Question

Write a note on some of the new fiscal management tools for Caribbean economies

Answer 1

The technical work program usually suggested to governments consists of three inter-linked parts (a core macro-fiscal technical program, a debt strategy and management program, and support for assessment and management of (other) fiscal risks. I describe these components briefly below.

1. The Core Macro-fiscal Technical Program: Preparation of Multiyear Revenue Projections, a Medium-Term Fiscal Framework and a Debt Sustainability Assessment

CARTAC offers a series of core workshops or less formal TA, including mentoring, to help inter-agency teams - led by the MFU in the MoF - in the preparation of:

a) base-case, model-based judgment-augmented Medium-Term Revenue Projections;

b) A Medium-Term Fiscal Framework, encompassing a base case and, – when significant fiscal gaps are revealed and corrective fiscal action is required – a “Fiscal- Policy” scenario encompassing fiscal adjustment to close the gap with proposed fiscal targets;

c) A Debt Sustainability Assessment, wherein the baseline and policy-enhanced fiscal projections are subjected to alternative economic assumptions and to country-specific stress tests, using the IMF-WB DSA framework and templates; and,

d) Analytical Budget execution reports focused on providing explanations for fiscal outcomes and especially for deviations from plans and their full-fiscal-year implications and for the years beyond.

This program is also designed to strengthen the ability of MFUs in member countries to help the leadership team in the MoF to assess and manage the fiscal risks associated with their central government operations.

2. Strong Debt Strategy and Management Capacity and Well-Functioning Institutions

Sound debt management policies and strategies help to further strengthen macro-fiscal management. CARTAC has been sponsoring the participation of debt managers from member countries at IADB workshops and conferences targeted to debt managers in Latin-America and Caribbean regions. More recently CARTAC has been delivering a technical assistance program to strengthen debt management capacity in the region. Capacity to design a sound debt strategy and to execute it proficiently through effective institutions also helps to assess and manage fiscal risks. CARTAC delivers a multi-faceted TA program including institutional reviews of Debt Offices and Debt Office functions, which generally lead to recommended measures to address gaps or weaknesses, some of which could be addressed through the other elements of CARTAC’s TA program.

Three hands-on workshops are included:

a) Interpretation of loan agreements and the codification of key provisions into debt recording and management information systems;

b) Analysis and assessment of the member country’s loan portfolio as a key element in the development of a medium-term debt strategy; and,

c) Debt negotiations; for those countries considering debt renegotiation strategies, designed to sharpen the negotiating strategies and skills of front office officials.

3. Effective Assessment and Management of Other Fiscal Risks

A complete fiscal risk assessment must take into account all material short-term or longer-term fiscal risks. Poorly structured or unsustainable national or public sector pension plans can pose such a risk. Risks posed by insolvent, overly indebted, or poorly managed state-owned enterprises (whose debt is typically guaranteed by the central government explicitly or implicitly) and who become unable to operate or to service their debt obligations must also be taken into account and managed.

a) Support for Reforms of National and Public Sector Pension Plans

In the area of national or public sector pensions, CARTAC assists member countries by reviewing the plans of member states, and recommending reform options (as required) that will restore their sustainability and reduce the risks to the fiscal frame. In member countries who decide to implement the recommended reforms, CARTAC may also provide follow up implementation support, by providing estimates of the actuarial implications of the alternative reform options being considered; by assisting in drafting the legal instruments required to enact the reforms; and by proposing communications strategies to help build public support for the reforms.

CARTAC has also developed and has begun to offer in-country quantitative pension reform workshops to help officials in ministries of finance and public pension plan managers “de-mystify the actuarial and other quantitative estimates associated with reforms of national and public sector pension plans”. In recent months, workshops were delivered in the British Virgin Islands, St. Kitts and Nevis and the Turks and Caicos Islands.

b) Managing Fiscal Risks Associated with State-Owned Enterprises (SOEs)

An initial structured TA intervention, including a quantitative workshop targeted to the SOE oversight team in the MoF and financial officers in statutory bodies, was delivered in St. Vincent and the Grenadines in late 2009. A menu of follow-up TA activities focusing on strengthening different aspects of SOE oversight and governance was also proposed, and the authorities there are acting on those recommendations. In April of this year, CARTAC responded to a request from St. Kitts and Nevis for assistance in strengthening the capacity of the ministry of finance’s state-owned enterprise (SOE) oversight team to better assess and contain fiscal risks associated with SOEs. Anticipating more countries coming forward to request assistance in this area, CARTAC has developed a structured TA program, including a needs-assessment component and a quantitative workshop focused on presenting a structured approach to the analysis of SOE financial statements and the preparation of regular reports to be submitted to the MoF by SOEs. This TA, including the workshop, was already provided to St. Vincent and the Grenadines St. Kitts and Nevis, and Montserrat; it is scheduled to be delivered in Suriname next week and in Jamaica later this year.