2005年-世界发展银行全球_Dominica___OECS_Fiscal_Issues_Policies_to_Achieve_Fiscal_Sustainability_and_Improve_Efficiency_and_Equity_of_Public_Expenditures_154页_11mb

Summary of Document: Policies to Achieve Fiscal Sustainability and Improve Efficiency and Equity of Public Expenditures in Dominica

Overview

Dominica is a small, mountainous island in the Eastern Caribbean with a population of approximately 73,000 and a per capita gross national income of US$3,300 in 2003. It is a member of the Organization of Eastern Caribbean States (OECS) and the Eastern Caribbean Currency Union (ECCU), sharing a common currency, the Eastern Caribbean Dollar (EC$), pegged at EC$2.70 per US$1 since 1976. The country's economy has traditionally relied on banana and coconut-oil-based exports, but it has shifted towards a more service-based model, particularly in tourism and financial services, due to declining banana exports and external economic shocks.

Fiscal Sustainability

Dominica's fiscal policy from FY1993/94 to FY2002/03 was found to be unsustainable. The Central Government (CG) experienced a significant deterioration in its fiscal position, with primary fiscal deficits increasing from 3 to 4 percent of GDP in the early 1990s to 7.5 percent of GDP in FY1999/2000. The debt-to-GDP ratio of the non-financial public sector (NFPS) rose from 61 percent to 111.5 percent, and interest expenditures increased from 2.6 to 5.5 percent of GDP.

The report highlights the need for fiscal consolidation to achieve sustainability. It recommends that the government implement expenditure cuts, particularly in the number of established and non-established positions, and focus capital expenditures on growth and poverty reduction projects. Additionally, a reduction in tax exemptions and the introduction of the value-added tax (VAT) are essential to improve the revenue base.

The report also notes that while the CG guarantees the debt of public enterprises, the rest of the NFPS generates a small primary surplus, which means the government does not need an additional adjustment to ensure fiscal sustainability. However, the government must continue to manage its debt carefully to avoid the accumulation of arrears.

Budget Management

The budget management system in Dominica has been weak and driven by short-term considerations. The government initiated a budget reform in 1997 but did not fully implement it, leading to inefficiencies in resource allocation and expenditure control. The report recommends that the Ministry of Finance present the budget using standard functional classification to better align with policy priorities.

The cash management system was too weak to effectively monitor cash shortages until FY2001/02. In October 2002, the government introduced a spreadsheet-based system to anticipate, control, and manage expenditures and revenues. In July 2003, an Administrative Order was issued to strengthen the cash management system and introduce penalties for ministries that fail to comply. This system has been effective in limiting expenditure commitments to collected revenues, but the report emphasizes the need to continue this discipline in the medium term to prevent the build-up of arrears.

Public Sector Investment Program (PSIP)

The PSIP is a key component of Dominica's fiscal reform. The report examines the institutional organization and preparation of the program, as well as its execution and monitoring. It highlights the importance of aligning public investments with growth and poverty reduction goals and ensuring that these investments are efficient and effective.

Public Sector Employment and Compensation

Public sector employment and compensation have been a significant component of Dominica's public expenditures. The report notes that employment in the public sector has grown, and the wage bill has increased as a percentage of GDP. It recommends reforms to improve the efficiency of public sector employment and compensation, including the restructuring of non-wage compensation programs such as vacation and study leave.

Health Sector

The health sector in Dominica has made progress in improving health outcomes, with the under-5 mortality rate declining from 23 per 1,000 in 1990 to 14 per 1,000 in 2000. The report highlights the importance of improving the efficiency and equity of health service delivery, as well as the need for better data collection to assess the likelihood of achieving the HIV/AIDS MDG targets.

Education Sector

Dominica has achieved universal primary education, meeting the Millennium Development Goals (MDGs) for primary education. The report notes that the share of people living on less than US$1 a day is below 2 percent, indicating that the goal of eradicating extreme poverty and hunger is likely to be achieved. However, the education sector requires more efficient delivery mechanisms to improve effectiveness and reduce costs.

Social Protection Programs

Social protection programs in Dominica have been essential in addressing poverty and vulnerability to external shocks. The report highlights the need to improve the targeting and effectiveness of these programs, particularly in the context of fiscal consolidation. It recommends reforms to the social protection system, including the introduction of the Social Investment Fund (SIF) and the expansion of coverage to ensure more effective safety nets for the poor and near-poor.

Key Recommendations

• Implement expenditure cuts, particularly in the number of established and non-established positions.
• Focus capital expenditures on growth and poverty reduction projects.
• Reduce tax exemptions and discretionary concessions.
• Introduce the value-added tax (VAT) to improve the revenue base.
• Strengthen the cash management system and continue discipline to avoid arrears.
• Consolidate the debt management function into a single unit.
• Improve the efficiency and equity of public service delivery in the health and education sectors.
• Enhance the targeting and effectiveness of social protection programs.

Conclusion

The report concludes that Dominica's fiscal policy from FY1993/94 to FY2002/03 was unsustainable and posed a risk to the stability of the currency union. It recommends a range of policies to achieve fiscal sustainability and improve the efficiency and equity of public expenditures. These include expenditure cuts, fiscal consolidation, the introduction of the VAT, and the strengthening of the cash management and debt management systems. The report also emphasizes the importance of improving the efficiency of public service delivery and the targeting of social protection programs to ensure more effective safety nets for the poor and near-poor.