Reform loses its momentum
BARBADOS AND ITS CARIBBEAN NEIGHBOURS were on the right track with structural reforms but just when they need it this effort to support economic growth has stalled.
A group of International Monetary Fund (IMF) economic researchers has concluded that such enhancements were important “to make government more effective, such as improving the quality of the civil service and the speed and transparency of policy formulation and implementation”.
The research was conducted by Dr Kevin Greenidge, who once headed the Central Bank’s Research and Economic Analysis Department; Dr Arnold McIntyre, former programme coordinator of Barbados-based IMF institution the Caribbean Regional Technical Assistance Centre, and Hanlei Yun, a research assistant in the IMF’s Western Hemisphere Department, Caribbean Division.
“Overall, the region has made some progress in structural reforms, particularly in 1990s, but reform momentum has stalled. There is still much more that needs to be done to support growth,” they found.
“The benefits of structural reforms are only seen over the long term and we found no significant evidence of short-term gains.
“There have been gains from lowering average tariff rates, removing restrictions on the flow of international finance, and increasing the productivity of the [value added tax (VAT)].”
However, they said “special attention should be paid to reducing the wide ranging tax concessions”.
Greenidge, McIntyre and Yun also encouraged Caribbean authorities to “make sustained efforts to improve the productivity of the VAT and further liberalise the trade regime via full implementation of the [common external tariff] by all countries”.
“The remaining restrictions on the flow of international finance, including on [foreign direct investment], should be removed over the medium to long run. Institutional quality is important for promoting growth, especially for small states,” their report added.
It also said “country authorities can focus on rationalising economic regulations and improving administrative efficiency to reduce the transactions costs of doing business”.
“In addition, they can make efforts to incorporate regulations that facilitate and promote private sector development, and reduce the perception of corruption,” the report concluded.
The researchers noted that since the 1980s with the introduction of IMF/World Bank adjustment programmes, structural reforms have been a core part of the reform agenda in the Caribbean.
One drawback they found was that “despite the importance of structural reforms to promoting growth in the Caribbean there has been no systematic attempt to measure what has been reformed or what still remains to be reformed in the various structural policy areas”.
“In addition, unlike in other developing countries, research has not sought to examine the importance of institutional quality to growth in the region, or more generally in small island states.” (SC)