Government will be ramping up its efforts to reform several state-owned enterprises (SOEs) this fiscal year to ensure greater efficiency and to create much-needed fiscal space.
This assurance came from Minister in the Ministry of Finance and Economic Affairs Ryan Straughn, as he responded to concerns about a lack of a detailed action plan and policies for the energy transition of SOEs in Barbados and the rest of the region.
Straughn indicated that SOEs were not required to keep a record of their changes in carbon dioxide emissions, but pledged that this would be an area on which to focus going forward, as he pointed to the recent change in the bus fleet at the Transport Board from diesel to electric vehicles.
“We will go and put the necessary systems in place to be able to track this more effectively,” said Straughn.
He was responding to issues raised by Gerardo Reyes-Tangle, Lead Fiscal Economist at the Inter-American Development Bank (IDB), during the opening session of the Annual Review Seminar of the Central Bank of Barbados on Tuesday.
“In most cases, the problem on the emissions is actually in-house if you take the Government as a whole. Actually, you can take measures in-house to make the situation much better,” said Reyes-Tangle, as he zoomed in on the mitigation of climate risk for SOEs.
Reyes-Tangle said a lot of those agencies relied heavily on fossil fuels, especially for electricity generation, and globally they were some of the main contributors of greenhouse gas emissions.
He said in the case of Barbados, the electricity matrix was 87 per cent dominated by fossil fuels and 13 per cent renewable energy and other sources.
“So that is something to consider,” he said, as he pointed out that SEOs in developing countries invest more in fossil fuel for their energy generation when compared to more developed economies.
He also lamented the “very high” expenditure in SOEs in the Caribbean, while indicating that based on research, most SEOs are inefficient, unproductive, unprofitable and do not contribute to capital formation, posing a fiscal risk to governments.
“You can imagine the budget of the SOEs is quite large. In Barbados, it is 7.35 per cent [of gross domestic product]. This is a big number, and the problem is again high expenses, but also the main problem is that they actually [get a lot] of transfers. That is the problem because they drain resources pretty much from the fiscal revenues,” said Reyes-Tangle.
He explained that while the net revenue of some SOEs appeared to be a lot when the transfers from central Government were deducted “that is when the issue starts”.
“For example, in Barbados in the past, this was a main cause of fiscal stress,” he said.
Responding broadly to the issue of SOE reform, Minister Straughn recalled that under the International Monetary Fund (IMF) backed Barbados Economic Recovery and Transformation (BERT) programme, improvement of SOEs had started.
However, pointing out that this process was put on pause during the height of the dreaded COVID-19 pandemic just as phase two of the reforms were completed, Straughn recalled that Government also had to come to the rescue of some of those entities, by increasing transfers.
He singled out the Queen Elizabeth Hospital (QEH) and the Grantley Adams International Airport (GAIA) as two of the SOEs that had to be heavily financed by Government over the past two years as the pandemic took its toll.
“We committed ourselves to bringing significant reform within the SOE sector. We had reached the end of phase two in 2020 and when we were going for the really big ones, COVID hit. So for the last two years, we paused because we had to focus on responding to the pandemic. The economy just wasn’t fully back,” he said.
“Therefore, we have restarted that effort this fiscal year because we are determined this has to be treated as a post pandemic critical reform area.”
He singled out the Barbados Agricultural Management Company (BAMC), the Transport Board, Caribbean Broadcasting Corporation (CBC) and “other usual suspects”, as those that will be undergoing major reforms in the current fiscal year, which will come to an end in March 2023.
“We are now going to be looking to accelerate these reforms efforts before the end of this fiscal year in order to do what you said in terms of the reduction in transfers and making a decision about what is going to happen with them going forward – the review of their mandates,” said Straughn.
“The NHC [National Housing Corporation] for example, is one that will go under significant reform given that the mandates they have been given over the years, some of them have not been fulfilled effectively; and; therefore; decisions will be made in due course with respect to that. Our commitment now is that by the end of March we should have completed those phase three reform efforts which we hope would put the public finances on much more sustainable footing,” he explained.
Straughn’s comments came on the same day that the committee that monitors the progress of the BERT programme identified areas for improvement in the management of SOEs.
In its report on Tuesday, the BERT Monitoring Committee said transfers to these entities continue to be significant due to the structurally weak profitability and high operating costs.
It, therefore, urged continued analysis of the performance of priority SOEs, resulting in further targeted reform measures to reduce their dependence on government support.
The committee also called for improvement in the governance and operational controls of government ministries and SOEs, including the financial reporting systems, so that reliable and timely information is available for decision-making and demonstrating to stakeholders the integrity of operations.
“This includes reporting performance through audit reports delivered on a regular and timely basis and follow-up action where discrepancies are noted,” it stated.
Straughn disclosed that an IMF mission is due in Barbados around October this year when officials will be “re-examining what constitutes fiscal risk”.
“In a post-pandemic world where we have had to do for the airport what we didn’t anticipate having to do – and luckily we made some decision about the electrification of the [Transport Board bus] fleet . . . – re-examining what constitutes fiscal risk in the context of SOEs is now very critical because the continuing monitoring of the policy is going to be absolutely important for small island developing states like Barbados,” he said.
