'Smart spending' and debt committee among efforts to shrink outlays

Thu, Feb 13th 2014, 08:50 AM

With 21 cents out of every dollar in revenue going to debt servicing this year, the prime minister has announced the creation of a debt management committee while making some of his most extensive comments to date about the government's commitment to reducing spending relative to GDP as a component of fiscal reform. Presenting the mid-year budget in Parliament yesterday, Christie's comments could easily have been seen as a response to those who have suggested that the government has yet to state as clearly and specifically as it could about exactly what role expenditure reduction will play in stemming the rising deficit and debt - a major complaint of those concerned about the impact and effectiveness of value-added tax (VAT). In his address, Christie said that "fiscal reform is at the heart of the government's plan for national economic and social development", with tax reform a part of this process. Arguing that the government is committed to "smart spending" that will see revenues utilised in the most efficient and effective manner based on a prioritization of needs, he said that the ultimate goal is to eliminate the need for deficit financing altogether."That has to be our objective; that is our objective," he said. Christie said that it is not until the government "gets its fiscal house in order" that it can do many of the things that it had promised in its campaign for government."We are fundamentally and in a balanced way reforming the structure of both recurrent and capital expenditure and the structure of government revenue. This will allow us to eliminate the untenable imbalance between recurrent expenditure and revenue, and it will allow us to eliminate the GFS deficit and reduce the government debt burden," he said. Among a "variety of measures" Christie said would be used to reduce recurrent spending as a proportion of GDP - but not in absolute dollar terms - are the implementation of "strict discipline and accountability across all government ministries and departments and public corporations", something he said "sometimes causing great anxiety and vexation on the part of ministers." "It's a work in progress and we've got to make sure we continue to not slow down the sort of things we want to see and not for example reach a position where we have wonderful work in urban renewal and home repairs, and then it stops. We've got to ensure the continuity in funding remains in place going forward," he said. Christie said that "control mechanisms" are being implemented, along with "best practices wherever feasible."In order to "more effectively monitor" the operations and spending of ministries, departments and public corporations, Christie said the Ministry of Finance is "being strengthened." "We are vigorously striding for higher levels of accountability and transparency," he said. With respect to public corporations, a perennial drain on the government's finances, Christie said that the Ministry of Finance is now "exerting more direct oversight of their financial affairs to ensure that they strive for greater levels of efficiency and effectiveness and that they are subject to greater accountability to the government."This will allow our budgeting process to be more comprehensively informed," he added. In the area of government purchasing of goods and services, Christie said that the government is set to introduce new public sector procurement procedures which impose greater controls and greater efficiency on public spending for goods and services for all public entities including public corporations - a recommendation of the Inter-American Development Bank and others. The cost of debt itself to the government will be better addressed, he suggested, with the creation of a debt management committee which has been formed with technical assistance from international agencies. Comprising representatives from finance, the treasury, and the Central Bank, the committee has developed a new debt management policy framework with the goal of minimizing the financing cost of government debt while also minimizing risk, said Christie. The prime minister said that through these actions recurrent expenditure will be allowed to grow in dollars terms in the medium term to "allow the financing of new and emerging priorities such as the hiring of doctors and other staff for the new mini hospitals", while falling relative to the size of the economy.
"This will require the setting of clear spending priorities going forward that will begin the longer term process of getting recurrent expenditure back to its level relative to GDP that prevailed during our last term in office," said Christie. Capital spending levels over the medium term are intended to fall to their "traditional level" of around three percent of GDP, with "strict prioritization and timely profiling" of perceived needs necessary. While his comments suggested an increased focus on the issue of spending, they are likely to have fallen short of the hopes of some who would have preferred the prime minister to provide more hard and fast figures regarding levels of expenditure cutback, specifics on which areas may see reduced allocations, or timelines for the privatization of public corporations, among other potential means of shrinking the deficit and debt. Christie said the national debt is projected to hit $5.1 billion at end-June 2014, around 59.7 percent of GDP.

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