Former Governor of the Central Bank of Barbados, Dr Delisle Worrell, has suggested that the government prioritise spending on upgrading skills in the public service to boost its productivity.
Dr Worrell, who was governor during the Freudel Stuart administration from November 2009 to March 2017, made a case for funding these initiatives through tax revenue rather than relying on policy-based loans in the December issue of his monthly economic newsletter.
Highlighting the widespread complaints about implementation deficits in the Caribbean, he said these loans have failed to improve countries’ capacity to be internationally competitive or meet public policy goals.
He also argued that foreign borrowing diminishes rather than enhances a country’s ability to buy necessary consumables and inputs from abroad.
Dr Worrell, a member of the Bretton Woods Committee – a nonpartisan network of prominent global citizens promoting international economic cooperation and multilateral lenders as global forces for well-being – also wrote that just like an individual who borrows to pay rent, a government that secures a policy loan to improve skills and implementation capacity in the public service is weakening its finances, compared with the alternative of financing such upgrades out of tax revenues.
“To make matters worse,” he added, “in the Caribbean, more often than not, there is no measurable improvement in competitiveness or productive capacity that can be attributed to policy loans.”
Dr Worrell noted that there are many practical, political, institutional and managerial reasons why there has been no improvement in public sector productivity in the Caribbean.
He declared: “These are not problems that loan finance can solve.”
Responsible government borrowing should be limited to financing infrastructure and capital projects, Dr Worrell suggested. He asserted that all other spending on boosting public sector productivity should be covered by tax revenues.
He said: “Experience suggests that a prudent government should borrow only to finance infrastructure and capital projects. All other expenditures are to be funded from tax revenues, including spending to raise public sector productivity.
“Policies to improve productivity come with increases in current expenditures because of the greater remuneration needed to secure the services of persons with higher levels of skill.”
Dr Worrell, who founded the bank’s research department during his tenure as an economist from 1973 to 1998, argued against the use of policy loans for such purposes.
The former technical advisor with the International Monetary Fund specifically targeted Caribbean governments, contending that borrowing for policy change has not yielded the expected results.
“The failure of lending for policy change is reflected in the fact of the widespread and enduring complaints, everywhere in the Caribbean, about ‘implementation deficits’,” he said.
“It turns out that disbursements of policy loans have not been reflected in improvements in the capacity of Caribbean governments to devise and implement strategies to improve international competitiveness, to replace imported fossil fuels with renewables, or to pursue any of their announced policy objectives.”
He argued that foreign borrowing does not increase a country’s capacity to purchase necessary consumables and inputs from abroad; rather, it reduces that capacity.
“If an individual borrows $100 to pay this month’s rent, they make themselves poorer, because they have no money to pay next month’s rent, and in addition, they now owe an extra $100 plus interest. Borrowing, for an individual or a country, only makes sense if it increases your spending power in the future, through an increase in earnings or by savings on purchases,” Dr Worrell said.
He underscored that the rationale for policy loans is that improved implementation of economic policies has the potential to make the country a more attractive destination for foreign investment.
The economist indicated that such investment would increase the country’s capacity to earn – as in the case of new hotel construction – or save foreign currency, as for investment in renewable energy.
But, he added: “In order to raise the national capacity to devise and implement better policies, you need to recruit and equip public servants with higher levels of expertise and experience, a process which involves an increase in recurrent expenditures, in contrast to a one-time project such as the building of a new hospital or rural access road.”
He explained that when the loan matures, the need for finance continues because the new staff still has to be paid their monthly salary.
(EJ)
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