Commentary

Fiscal Irresponsibility

Fiscal responsibility legislation is a new and growing trend embraced by governments around the world in an attempt to promote and enhance fiscal prudence and ensure greater transparency in budget management.

Fiscal responsibility laws are enacted voluntarily in most countries. In the case of Grenada, the Fiscal Responsibility Act, No. 29 of 2015, was imposed on our government by the IMF as a requirement of the Structural Adjustment Program.

It was necessary that we have this law because, the previous Mitchell government went to the IMF in 2003, and by 2006, had virtually abandoned all the agreed conditions that would have ensured some level of fiscal stability in the economy. This time around, the IMF did not trust them. It had to be written into law.

Section 14 of the fiscal responsibility law establishes a Fiscal Responsibility Oversight Committee (FROC) whose main function is to monitor government to make sure they comply with the rules and targets set out in the law. The FROC is required to submit a yearly report of its assessment to the Parliament. In short, the FROC’s duty is to watchman the government and report on its findings.

Whatever government says about its economic performance, the FROC report is a better place to go to find the truth. The latest FROC report on the economy’s performance in 2018 contains some unhappy truths.

The FROC has to date published three reports, the most recent dated 30th April 2019. The first observation is that, in essence, the FROC complains that the data submitted to it from the Ministry of Finance is of questionable integrity, not comprehensive in scope, and does not support government’s claims of sound economic management.

At page 11 of the report, the FROC notes that:

“The data submitted by the Macroeconomic Policy Unit for the preparation of this Report does not capture that of the covered entities. The Unit has been working towards ensuring that the full data set, as required by the Act, is available for the preparation of FROC Reports. In the meantime, this omission has given rise to the caution applied in the assessment of a number of Rules and Targets.”

Essentially, the FROC is intimating that the statistics emanating from Dr. Mitchell’s Ministry of Finance do not reflect the true state of things. The debts of certain of the statutory bodies which ought to be included are not included. Furthermore, of the data provided, there is no validation mechanism.

The implication of these omissions is that the findings may be skewed. For instance, the degree of non-compliance and failure to meet targets may be even greater than reported. So that, in terms of wage bill to GDP ratio, the extent of the increase in expenditure and the primary balance, the FROC concluded that there was compliance but this conclusion was “with reservations” because in all instances, the data provided did not include data on public entities.

The report also exposes some of the falsehoods often stated about the performance of the economy. There is a heavy dependency on the national transformation fund, (mainly the CBI funds) with about 70% of all capital grants spent in 2018 coming from that source. This highlights the need for government to find alternative sources of capital funding.

Public sector debt, which is stated to be at 72.8% of GDP is hailed by government as a major achievement. However the report cautions that:

“This level is understated since complete data is unavailable on the total debt and contingent liabilities of statutory bodies and state owned entities as at the end of December 2018.

In not providing the necessary data, the relevant department of the Ministry of Finance is in breach of section 13 of the law. Unfortunately, it is the same wayward Minister who has legal responsibility to make sure that statistical data is supplied.

Government is once more borrowing very heavily. In July Parliament approved borrowing of an additional $118m for unidentified purposes. This is a cause of major concern because a comparison between 2017 and 2018, at page 15, shows no significant reduction in the debt stock. At the same time, tax revenues for January to June 2019 declined by $3.2 million over the same period last year. This means that our fiscal situation is very fragile. If we keep borrowing while at the same time failing to significantly reduce our debt and increase revenue, the NDC fears that very soon, we will be right back to where we started.

The report also exposes that while Grenada’s debt management strategy contemplates the medium term, all borrowing is long term. There appears to be a deliberate effort to spend less to make the figures look good; hence consistent reports of expenditure reduction. In so doing our roads, schools, hospitals and public officers’ pensions and salaries are sacrificed.

The fiscal responsibility law itself says that it was passed to: “establish a transparent and accountable rule-based fiscal responsibility framework for Grenada, to guide and anchor fiscal policy for Grenada during the budget process to ensure that government finances are sustainable over the short, medium and long term…”

The success of the measures imposed by this law will only be as much as government’s willingness to abide by the compliance rules and targets set out in it. The NNP has always been reckless in government and it will take much more than a law on the books to attain fiscal responsibility under them. Government must have the interest of the people at heart and the will to exercise fiscal discipline. Mitchell and his NNP simply do not have this. What we have seen instead, is convenient reliance on the fiscal responsibility law every time government wants to shaft public workers. There really is only one way out. They must be out of office.

(The above reflects the views of the main opposition National Democratic Congress)

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