Barbados and other Caribbean governments have been urged to speed up key fiscal and financial reforms to improve debt and financial management in order to build resilience against external shocks to their economies.
The reforms should include stronger tax and pensions systems, said the Inter-American Development Bank (IDB) in a new study.
The study, Economic Institutions for a Resilient Caribbean, recommends that the region strengthens its institutions to promote economic growth in line with sustainable fiscal management, effective monetary policy and resilient financial systems.
The analysis lays out specific reform agendas for Barbados and five other borrowing members: Bahamas, Guyana, Jamaica, Suriname, and Trinidad and Tobago.
Therese Turner-Jones, General Manager of the IDB’s Country Department Caribbean Group said: “As Caribbean governments pivot towards smart and resilient investments, strong economic institutions are needed to ensure public spending benefits all citizens. In addition to recommendations for improving fiscal management, the book also proposes important monetary and financial system reforms to ensure Caribbean institutions and people are prepared for the future.”
In the case of Barbados, the 611-page study singled out the Barbados Revenue Authority (BRA) as a “more autonomous body” that can support sustainable fiscal policies, but said it “has distracted the authorities from urgent reforms”.
The IDB report said: “As seen in other developing countries, adopting a semi-autonomous revenue agency model will not have the desired results on revenue without strengthening support functions, changing governance models, improving management, and moving towards modernization of information technology systems.”
It added that while the revenue agencies in Jamaica, Guyana and Barbados have made significant progress, only Jamaica and Barbados have established multi-year strategic plans in a structured manner that provide targets and indicators.
Moisés Schwartz, manager of the IDB’s Institutions for Development Department, and one of the editors of the book, said: “Stronger and better-equipped institutions constitute a formula for success, and sound economic institutions are a prerequisite for economic development and prosperity.
“The reforms needed in Caribbean countries should not be underestimated or postponed.”
The report acknowledged that in Barbados there were some initiatives to strengthen training and capacity building for certain staff members.
But it pointed out that while Jamaica had a School Tax Education Programme, in Barbados “scant information and tools are readily available to tax-payers on their web portal”.
The report said: “In Barbados and Suriname, there is no dedicated expert staff who routinely gather data on tax revenue collection and economic conditions. In contrast, Guyana and Jamaica have dedicated expert staff who provide revenue projections and estimates to the minister of finance”.
The book said that stronger institutions will allow governments in the region to better plan and respond to “boom and bust commodity cycles” and other economic challenges, by promoting improved fiscal and monetary discipline. Such actions can help reduce the risk of debt and financial crises, it said.
“Countries that have engaged in institutional development have been shown to be better equipped to confront economic shocks, such as the coronavirus pandemic, be more resilient in responding to them, and have better prospects to recover more rapidly,” said Diether Beuermann, Economics Lead Specialist for the IDB’s Caribbean Department and one of the editors of the book.
The publication highlights the need for simplified taxes and reduced incentives, modernized tax administration, strengthening of public financial management, improved fiscal rules and the building of sustainable pension systems as part of a fiscal management reform agenda for the Caribbean.
It also highlighted the need for a reform agenda for monetary institutions and sound financial systems including the promotion of central bank independence and strengthening of financial regulations.
In relation to accountability and transparency, it pointed out that Barbados had taken steps in those areas, but said that while some reports had been produced in the past, “these have not been audited by the Auditor-General”.
“This lack of reporting and transparency is in part due to poor data integrity that severely limits the availability of information, weakness in the performance management framework, a lack of performance indicators, and low engagement of the board of directors of the BRA in governance reforms,” it said.
It also noted that e-invoicing was an innovation that could “greatly benefit tax administrations. Unfortunately, Barbados, Guyana, and Trinidad and Tobago do not have the legal power to make e-invoicing mandatory for transactions or taxpayers”.
Suggesting that integrating the tax administration and custom into one body potentially boosts efficiency, the report said: “Caribbean tax administrations should consider advancing the adoption of a risk-based approach by establishing mechanisms to evaluate organizational and compliance risk”.
“Those that have already started – Jamaica, Barbados and Guyana – should move forward and strengthen their efforts, and those that have not started should consider doing so,” it added.
The report describes Barbados as one of the most developed countries in the Eastern Caribbean that enjoys the second-highest per capita income in the region.
“Barbados is well advanced in terms of the acquisition of best practices regarding its public finance management, even though several areas still require work,” it said.