focuses on identifying andcreating products that have some distinctive regional quality, such as the recentproject that developed a set of production technologies they are trying to haveimplemented within the region. Its new focus is on activities that are not being

105


done by national ministries of agriculture, such as the adaptation andcommercialization of products and the provision of information to farmers on howto produce and test certain proven marketable items (that is, to "commercialize"farmers in the region). It also aims to raise revenue from the private sector inexchange for its services. CARDI has a staff of about seventy-three professionalsspread out among the CARICOM countries. Its decentralization of staff hasallowed it to develop a better relationship with its member countries, who fundabout 60 percent of its operations; another 40 percent comes from internationaldonors (U.S. Agency for International Development, Canadian InternationalDevelopment Agency, Overseas Development Administration, export developmentfund, and U.N. Development Programme).

Caribbean Food Corporation (CFC)--Trinidad

CFC was established by the member states of CARICOM in 1976 as aregional, commercially oriented agribusiness investment and developmentorganization. Its purpose is to promote and finance viable agribusiness enterprisesin the CARICOM region. CFC is governed by a board of governors. It receives aline of credit of US$8 million from the Caribbean Development Bank and othertechnical assistance support (US$0.3 million) from the Commonwealth Fund forTechnical Cooperation, the European Economic Community, and the UnitedNations Development Programme. The organization receives US$0.5 million ayear from country contributions, which are expected to cease by 1997.

The CFC is facing a financial crisis. Its marketing subsidiary-CATCO-isin receivership, and the corporation is operating under a serious debt burden. Theorganization has not been able to identify a suitable niche for itself as anintermediary lending agency for small-scale agriculture. It has suffered from failingto adopt a commercialized approach or rigor in its lending operations. In 1993,the corporation restructured following reviews of its operations by the CaribbeanDevelopment Bank and the Business Advisory Service of the International FinanceCorporation. Those reviews called for the application of sound project appraisaltechniques in the granting of loans and a focus on projects requiring modemizationor expansion. The corporation was criticized for lending to entrepreneurs who didnot have a successful track record and was encouraged to lend to sectors with acommercial tradition. Despite the restructuring, CFC has failed to prove itself as aviable commercial operation.

Environment

Caribbean Conservation Association (CCA)-Barbados

The Caribbean Conservation Association (CCA) is one of the oldestenvironmental non-governmental organizations in the region. It is governed by a

106

Appendix III

twelve-member board, and its membership is comprised of individuals,governments, and representatives from the corporate sector. About 25 percent ofits operating budget comes from country governments, 5 percent from individualmembers, and the remaining from international donors (World Wildlife Fund, theNature Conservancy, World Conservation Union, and United Nations EnvironmentProgramme are primary supporters). Its aims are to conserve and develop theenvironment and to preserve the cultural heritage of the region.

CCA monitors environmental issues for the region. Its five professionalstaff lobby national governments on behalf of environmental and cultural heritagetreaties and monitor country legislation dealing with environmental and culturalheritage issues. The organization also implements projects, several of whichinvolve training in environmental resource management. Due to its reliance onintemational funding, donor demands tend to push the association's agenda;funding, particularly from national governments, is uncertain. Although theorganization is able to sustain itself, it sees fund-raising as an increasingly difficulttask, given the competition for funds in the region. Despite this concern, it feelsthe environment is an area that lends itself to regionalization. In particular, itadvocates greater regionalization of activities in the area of marine resourcemanagement and fisheries.

Caribbean Environmental Health Institute (CEHI) St. Lucia

CEHI was set up through the ministries of health of the CARICOMcountries to ensure the environmental health of people in the region. Itsmembership includes the fourteen CARICOM countries plus the British VirginIslands and Turks and Caicos. The CEHI responds to requests submitted by acountry and provides some services in functional/sectoral areas across countries.Its budget in 1995 stood at US$355,000, of which 67 percent was received. Itsuffers from country arrears, which fluctuate from year to year. CEHI alsoreceives significant support from the German Agency for Technical Cooperation(through their joint Environment Health Improvement Project).

To address its funding concerns, CEHI has attempted to charge directly tocover costs for work done on a routine basis (such as monitoring of water supply).Few governments pay for these services on time, but CEHI does not refuse towork for countries that are in arrears. It does gain some revenue by charging theprivate sector for services such as monitoring wastewater treatment, pesticides,and potable water. These services, however, are performed on an ad hoc basis,and the charges generally do not cover costs. CEHI is evaluating the charge backsystem to both public and private sectors, as well the overall costs and benefits ofCEHI. It is not possible to evaluate the net benefits of the organization, yet CEHIis considered to be performing a valuable role (based on the willingness of themember countries to double its budget over a five-year period). It would like tosee a closer relationship with CARICOM and tries to cooperate with international

107


donors operating in the region (Pan American Health Organization, United NationsEnvironment Programme, United Nations Development Program, CanadianInternational Development Agency, and U. S. Agency for InternationalDevelopment). The organization is comprised of four core professional staff, twoprofessional project staff, and three project staff funded under the joint project.

Education

Caribbean Examinations Council (CXC)-Barbados

CXC was established in 1972 to manage the system of external secondary-level school examinations, which carried over from the colonial period. It servessixteen English-speaking and two Dutch-speaking countries in the region. As anexamining board, it administers secondary school-leaving examinations and ensuresthat the standard of those examinations is regionally and internationallyrecognized. CXC also plays a role in the development of syllabuses at thesecondary school level and aids in the production of teaching materials. It alsomaintains countrywide records on the number of students who have passed specificsubject areas. The organization has achieved a high level of acceptance within thecountries it serves and at universities outside of the Caribbean. CXC'scertification is seen as an entry card to both university training and employment (inthe vocational subjects in which it tests).

The organization was founded following the breakup of the West IndiesFederation and relies on a strong British educational tradition in the countries inwhich it operates. It has grown from examining five subjects in 1979 to its currentthirty-five subjects, and the number of students it has examined has more thantripled since 1979. CXC enjoys relatively consistent support from its membercountries, whose funding levels are set by a formula determined by CARICOM. In1994 CXC tested 96,000 candidates, and each year it administers more than300,000 exams. It raised more than two-thirds of its income from charges forexams in 1994, making it one of the most financially independent regionalorganizations.

University of the West Indies-Jamaica, Trinidad, and Barbados

The University College of the West Indies, now the University of the WestIndies, was set up in 1948. It is the largest Caribbean regional institution, with anenrollment of nearly 16,000 students located on three campuses (Cave Hill, Mona,and St. Augustine). Off-campus enrollment stands at approximately 1,800.Students come from across the region, with the largest percentage being fromJamaica (about 46 percent), followed by Trinidad and Tobago (31 percent) andBarbados (15 percent). The university has faculty in arts and sciences, education,medical sciences, natural sciences, social sciences, and business located at all three

108

Appendix 111

campuses. Agriculture and engineering are taught exclusively at the St. Augustinecampus, the law faculty is located at Cave Hill, and the Institute of IntemationalRelations is located at St. Augustine. More than 1,000 staff in total work amongthe three university campuses.

The university faced serious financial problems during the past year,reflected in the arrears in contributions of some governments, particularly those inthe countries with a campus. A new system of financing the university is beingstudied that would significantly reduce, if not eliminate, arrears by governments.Without it, the university could become extremely vulnerable. At the same time,the university is looking at cost-cutting measures and at improving the system ofaccountability to member governments. The Inter-American Development Bankhas recently provided a loan to the university, which is being used to improve theschool's management systems. The university is also planning to launch a capitalcampaign within the region and the United States to raise private sector funds. In1994, approximately 61 percent of its income came from governmentcontributions, 24 percent from special project funds, 11 percent from tuition andexamination fees (up from 2 percent in 1992), 2 percent from administrativeservice fees, and I percent from miscellaneous sources.

Health

Caribbean Epidemiology Centre (CA REC)-Trinidad

CAREC is administered by the Pan American Health Organization andserves nineteen member countries in the region. It is responsible for surveillanceof diseases in the Caribbean and assistance in assessing the health status ofpopulations. CAREC's epidemiologists, in cooperation with national ministries ofhealth, monitor and assess trends, identify causal relationships, and assist indeveloping timely public health responses. The center assists in upgrading nationallaboratories through training courses, the introduction of new methods, and theprovision of proficiency testing procedures. CAREC laboratories also research thebiological control of vector-borne diseases. Several special programs have beenmounted to address specific health needs in Caribbean countries (such as theSpecial Programme for Sexually Transmitted Diseases).

The organization receives funds from the Pan American HealthOrganization, member countries (according to a mutually agreed formula), andextemal agencies (through research grants and contracts). Some cost recovery isachieved for laboratory and printing services. External agencies provide 60percent of CAREC's annual operating budget. The organization appears to bewell managed, it is staffed with an administrative officer who manages all fund-raising and financial matters. As an outgrowth of a task force created in 1993, ithas launched an administrative development project aimed at cutting costs. It

109

PUBLIC SECTOR MODERIVZATION IN THE CARIBBEAN

actively seeks out its own funding from external agencies, and its funding levelsincreased modestly from 1993 to 1994; 80 percent of its expected contributionsfrom member countries were paid in 1994.

Caribbean Food and Nutrition Institute (CFNI)-Barbados

CFNI is a specialized center of the Pan American Health Organizationlaunched in 1967 to look at the availability and consumption of food at thehousehold level, to conduct research on nutrition-related diseases, and to deviseways to inform and educate the public about how to enhance and preserve healththrough good nutrition.

CFNI has reduced its staff in the last several years and reoriented its workprogram toward chronic diseases in the region. This reflects the relative success ofthe institution in increasing awareness of nutrition-related disease. Studies recentlycompleted by the institution show that such diseases are significantly less frequentthan they were when the institution was first launched. The total operating budgetof the organization was US$1.725 million in 1994. The majority of funding comesfrom country contributions (43 percent); followed by extra-budgetary resources

(37 percent); government grants (18 percent); and the World Health Organization(2 percent). There are nine professional staff.

Caribbean Regional Drug Testing Laboratory (CRDTL)-Jamaica

CRDTL was created in 1975 and now provides services to fourteenEnglish-speaking countries in the region. It performs microbiological andpharmacological tests on sample drugs submitted by participating governments,performs biological availability tests on selected types of drugs, investigates thestability of drugs, and serves as a liaison among appropriate agencies in the regioninterested in drug testing. It is maintained by six professional staff members.

CRDTL is funded from the contributions of member countries and from theCanadian International Development Agency and the Pan American HeathOrganization. Jamaica, as the host country, provides 38 percent of its operatingbudget, followed by Trinidad and Tobago (28 percent) and Guyana (13 percent).The formula established for contributions is based on population figures, but theamount of contributions fluctuates from year to year, and there is a problem ofcountries falling into arrears. Apparently, CARICOM has made attempts toschedule contributions on a regular basis; nonetheless, the laboratory relies heavilyon its development fund to finance current operations. Donations from theCaribbean International Development Agency have gone toward the purchase ofequipment, and funds from the Pan American Health Organization were used tosupport a senior-level staff person for five years. Attempts at instituting fees forservice have been successful in the area of training and in laboratory analysis, but

110

Appendix III

the laboratory is not adequately staffed to bring in sufficient fees, although thedemand for these services is strong. Because drugs are not required to be sent tothe laboratory for testing, the fact that member countries use its services indicatesa certain level of demand. The center is now moving toward advertising itsservices better to enlarge its profile in the region.

Eastern Caribbean Drug Service (ECDS)-St. Lucia

The ECDS purchases drugs on a wholesale basis for its OECS membercountries. It was launched with a start-up grant of US$3.5 million from the U.S.Agency for International Development, which covered its 1986-90 operatingcosts. No additional donor funds have been received, except US$10,000 from thePan American Health Organization. The service purchases about US$2 millionworth of drugs on an annual basis and assesses a fee of 15 percent on all drugspurchased by the OECS member governments; this amount covers theorganization's overhead. ECDS is the purchasing agent only for the public healthsector (which accounts for less than half of the total drug purchases of the OECS),the private health sector purchases independently, which results in higher costs forthe same drug. The ECDS is reticent to provide procurement services to theprivate sector, although there is mounting pressure to do so from some membercountries.

The service has managed to cut total drug costs to member countries (afterthe first year of the program, total drug costs declined 44 percent on averagefollowed by a further reduction of 18 percent the next year). Factors leading tothis decline in cost include the existence of economies of scale, monopsony status,which increased the bargaining power of the ECDS, more timely payment ofpurchases, and better rationalization of drugs. Once a government requests anitem from the supplier, the Eastern Caribbean Central Bank handles all paymentson behalf of that government account, which has increased efficiency. Theservice's most difficult problem is getting timely reimbursements fromgovernments (via the bank).

Industry and Export Promotion

Caribbean Export Development Project (CEDP)-----Barbados

The CEDP is a field project of CARICOM; it was established to assist theprivate and public sectors in member states to expand regional trade and extra-regional exports. It provides national export promotion agencies andmanufacturers in the region with services in the areas of trade, market and productinformation, developme.it and promotion of product standards and regional andextra-regional marketing and with assistance in the organization of andparticipation at trade fairs and sales missions.

111


The current CEDP expires at the end of 1995, when it will become theCaribbean Export Development Agency (CEDA), whose membership will becomprised of the fifteen member states of CARIFORUM. The goal of the newagency is to be "recognized as the foremost regional organization for exportdevelopment." The result of this growth from program to agency is that CEDAwill be recognized as an autonomous legal entity with an independent privatesector governing board. CEDA will have two major funding sources: theEuropean Union (from which it has received US$14 million) and membercontributions (expected to be about US$2.8 million). Along with this newfunding, it will narrow its focus to concentrate on improving the marketing of theregion's nontraditional goods. One outgrowth of this has been the development ofa Caribbean logo, which private sector companies in the region can use, once theirapplication to do so has been approved. The CEDP currently has a staff of elevenprofessionals, divided among specialists in marketing, information, human resourcedevelopment, and technical assistance. Although affiliated with CARICOM,CEDP raises its own funding from the European Union.

Caribbean Tourism Organization (CTO)-Barbados

The CTO was established in 1989 as the result of a merger of theCaribbean Tourism Association (founded in 1951) and the Caribbean TourismResearch and Development Centre (founded in 1974). It is an internationaldevelopment agency functioning under a headquarters agreement with thegovernment of Barbados, where its headquarters are located. It also has marketingoperations in London and New York.

CTO's members include national governments and private sectorassociations (for example, the Caribbean Hotel Industry). It is governed by aboard of directors (from both government and the private sector) and a council ofministers of tourism (ministers of tourism or equivalent rank from each of themember countries). It receives membership dues from its government and privatesector members, as well as from activities such as a series of trade exhibitions, anannual Caribbean state ball, sale of research publications, and its annual Caribbeantourism conference. The organization benefits from an unusually strong consensusamong its member countries and provides a wide range of services. It has anoperating budget of approximately US$2.6 million, out of which about 45 percentcomes from member contributions.

Technical and Scientific

Caribbean Meteorological and Operational Hydrology Institute (CMI/COHI)

The CMI is a training, research, and investigation organization establishedby the sixteen member states of the Caribbean Meteorological Organization. The

112

Appendix III

COHI was established in 1982 and is located at CMI; the two institutions are beingamalgamated to form the Caribbean Institute for Meteorology and Hydrology(CIMH). The CMI was designated a regional meteorological training center bythe World Meteorological Organization in 1978. It trains meteorological andhydrological personnel in the region; conducts research; operates as a contractoron various meteorological and hydrological projects; services and repairsmeteorological instruments in the region; provides advice to participatinggovernments on meteorological and hydrological matters; and collects, analyzes,and publishes hydrological and meteorological data.

CMI is almost entirely funded by country contributions, which are often inarrears. It raises some funds in exchange for training students from the Universityof the West Indies, for archiving data at its headquarters, and for providing sometechnical services. Its parent organization, the Caribbean MeteorologicalFoundation, based in Trinidad, handles fund-raising activities. A proposed large-scale activity is to replace and update the radar systems for disaster preparednessin each of its member countries; however, at a total cost of US$16 million, itseems unlikely that the institute will be able to raise the funding to make thispossible. The institute has a staff of thirty-two in total.

113

Tablk A3.4 National Govcrnmcnt Contributions to Rcgional Organizations (93/94/95 avcragc)

(In US$000) Data Suppid by Natlonal Governments'(93/94196 average)

INSTITUTION TRINIDADAgriculture BAHAMAS DOMINICA GRENADA JAMAICA ST. KITTS ST. LUCIA ST. VINCENT AND TOBAGO

Caribbean Agricultural Research and DevelopmentInstiute (CARDI) 255 65 836 73 60 738Caribbean Food Corporation (CFC) 3 2 106 1 2 1Agricultural VentureTrust (AVT)Eastern Caribbean Institute of Agriculture and Forestry(ECIAF) 959

EnvironrnentCaribbean Conservation Association (CCA) 1 1 11 1 1 1 7Caribbean NaturalResources Institute (CANARI) __

Caribbean Environmental Health Institute (CEHI) 31 6 7 22 8 7 4 51 >Natural Resources Management Unit (NRMU/OECS) _

EducationCaribbean Examinations Council (CXC) 27 31 807 23 23 679University of the West Indies (UWI) 206 201 30,521 206 800 24,349 i

Health __

Caribbean Epidemiology Centre (CAREC) 44 8 4 58 4 6 595Caribbean Food and Nutrition Institute (CFNI) 15 16 3 36 3 3 3

Caribbean Regional Drug Testing Laboratory (CRDTL) 15 1 2 36 2 2 2 42Eastern Caribbean Drug Service (ECDSP _

Industry/Expor Promovion

CARICOM Export Development Project (CEDP/CEDA?)Caribbean Tourism Organization (CTO) 18 11 232 25 44 72Eastern Caribbean Investment Promotion Services(ECIPS) 15 31 34 28Leeward Islands Air Transport (LIAT) 269 45 124Small Enterprise Development Unit (SEDU)Eastern Caribbean States Export Development Agency(ECSEDA) 42 47 43

Technical/ScIentific

Caribbean Meteorological Organization/CaribbeanMeteorological and Operatinal Hydrology Institute(CMO/CMI) 15 9 216 5 8 5 109

General and/or FinancialCaribbean Community/Common Market Secretariat(CARICOM) 585 48 74 1,986 85 62 50 1,820

Table A3.4 National Govcrnnient Contributions to Regional Organizations (93/94/95 average)

(in US$000) Data Supplied by National Governments'(93194196 average)

INSTITUTION TRINIDADAgriculture BAHAMAS DOMINICA GRENADA JAMAICA ST. KITTS ST. LUCIA ST. VINCENT AND TOBAGO

Caribbean Development Bank (CDB) 1,665 96 38 2,220Caribbean Centre for Development Administration(CARICAD) 5 5 4 34 3 4 3Caribbean Disaster Response Agency (CDERA) 6 15 38 19 1 7 29Caribbean Financial Services Corporation (CFSC)Eastern Caribbean Organisation of DevelopmentFoundations (ECODEF)Organisation of Eastern Caribbean States Secretariat(OECS) 13 117 1,301 126 113Organisation of Eastern Caribbean States Economic includedAffairs Secretariat (EAS/OECS) 39 162 above 201 178Windward Island Banana Growers Association(WIBDECO)OTHER (frorn gov'ts)Caribbean Council of Legal Education 106 53 89UNEP/Cities Convention 9

Caribbean Organisatlon of Supreme Audit Institutions(CAROSAI) 0oEastern Caribbean Supreme Court 76 102Regional Security System (RSS) 431 42 44 311Caribbean Council for Science and Technology 6OECS Fisheries Unit 44Commonwealth Parliamentary Association 16Caribbean Telecommunications Union (CTU) 7 29

Caribbean Fisheries Training and Development Institute 333

Commonwealth Caribbean Medical ResearchCouncil 38 3GRAND TOTAL 812 683 1,289 36,641 2,099 649 1,389 32,156

1 Data not supplied by Antigua and Barbuda, Barbados, Belize Guyana, Montserrat, and St Christopher and Nevbs; blanks Indicate no country contribution to that organization.

Cs

PUBLIC SECTOR MODERNIZA TION IN THE CARIBBEANN

Inter-American Development Bank. 1996.1996a. Health in the Caribbean. Washington, D.C.1996b. Infrastructure for Development: A Policy Agenda for the

Caribbean. Washington, D.C.

Jamaica, Government of 1994. Medium-Term Policy Framework, 1994'95-1996/97.

Knight, Gloria. 1996. "The public sector in the Caribbean: An historical overview",and "Regulations of the financial sector", Perspectives on the CaribbeanPublic Sector, Mimeograph, Washington, D.C.

McCarthy, F. Desmond. and Giovanni Zanalda, "Economic Performance in SmallOpen Economies: The Caribbean Experience, 1980-92," World BankPolicy Research Working Paper Series, No. 1544, 1995

McIntyre, Sir Alister in, Gloria Knight. and others "Human ResourcesDevelopment", 1996. Perspectives on the Caribbean Public Sector",Mimeograph, Washington, D.C.

Nicholls, Sir Neville, 1996. "The Role of the Public Sector in the Provision ofEconomic Infrastructure", in Gloria Knight, and others. Perspectives onthe Caribbean Public Sector, Mimeograph, Washington, D.C.

OECS. 1993. Strategic Management Review (August).

Persaud, Bishnodat.. 1966. "Regional Public Sector Institutions," in G. Knightand others Perspectives on the Caribbean Public Sector, Mimeograph,Washington, D.C.

Reid, G. J. and Olivia S. Mitchell. 1995. "Social Security Administration in LatinAmerica and the Caribbean." World Bank Report No. 14066, Washington,D.C., March.

PAHO (Pan American Health Organization). 1994. Health Conditions in theAmericas, Volume I, Scientific Publication No. 549, Pan AmericanSanitary Bureau, World Health Organization, Washington, D. C.

Small, Hugh, "Constitutional and Legal Framework of the Executive Parliamentand Public Enterprises", in G. Knight and others. 1996. Perspectives onthe Caribbean Public Sector, Mimeograph, Washington, D.C.

Srinivasan, T.N. 1986. The Costs and Benefits of Being A Small, Remote, IslandLandlocked or Mini-state Economy. Discussion Paper. DevelopmentPolicy Issues Series, The World Bank, Washington, D.C.

Swaroop, Vinaya. 1994. "The Public Finance of Infrastructure: Issues andOptions." World Development, 22 (12), 1909-1919.

UNDP, (United Nations Development Programme). 1994. Human DevelopmentReport 1994, New York: Oxford University Press.

118

References

. World Bank. 1992a.. Access, Quality and Efficiency in CaribbeanEducation. Washington, D.C.

.1992b. Adjustment Lending and the Mobilization of Private and PublicResourcesfor Growth. Policy and Research Series 22. Washington, D.C.

. 1993. The East Asia Miracle: Economic Growth and Public Policy, NewYork: Oxford University Press.

1994a. "Caribbean Countries: Policies for Private Sector Development."Report 12617-LAC. Washington, D.C., April.

1994b. World Development Report. New York: Oxford University Pressfor the World Bank.

. 1994c. Initiatives for Regional Action on Caribbean EnvironmentalIssues. Report No. 13045-LAC, Washington, D.C., May.

. 1995. "Trinidad and Tobago: Judicial Sector Report." Washington,D.C., July.

. 1996a. Prospects for Service Exports from the English SpeakingCaribbean. Report No. 15301 CRG. Washington, D.C., January.

. 1996b. Jamaica, Public Expenditure Review. Report No. 14387-JM.Washington, D.C., April.

. 1996c. Poverty Reduction and Human Resource Development in theCaribbean. Report No. 15342-LAC. Washington, D.C., February.

. 1996d. Trinidad and Tobago, Macroeconomic Assessment and Reviewof Public Sector Reform and Expenditures: the Changing Role of the State.Report No. 15187-TR. Washington, D.C.

119

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Documents

Caribbean Countries Public Sector Modernization in the ...documents.worldbank.org/curated/en/332361468743177121/pdf/multi-page.pdf · vii. The negative effects of excess spending