THE ISSUE: Statutory companies distort fiscal picture
STATUTORY?CORPORATIONS are born out of the view that providing some goods and services is best left to an entity not entirely under the public service.
Government’s transfers to statutory corporations and other entities currently account for approximately 40 per cent of its current expenditure, the four biggest transfers going to the Queen Elizabeth Hospital (QEH), University of the West Indies, the Transport Board and the Barbados Water Authority (BWA).
Transfers to statutory corporations also account for the majority of expenditure incurred under the “Transfers and Subsidies” category of overall current expenditure.
In the August 23, 2010 BARBADOS BUSINESS AUTHORITY, economist and founding Governor of the Central Bank of Barbados Sir Courtney Blackman said statutory corporations should only be established to perform socially essential and non-party-political tasks that cannot be economically or appropriately carried out by the private sector or, because of their dynamic character, cannot be efficiently carried out by the Civil Service.
“The majority of statutory corporations have been established for valid reasons and their closure would result in severe social and economic disruption, for example, the Transport Board and the Water Authority,” he said.
However, Sir Courtney added that with the exception of the Central Bank and the Insurance Corporation of Barbados, the overall performance of statutory corporations has been unacceptable.
He said the Central Bank and QEH are dynamic institutions and cannot be efficiently run within the framework of the Civil Service.
“Nor would it be appropriate to have our prison run by a private corporation, as obtains in some countries.
“Water supply, health care, and primary, secondary and tertiary education are too vital to our society and economy to be left exclusively to the private sector.
“However, house and road construction are more efficiently carried out by the private sector, and statutory corporations now so engaged should be closed, as must those that have outlived their usefulness,” he said.
Meanwhile, economist Lindsay Holder said, “some statutory corporations are the recipients of annual transfers from Central Government, whilst others are expected to pay their own way, including borrowing from financial institutions with, if necessary, the support of Government through letters of comfort or guarantees”.
In 2008 two economists – Richard Francis, a Standard & Poor’s analyst on Wall Street in New York, and Charlie Skeete, a retired economic adviser at the Inter-American Development Bank in Washington – urged Government to consider “rationalizing state enterprises” with a view to shutting down some of them and cutting the fiscal deficit.
Both Francis and Skeete complained about the proliferation of statutory corporations in recent years, which they said had obscured the country’s true fiscal picture because state enterprises relied on taxpayer’s funds to finance their operations and far too much of the money came by way of Government’s “off-budget” expenditures.
“This is something that we saw in the past few years,” Francis said in the April 14, 2008 BARBADOS BUSINESS AUTHORITY.
“A lot of the off-budget spending was tied to these statutory companies. I think in terms of seeing the real fiscal impact, it is hard to get a grasp when you have the off-budget spending.
“You don’t get a true picture of what’s happening and when you increase these transfers, you are increasing the deficit and you are increasing the need to issue debt.
“We have certainly seen a pretty significant rise in Government debt since 2001.
“When you have a higher debt level, you have to pay interest on that debt and it crowds out spending on social programmes and infrastructure.”
Last year the late Prime Minister David Thompson pointed out that water rates would be increased to provide enough revenue for BWA to finance its own operations and that the National Housing Corporation was in the process of selling some of its properties to generate revenue to assist in its operations.
In addition, in his 2010 Budget, Minister of Finance Chris Sinckler noted that the Transport Board had continued to accumulate large deficits over the years and was unable to meet its debt-servicing and operating costs as well.
He therefore proposed a 50 cent increase in bus fares which is expected to add $8.4 million in revenue to the Transport Board.
“The Transport Board provides an essential service in transporting people across the island at a reasonable cost.
“In the present circumstances, however, the Government cannot afford to carry the level of subsidy required to support the operating cost of the board.
“Moreover, the board should be placed in a position to allow it to operate in a more businesslike manner, thereby reducing the extent to which they rely on Government for transfers,” Sinckler said.
Last week the House of Assembly debated a supplementary resolution to inject almost $50 million into the cash-strapped Transport Board.
According to the February 22, 2011 DAILY NATION, the board is facing a $48 million budget shortfall and the cash injection would tide it over the rest of the financial year which ends next month.
The money will be used to meet the board’s operational costs for the rest of the year, liquidate the overdraft facility and honour outstanding debts.
According to Government’s Medium-Term Fiscal Strategy (MTFS) 2010-2014, caps were to be placed on transfers to statutory boards, statutory corporations and Government-owned companies such as the QEH, Transport Board, Barbados Agricultural Development and Marketing Corporation (BAMC), and the University of the West Indies.
In addition, Government would reduce annual transfers to the BAMC and reduce its debt accumulation by $40 million by 2013/2014.
“The policy will be to regularly review the efficiency of Government’s expenditure programmes and seek where possible to remove wasteful spending, remove excess spending due to inefficient and uncoordinated/unshared procedures, reduce cost overruns and improve service delivery,” the policy document said.
It added: “More specifically, ministries will have to review and reprioritize their programmes to help reduce costs by improving procedures to remove inefficiencies, and by sharing more resources and more procedures between programmes.
“Further, state-owned agencies will have to improve their levels of efficiency and rely less on Government subventions.”