Definition of government activities

1. General government is not clearly defined although it is largely consistent with Government Finance Statistics (GFS) principles, and is mostly covered in the budget process. The units of general government are listed in Box 1. There are no local governments in Barbados, but there are numerous statutory boards, some of which carry out activities commonly assigned to local governments, and 16 extrabudgetary funds which are established by law and financed through earmarked revenues. Despite using the term extrabudgetary fund, there are no extrabudgetary institutions, but only various extrabudgetary accounts that are managed by government ministries or by a public financial institution (see Box 2 for details of extrabudgetary funds). 1.1.1

2. The National Insurance Board (NIB) is a government department, and its operational costs are included in the budget; but revenue from contributions and income earned on their investment is off-budget. Instead, the NIB is required to report separately on its finances to Parliament on a monthly and annual basis. The NIB carries out three main tasks: it collects contributions from employers, it pays benefits to recipients, and it invests its surplus. For further details see paragraph 23 below.

3. Statutory boards are legally separate entities from government, and may carry out commercial or noncommercial activities. There are around 75 statutory boards and other agencies that meet the criteria of nonmarket nonprofit institution as defined in the Government Finance Statistics Manual (2001) and therefore fall within the general government. These include 23 school boards, health councils, and various other commissions and control boards. Statutory boards must have their budgets approved by the ministry they report to, and receive a transfer from the budget to finance their activities. Any user fees or own revenues are used to offset operating costs, and remain outside the Consolidated Fund (CF). They are not subject to the Financial Management and Audit Act (FMAA), but are generally expected to be in line with the same requirements. Many are created by establishing acts which explain their purpose and reporting requirements. Those that are fully funded by the budget have their staffing approved by the Public Service Commission.

Box 1.

General Government in Barbados

Notes:

¹Excludes transfers to non-profit and public institutions and extrabudgetary expenditures

²Estimated as transfers to non-profit institutions and public institutions

NA= Not available

		Percent of GDP in 2005-6
General Government in Barbados comprises the following:		26.51
Central Government Units Covered by the Budget
Attorney General’s Office, Parliament, Prime Minister’s Office, Governor General’s Office, Cabinet Office and 14 ministries		5.1
Central Government Units with individual Budgets
National Insurance Board		NA
		0.8
Extrabudgetary Expenditures
	of which Public Enterprise Investment Fund	8.02
Government Units Receiving Transfers from the Budget
Statutory Boards among which include:
	School Boards
	Health Councils
	Barbados Cadet Corps
	Barbados Defense Force
	Child Care Board
	National Assistance Board
	National Conservation Commission
	Urban Development Commission
	Rural Development Commission

Notes:

¹Excludes transfers to non-profit and public institutions and extrabudgetary expenditures

²Estimated as transfers to non-profit institutions and public institutions

NA= Not available

View Table

		Percent of GDP in 2005-6
General Government in Barbados comprises the following:		26.51
Central Government Units Covered by the Budget
Attorney General’s Office, Parliament, Prime Minister’s Office, Governor General’s Office, Cabinet Office and 14 ministries		5.1
Central Government Units with individual Budgets
National Insurance Board		NA
		0.8
Extrabudgetary Expenditures
	of which Public Enterprise Investment Fund	8.02
Government Units Receiving Transfers from the Budget
Statutory Boards among which include:
	School Boards
	Health Councils
	Barbados Cadet Corps
	Barbados Defense Force
	Child Care Board
	National Assistance Board
	National Conservation Commission
	Urban Development Commission
	Rural Development Commission

Notes:

¹Excludes transfers to non-profit and public institutions and extrabudgetary expenditures

²Estimated as transfers to non-profit institutions and public institutions

NA= Not available

4. No distinction is made between commercial statutory boards (public enterprises) and noncommercial statutory boards, which makes it difficult to determine the number of each. The Assignment of Responsibilities for the Business of Government does not distinguish between units within the ministries, and extrabudgetary funds, statutory boards, agencies and public enterprises reporting to those ministries.² At present, there are four public financial institutions and 24 nonfinancial public enterprises.³ Transfers to public enterprises are included in the budget, but loans (including on-lending) or advances by the government to the public enterprises are not included in the budget, but can be found in fiscal reports.

5. Relations between the government and nonfinancial public enterprises are governed by laws that sanction quasi-fiscal activities. The nonfinancial public sector includes companies established under acts of Parliament and public limited liability companies established under the Companies Act with the government as full or partial shareholder. In general, there is no supposition that public enterprises will be self financing, and establishing acts specifically reference amounts approved by Parliament as a source of funds. They are regulated to some extent by these founding acts, which describe the rights of the sectoral minister and or the Minister of Finance to direct, control, and limit their activities. As a result, public corporations carry out quasi-fiscal activities (QFAs), i.e., activities supporting government policy aims, which would not be undertaken if the corporation was solely functioning on the basis of commercial incentives. 1.1.4

6. Government equity holdings, including fully-owned corporations, are extensive; publicly available information on government equity holdings is limited and the management of state assets is not clearly defined. Government equity holdings are largely limited to fully-owned public enterprises. In recent years, the government has taken steps to reduce its equity holdings through privatization, though it has retained a minority interest in some.⁴ Aggregate equity holdings by government are reported in the Annual Estimates. Conversion of cumulated losses of public enterprises to new equity is not identified. Public enterprises submit annual reports to Parliament and quarterly reports to the MOF Management Accounting Unit. This unit maintains data on government equity, but there is no report that provides equity holdings by company. 1.1.5, 2.1.4

Government relations with nonfinancial public corporations and the private sector 1.1.4

7. Quasi-fiscal activities are extensive in the nonfinancial public sector due to regulated prices. Prices are regulated below cost for public transport, natural gas, water, housing, and other services ensuring that they require predictable ongoing support from the budget. Prices are regulated below cost for public transport, natural gas, water, housing, and other services ensuring that they require predictable ongoing support from the budget, though such support is not currently provided to the public enterprises that provide natural gas and water. Prices for most of these public enterprises are to be regulated by the Fair Trading Commission, which will make it costly for the enterprises to ask for a rate increase. In addition, most of these public enterprises must also serve rural areas which are not profitable, especially where this requires costly infrastructure for relatively few customers.

8. The financial relationship between the Transport Board and central government is not transparent. Private sector transportation services are profitable, while the Transport Board is not, owing in part to the designation of routes and to the below cost-recovery fare charged to all users.⁵ The Transport Board receives a regular budget transfer to cover losses, but despite a documented annual need, only a small portion of the necessary amount is included in the budget.⁶ This forces the company to operate with a perpetual cash shortage and leads to arrears with its suppliers. The Transport Board also has government guaranteed loans that are fully paid by the government, though the loans remain on the books of the Transport Board. They would appear, however, in the list of guarantees included in the budget documentation.

9. Below-cost pricing by the National Petroleum Company has led to consistent losses in recent years, but the company does not receive budget transfers. The National Petroleum Company faces variable prices for natural gas from the National Oil Company while facing a set consumer price that has not been increased since 1994 for commercial users. Furthermore, the amount of natural gas that can be sold is in decline as national resources are being depleted. While the National Petroleum Company plans to request a rate increase from the recently established Fair Trading Commission, it is unclear whether the necessary increase would be regarded as politically feasible. Since the National Petroleum Company does not receive budget transfers, most of the resulting losses are financed through arrears on payments to the National Oil Company.

10. No profits or dividends are paid to the budget from public corporations; if they do make a profit, it is reinvested into the company or transferred to an extrabudgetary fund. The exception is the central bank as discussed in paragraph 15. There are no provisions for profit transfers to the budget under any establishing acts of state enterprises. Some, such as the National Oil Company, Ltd have some profits that are generally reinvested. Others, such as the Agricultural Development and Marketing Company, transfer profits to extrabudgetary funds (see Box 2).

11. Privatization has generally been carried out in a transparent manner; No specific legislation governs the privatization processes, but receipts are reported to Parliament. Privatization receipts are paid into an extrabudgetary fund called the Public Enterprise Investment Fund (PEIF), and are reported to Parliament on an ex post basis. The PEIF is managed by the Accountant General in the MOF, and its funds are used for various off-budget development projects. Projected privatizations for the fiscal year are normally included in the budget speech. Companies are first corporatized, and then an announcement is made that a percentage of shares are offered for sale.⁷ The Barbados National Bank and the Insurance Corporation of Barbados, Ltd. were privatized in 2006. In the case of these two privatizations, the government first offered less than 50 percent of the equity, and no local institution or individual expressed interest. Subsequently, a privatization committee was formed for each institution, and a request for proposals was sent out to specific financial institutions in the Caribbean region to become a strategic partner in these institutions. The committees chose the most suitable proposals, and once finalized, they were announced in Parliament and broadcast on the radio. 1.1.5

12. Laws and processes governing regulation of the nonfinancial private sector are generally clear and open. A survey⁸ of Caribbean companies found that administrative procedures for business registration and licensing were quite good in the five countries in the survey (Barbados, Dominican Republic, Grenada, Jamaica, and Trinidad and Tobago), but they also ranked Barbados last compared to the other four countries. The Companies Act, Cap. 308 and the Companies Regulations, 1984 includes requirements for setting up or dissolving a company. This act also sets the accounting standards and required financial statements which must be audited by an independent auditor. These statements must be disclosed to the public unless an exemption is granted. Information regarding this act and other information and laws related to business operation can be found on the Corporate Affairs and Intellectual Property Office website.⁹ Additional information regarding small and medium-size businesses can be found at the Ministry of Commerce, Consumer Affairs, and Business Development website.¹⁰ Discussions with ministry officials indicate that there is considerable public consultation in preparing new regulations. 1.1.5

Government relations with the central bank and public financial sector

13. The Central Bank of Barbados (CBB) is not independent. The Governor of the CBB is appointed by the Minister of Finance for a period not exceeding five years, but is eligible for reappointment. The Board consists of the Governor, Director of Finance and Economic Affiars,¹¹ and five other Directors who are appointed by the Minister of Finance for three years and are eligible for reappointment. In addition, a number of activities of the CBB require approval of the Minister of Finance, who also can override CBB policy through written order. This order must also be published in the Official Gazette to acknowledge the government’s assumption of responsibility of the policy. However, since the establishment of the CBB, no Minister of Finance has invoked this statutory authority. There is no subsidized or directed lending by the CBB.

14. The CBB is banker and fiscal agent of the government, but receives no fees for its services and pays no interest on government deposits. The CBB may purchase a limited amount of government securities or other government debt only if they form part of an issue made to the public at the time of acquisition. In general it only purchases short-term securities. It also may make temporary advances, within limits, in the form of an overdraft account. The government’s treasury account is typically in overdraft, and currently pays the market rate of interest on the overdraft. At the end of the financial year, the treasury account must be in balance. The accounts of the CBB must be audited at least once a year, and the certified annual accounts and a report on annual operations must be submitted to the MOF, and are subsequently laid before Parliament and published.

15. The transfer of profits to the budget is not fully clear, but is determined by the Minister of Finance. The CBB law clearly defines the calculation of net profits, and clearly specifies the percent of profits that can be transferred to the General Reserve of the CBB, and that can be used to redeem government securities held by the CBB. However, the percent of net profit to be transferred to the Consolidated Fund of the government is not fully clear since “suitable amounts” out of the remaining net profits can be transferred to special funds, but these amounts are agreed with the Minister of Finance. The distribution of profits is a business decision based on existing economic conditions that requires flexibility and hence, has not been fully specified by the law.

16. Public financial corporations carry out quasi-fiscal activities. As noted, the most important public financial institutions were recently privatized. Before privatization the BNB conducted quasi-fiscal activities by lending to public enterprises (such as the Transport Board or Water Authority) that would not likely have received a loan from most commercial banks. Four smaller public financial institutions remain 100 percent government-owned which submit quarterly management accounts to the MOF. Three of these were set up with the intent to use them for directed lending to certain projects or sectors. They receive loans from the government and on-lend, earning income on the interest received. One of them, the Enterprise Growth Fund Ltd., manages a number of extrabudgetary funds. 1.1.4

Fiscal management relations among the branches of government

17. The powers and composition of the executive, legislative and judicial branches are clearly defined in the Constitution, and the budget law (the Financial Management and Audit Act (FMAA)) and its regulations set out the fiscal roles of Parliament and the executive branch. The Constitution requires a Money Bill to be introduced by the House of Assembly. The FMAA requires the budget to be submitted to Parliament before the beginning of the fiscal year. Appropriations lapse at year end, and there is no spending authority in the event that the budget is not passed at the beginning of the year. Any amendments by Parliament to the draft budget are approved by the Minister of Finance before the appropriations bill is passed. The executive may submit any number of supplemental budget appropriations during the budget year for approval by Parliament. 1.1.2

The legal and administrative framework for budget management

18. The legal framework for management of public funds is clear on most major processes of budget management. The Barbados constitution, the Financial Management and Audit Act (FMAA) and the associated rules incorporate important principles of public finance: (1) taxes can only be imposed by law¹²; (2) expenditure from the Consolidated Fund can only be undertaken after approval of the budget in Parliament; (3) government financial data is presented in some detail, according to an agreed classification, on a gross basis, in an ex-ante form in an annual budget and ex post in final accounts; (4) management and coordination of the budget process is assigned to the Minister of Finance; (5) clear rules exist on the issuance and reporting of government guarantees. Provisions for government borrowing are set out in the Treasury Bills and Tax Certificates Act. 1.2.1

19. The Constitution and the FMAA define the budget preparation and approval process in broad terms. They also provide for the offices of the Accountant General and Auditor General, the creation of the Consolidated Fund (CF), and assign responsibility for budget preparation and execution to the Minister of Finance. The FMAA and associated rules contain more detailed provisions regarding accounting and financial reporting; the duties and responsibilities of controlling officers and the accountant general. Separate legislation grants the authority of the Minister of Finance to extend loan guarantees, and to take out special loans. The law does not deal with issues of managing the composition of the public debt, fiscal risk and sustainability, or financing arrangements such as public/private partnerships (PPPs).

20. A number of PPP infrastructure projects have been initiated in recent years, without a surrounding framework law. As a result, the process for agreement on such a contract is unclear, and while the nature of the contract (e.g. to build a prison or hospital) is made public, the exact nature of the financial agreement is unclear, as is the precise allocation of risk. PPP arrangements are off-budget. In some cases the difference between the PPP arrangement and a bond-financed government investment project is unclear, save that under the former, no debt is acknowledged in the government accounts.

21. Mechanisms for the coordination and management of budgetary and extrabudgetary activities are not well defined. There are sixteen extrabudgetary “funds” which are not institutions, but off-budget accounts managed by various ministries. The total amount of expenditure by these extrabudgetary funds was not made available to the mission, making it impossible to know their overall fiscal significance. Balances of these funds are included in the annual estimates, and most are audited by the Auditor General. The extrabudgetary funds are established under individual acts of Parliament that specify the sources and uses of funds in general terms (Box 2). The largest and most active of these funds is the Public Enterprise Investment Fund (PEIF). Two new extrabudgetary funds—the Export Promotion Marketing Fund and the Arts and Sport Promotion Fund—were created in 2005 and 2006, respectively. The complicated relationship between the government and the Enterprise Growth Fund, Ltd. which also manages a number of extrabudgetary funds makes it difficult to understand how expenditure from these funds is decided. Reports on the most active extrabudgetary funds are made to the parent ministry, and laid in Parliament, on a quarterly basis. 1.1.3

22. Loans may be made to public or nonpublic enterprises under terms agreed by the Cabinet, but such loans are not included in the budget nor individually approved by Parliament.¹³ Loans have generally been used to finance capital projects undertaken by the public enterprises. The only information on these loans is given ex post in the Accountant General’s report.

23. The NIB has not met legal requirements to provide annual reports and audited financial statements on its funds to the Minister of Finance and Parliament. The National Insurance Board (NIB) is in fact a combination of several funds including the National Insurance Fund (for pensions), Unemployment Fund, Severance Payment Fund and a provident fund for sugar sector employees. Following a financial restructuring in 2002, the NIB moved into a position of substantial surplus (three percent of GDP for 2005). Despite its size, audited statements for the NIB have not been made available, and the last annual report, published in 2004 covers 2002.¹⁴ There are at present no penalties for failure to comply with the legal requirements. Owing to a substantial domestic asset requirement facing the NIB, it holds substantial quantities of government debt purchased at open auctions. The NIB also nominally holds a 10 percent share in the Barbados National Bank.

The legal and administrative framework for tax policy and administration

24. Taxes are established by law, but there is no formal requirement for taxes to be enacted by law, save for protection of property provided in the Constitution. The laws and implementing regulations leave little room for discretion on the part of the tax officials, and the legal framework grants discretion with regard to modification or interpretation only to the Minister of Finance or the tax Commissioner. While significant tax changes are addressed in the Financial and Economic Policy Statement, the tax laws themselves in some cases permit the Minister of Finance to change rates or schedules of eligibility. In practice, when this right is exercised, Parliamentary approval is required within a four month period.¹⁵ 1.2.2

25. Economic development policies are supported by a range of tax incentive schemes that add considerable complexity to the tax system. Barbados has a wide range of tax arrangements targeted at particular kinds of domestic companies, including (i) tax holidays; (ii) tax credits with respect to export sales and foreign currency earning; (iii) a special small company regime; (iv) investment incentive allowances; (v) tax reductions for special development areas; and (vi) special regimes for tourism, shipping, and other sectors.¹⁶ Moreover, the Duties, Taxes and Other Payments (Exemption) Act (2002) gives the Minister of Finance authority to grant exemptions on any duty, tax, or payment without recourse to Parliament.¹⁷ 1.1.2

26. Tax administration is clearly defined and reasonably well coordinated with overall fiscal management. Tax administration is fragmented, including the Inland Revenue Department, Customs and Excise Department, and the Land Tax Department. There is no taxpayer identification number that is used for the same taxpayer by all the revenue administration agencies.¹⁸ Despite the difficulties raised with these arrangements, departments have established ways of interfacing with different technologies. A project is under consideration to merge the tax administrations which would improve sharing of information and possibly effectiveness.¹⁹ They are also considering a joint audit process. Revenue estimates included in the annual appropriations are generally provided by the tax administration departments. 1.2.2

27. Taxpayers’ legal rights are well defined, but in some cases seem to favor the tax administration. In addition to written materials, websites²⁰ for each of the tax departments provide considerable information including the individual tax laws and regulations, instructions, frequently asked questions, and advice for taxpayers. The Land Tax website also includes a Customer Charter. Individual tax acts contain statements of taxpayer rights, including the right to object or appeal, although in some cases, the period for initiating the objection or appeal is short (21 days to one month). In many cases, payment of the disputed amount is a precondition for the appeal process to begin. The appeal process includes first recourse to the Commissioner, then to a tribunal named by the Minister of Finance, and finally to the High Courts. Details of appeals to the Income Tax Appeal Board in the last few years indicate there were few appeals and the majority were dismissed. 1.2.2

Public servants’ code of behavior and anti-corruption activity

28. Public servants are subject to a code of conduct which includes the key provisions of the United Nation’s International Code of Conduct for Public Officials. According to the code of conduct,²¹, public servants cannot be absent without permission, are forbidden from accepting or soliciting gifts, cannot have secondary employment without consent, and must not disclose information which came to them through official capacity. They are also required to disclose any investment or shareholdings, and if these create a conflict of interest, they must divest from such investments. In addition, public servants are required to be prudent in the conduct of their private or financial affairs. Officials involved in the collection of taxes do not have a separate code of conduct, but they are required to take an oath of fidelity and secrecy as a means to promote ethical conduct. Disciplinary measures may be taken for infractions of the code of conduct. Some fraudulent practices have been discovered either by the Ministry of Finance or by the Auditor General, and these are prosecuted. The authorities maintain that corruption is not a serious problem in Barbados. 1.2.3

The budget preparation process: clarity and consistency of process and presentation

29. The annual budget process is clear and reasonably open. The budget preparation process (see Box 3) is well established and understood by ministries, departments and units (budget agencies). The annual budget circular normally is promulgated in early September, allowing budget agencies some six to eight weeks to prepare their draft estimates.²² Expenditure ceilings are decomposed to ceilings for personal emoluments, goods and services, current transfers to authorities and companies, and Public Sector Investment Program (PSIP) projects. The budget circular provides clear instruction on the structure and content of the budget agencies’ draft estimates, including presentational formats. Generally there has been a high level of compliance with the budget preparation requirements and timetable over the past several years. The statutory requirement that the Estimates and Appropriations Bill be tabled before the commencement of the year has been met over this period. However, the period for legislative review is very short: the Assembly currently has only five days to consider the Estimates and the Senate is given only three days. 3.2.1

Box 3.

The Budget Preparation Process

Timing	Activities	Legal basis
The Government has determined the fiscal year to be April 1- March 31. The main steps in the process are as follows:
June - July	Budget Department circulates request for fiscal information required for preparation of fiscal framework	Budget Circular
July - August	Revenue agencies, Public Investment Unit and Accountant General (pensions and debt) submit framework estimates	Budget Circular
August - September	Budget Department prepares fiscal targets and issues budget circular	Budget Circular
October	Budget Department issues expenditure ceilings to ministries and departments	Budget Circular
July-October	Ministries and Departments prepare Schedules of Personal Emoluments and Draft Estimates	Budget Circular
November - December	Budget Department and Civil Service Ministry review personal emoluments and draft estimates	Budget Circular
December	Budget Department holds preliminary meetings to discuss estimates.	Budget Circular
January	Ministry of Finance conducts major estimates meetings. The Estimates Committee, chaired by the Minister of Finance, approves all estimates proposals. The Planning and Priorities Committee approves all investment proposals.	Budget Circular
February	Budget Department compiles final estimates and finalizes estimates documentation	Budget Circular
February	Budget Department arranges for printing of Schedules of Personal Emoluments and Estimates documents	Budget Circular
March	Estimates submitted to Cabinet for approval	Budget Circular
March	Annual Estimates tabled and Annual Appropriations Bill introduced in House of Assembly	Constitution, FMA Act
April - March	Minister of Finance can table supplementary budgets in the House of Assembly from time to time throughout the year	Constitution, FMA Act
Before end of March	Minister of Finance introduces Supplementary Appropriation Bill in the House of Assembly, covering supplementary budgets	Constitution, FMA Act
As soon as possible after year end	Minister of Finance introduces Final Appropriation Bill in the House of Assembly, containing any supplementary estimates not included in any appropriation Bill	Constitution, FMA Act

View Table

Timing	Activities	Legal basis
The Government has determined the fiscal year to be April 1- March 31. The main steps in the process are as follows:
June - July	Budget Department circulates request for fiscal information required for preparation of fiscal framework	Budget Circular
July - August	Revenue agencies, Public Investment Unit and Accountant General (pensions and debt) submit framework estimates	Budget Circular
August - September	Budget Department prepares fiscal targets and issues budget circular	Budget Circular
October	Budget Department issues expenditure ceilings to ministries and departments	Budget Circular
July-October	Ministries and Departments prepare Schedules of Personal Emoluments and Draft Estimates	Budget Circular
November - December	Budget Department and Civil Service Ministry review personal emoluments and draft estimates	Budget Circular
December	Budget Department holds preliminary meetings to discuss estimates.	Budget Circular
January	Ministry of Finance conducts major estimates meetings. The Estimates Committee, chaired by the Minister of Finance, approves all estimates proposals. The Planning and Priorities Committee approves all investment proposals.	Budget Circular
February	Budget Department compiles final estimates and finalizes estimates documentation	Budget Circular
February	Budget Department arranges for printing of Schedules of Personal Emoluments and Estimates documents	Budget Circular
March	Estimates submitted to Cabinet for approval	Budget Circular
March	Annual Estimates tabled and Annual Appropriations Bill introduced in House of Assembly	Constitution, FMA Act
April - March	Minister of Finance can table supplementary budgets in the House of Assembly from time to time throughout the year	Constitution, FMA Act
Before end of March	Minister of Finance introduces Supplementary Appropriation Bill in the House of Assembly, covering supplementary budgets	Constitution, FMA Act
As soon as possible after year end	Minister of Finance introduces Final Appropriation Bill in the House of Assembly, containing any supplementary estimates not included in any appropriation Bill	Constitution, FMA Act

30. The budget classification is broadly consistent with GFS86; and expenditure and revenue estimates are shown on a gross basis. Revenue estimates are classified by type of tax or other revenue collected. The expenditure estimates are classified by administrative (ministry, department, unit), program, economic (wages and salaries, NIS contributions, goods and services, transfers, debt service and fixed asset expenditure); and functional classifications. The Estimates document provides a brief description of the objective/functions of each subprogram, and a short description of the purposes of some of the cost objects for each subprogram. The economic classification structure—which is based on cash accounting principles—is broadly consistent with GFS86. However the functional classification structure is not consistent with the COFOG standard headings, and no information is provided at the sub-function level. 3.2.1

The macroeconomic framework and policy basis for the budget

31. The overall balance of central government excluding extrabudgetary activities is the main indicator of the fiscal position, which is monitored during the year. The budget includes the deficit on the accountant general’s basis (which includes amortization as expenditure), and the deficit on the GFS basis. Public corporations report to Parliament separately, but there is no reporting on the consolidated public sector. 3.2.3

32. Budget forecasts and some underlying macroeconomic assumptions are clearly presented. The MOF does not have its own macroeconomic unit, but instead depends on the CBB to provide them with macroeconomic estimates. Macroeconomic assumptions are used internally to develop the budget estimates. The assumptions for growth, inflation, and exchange rate are reported in the Economic and Financial Policies of Government, but not with the estimates themselves. Macroeconomic models and forecasts are not open to outside scrutiny. 3.1.3, 4.2.2

Medium-term planning and analysis of fiscal risks

33. A statement on medium-term fiscal policy objectives is not included in the budget document, and fiscal sustainability issues are not presented. No explicit medium term framework of fiscal policies exists at present, nor is there an assessment of the implications of current and new programs for fiscal sustainability. The authorities are taking steps to develop a medium-term framework for the budget, which has been piloted to date in five ministries, which have reportedly produced three-year estimates for the 2006/07 fiscal year. The Economic and Financial Policies of Government is delivered to Parliament by the Minister of Finance and sets out new policies for the next fiscal year, but does not cover medium-term objectives. The government has a Strategic Plan 2005-25 which includes broad policy goals such as the diversification of agriculture, improvement of transparency for both government and business. These in turn are used to guide the public investment program. See Box 4 for discussion of public investment and public-private partnerships. 3.1.1

34. There are no explicit fiscal rules, but the MOF aims to remain within an overall balance of 1 percent of GDP (on GFS basis). Another aim is to reduce debt to around 60 percent of GDP by 2012 by targeting a positive current balance. There are at present no rules or guidelines for achieving the envisaged debt reduction. 3.1.2

35. Estimates of new initiatives and ongoing costs of government policies are not clearly distinguished in the budget documents. New program proposals are costed separately by the ministry concerned during the budget preparation process. These proposals are combined into one document that is used for internal purposes, but not publicly available. Budget estimates are given on a line item basis and do not show the cost of new programs separately. The budget speech discusses new initiatives for the forthcoming year. 3.1.4

36. The sensitivity of budget estimates to changes in economic variables is not assessed nor are fiscal risks discussed with the budget. The budget documents do not contain any analysis of revenue under varying circumstances, nor is there any analysis of uncertain expenditures, such as contingent liabilities, that could negatively impact the budget. However, the Accountant General’s report does contain a statement on contingent liabilities. 3.1.5

Clarity of control of budget execution

37. Basic accounting and internal control procedures are generally in place. All budget agency transactions pass through the treasury single account and are managed, recorded and controlled through the central government financial management information system, Smartstream. The system facilitates automated funds control by recording encumbrances, commitments and payments against agency appropriations and checking to ensure that funds are available when commitments are requested. Procedures for purchasing, making supplier payments, recording and paying employee emoluments, invoicing debtors, collecting and banking revenues, the safe custody of cash, financial instruments and accountable forms, the disposal and write-off of assets, and the internal and external reconciliation of transactions and balances appear to be standardized across central government and well understood by budget agencies.²³ With the present exception of physical asset registration, the government’s accounting and management procedures provide an effective basis for internal control. 3.3.1,3.3.3

38. Supplemental appropriations are used to switch spending from one line item to another. The MOF exerts expenditure control over expenditure objects (economic classification) at a detailed level of specification, and virement between these specific line items is not allowed. If a budget agency identifies unused funds under one line item, it is possible to request an increase in spending by this amount for a different line item in a supplemental appropriation. Many budget agencies regard this as administratively cumbersome. For the fiscal year 2005-6 there were 16 supplementaries. Furthermore, according to the FMAA the Minister of Finance “shall as soon as possible after the end of each financial year, introduce into the House of Assembly a Final Appropriation Bill containing any such sums which have not yet been included in any Appropriation Bill.” In 2005-06 supplemental appropriations increased from 8 percent at year end to 10.5 percent of total original appropriations when the final accounts were produced. Despite the increase in appropriations, expenditure outturn for 2005-06 was only about 2 percent higher than the approved budget, indicating that most supplementals reallocate across line items rather than increase spending. Reporting on supplemental appropriations is highly aggregated and does not identify how spending is being reallocated.

39. Financial management practices are not well coordinated, nor is there a formal debt management strategy. The treasury prepares regular cash flow forecasts on the basis of historical revenue and expenditure patterns and data available from Smartstream. Cash flow statements are now required on a quarterly basis. The government does not at present have a formal debt management strategy, but recent improvements allow for a closer alignment between the projected cash shortfalls and debt issuance. The authorities are presently working on a formal debt management strategy. 3.3.1, 2.1.4

40. Internal audit is not undertaken comprehensively because of a lack of resources. The central government internal audit function is carried out by the Internal Audit Unit (IAU) of the Treasury Department. Only four central agencies have established small internal audit functions (each with a single auditor). The IAU has only four staff—a manager and three auditors—limiting the ability of the unit to comprehensively and regularly audit all agencies in the central government. In the last three years the IAU has conducted on average only five operational audits of central agencies annually. The Unit’s primary focus has been on regulatory compliance, rather than assessment of systemic risk. The activities of the Treasury Department are audited on a daily basis, while other agencies are selected on the basis of an annual audit plan or at the request of a senior official. The Treasury has recognized this lack of capacity and has requested CARTAC assistance with the development of a strategic audit plan, an audit manual, and hands-on training of IAU staff. In addition, the Accountant General is looking to increase the level of coordination between the IAU and the four agency internal audit units. The IAU furnishes its reports to the MOF, agency management and the Auditor General, however the reports are not public. Moreover, the MOF does not have well established mechanisms for formal follow-up of internal audit recommendations, and given the long intervals between audits of individual agencies by the IAU, there is little management incentive to rigorously implement recommendations. 3.3.3

41. Procurement rules and practices are clear and well-known. The rules governing procurement are found in the FMAA regulations and include procedures to ensure that opportunities for corruption are minimized. The Central Purchasing Department (CPD) is responsible for all procurement over BD$20,000. For purchases between BD$ 20,000 and BD$100,000 there must be at least three quotes, and for purchases over BD$100,000 a tender is issued. The CPD assists to ensure that specifications are clear. Tenders are invited by an advertisement in newspapers which includes detailed procedures.²⁴ The Minister of Finance determines the make-up of the eight person tender committee. Once a decision is made, only the winner is informed, with no public posting. Since 1972 there has only been one court case concerning the procurement procedure and decision. The CPD is audited annually by the Auditor General. 3.3.2

42. Civil service employment procedures are clear and well-understood. The Civil Service Quality Standards is a legal document containing descriptions of the job qualifications for each post in the public service; these are consistent across ministries and do not allow for discretion. There are three service commissions²⁵ which make the final determination from a short list of three provided by the agency head to fill a vacant position. There are no competitive examinations, and senior positions are usually filled first from within the organization or the public service. Promotions are determined primarily by seniority especially for lower level, unskilled jobs. However, the higher the level of the position, the greater the weight placed on merit, given a minimum level of experience. The public service wage scale has been compressed over the years²⁶ so that public sector wages are competitive at the lower end, but not for senior positions. The authorities are in the advanced stages of producing a new Public Service Act which is expected to go to Parliament in 2007. This act covers recruitment, employment, and promotion which will be based on a combination of merit, seniority and job performance. To measure performance, a Performance Management and Development System has been developed and is being piloted in four ministries. 3.3.2

Clarity of internal control and independence of tax administration

43. The tax administration has effective internal monitoring and control mechanisms. Tax administration is computerized, with different tax departments using different systems with limited interface capacity. Tax administration in each tax agency is organized according to functions rather than by tax which is considered best for ensuring proper controls. An internal audit unit has been established in the Accountant General’s office, which carries out audits in Ministries/Departments and Statutory Boards as requested by the MOF. 3.3.4

44. The tax agencies are subordinate to the Ministry of Finance and are not legally protected from political interference. Authorities and commissioners and all tribunals are appointed by the Minister of Finance. Tax laws reserve for both the Minister of Finance and the Commissioner the prerogative of interpretation, change, and exemption.

Accounting and reporting on budget execution

45. The accounting system is capable of producing accurate in-year reports on central government budget outturn, but it does not provide a reliable basis for assessing payment arrears. The budget and accounts classifications are mutually consistent for central (core) budget agencies, which facilitates a clear alignment of ex ante and ex post data for this sector. Statutory boards operating within the government sector have discretion in deciding to use the central chart of accounts. While Smartstream has the capacity to provide accurate, automated analysis of supplier payment arrears, payment procedures adopted by the government prevent the production of accurate, automated arrears data from the system.²⁷ Arrears do not appear to be a serious problem, and reporting on them should be rectified given changes in payment procedures since April 1, 2007 to reflect accrual accounting principles (Box 5). 3.3.1

46. Fiscal reporting is monthly and covers the central government. Consolidation of general government is difficult since statutory boards operating outside the central government are not required to use the same classification used by the central government. In addition, entities outside the central government do not use Smartstream, and therefore, to produce fiscal reports at the general government or public sector level would require a considerable amount of data collection, collation and consolidation in addition to the harmonization/rationalization of accounting classifications. Neither the monthly nor the annual report contains a statement setting out the institutional coverage of the reports.

47. The monthly report on consolidated central government contains a wide range of fiscal data. It includes an analysis of: recurrent revenues (by revenue class) and capital revenues by debt class and donor project; total expenditure by ministry; capital expenditure by ministry; debt repayments by debt class, and by interest and amortization; and loans outstanding and balances of sinking funds formed to redeem loans. The monthly report also contains total receipts and payments of the Consolidated Fund and totals for the other funds (loans, deposits, advances, borrowings, bills, Special Funds, trust funds and suspense account); opening and closing balances, and monthly cash flows of the Consolidated Fund; balances of other funds at month end (cash at departments and current accounts, advances, deposits, loans (by borrower); Special Funds (by Fund); Special Fund investments (by Fund) and trust funds; expenditure by sub-program; total current and capital expenditure by economic classification; and sources and applications of temporary borrowings. All statements disclosing revenues and expenditures set out the annual budget, monthly movement and year-to-date balance for each item. The monthly report is not audited.

48. The legislature receives timely in-year reports on budget outturn, but does not undertake a mid-year review. The FMAA sets out the structure of the financial statements that the Accountant General must prepare on a monthly basis (see above) and provides that the monthly reports must be tabled before the last day of the succeeding month. Generally speaking the reports are tabled on time. The MOF is not required to prepare a mid-year review of fiscal and economic performance and outlook, and the Parliament does not ordinarily undertake a formal mid-year review. 3.4.1

49. The audited final accounts are available within nine months of the end of the fiscal year. The Accountant General’s annual financial report, which is audited by the Auditor General, provides a comprehensive set of financial statements, covering the Consolidated Fund and the other funds, in line with the reporting structures described above. Detailed statements of current and capital expenditures show the original budget, supplementary budget, actual expenditure and annual savings/excess by sub-program. There is a statement of financial assets and liabilities, together with detailed information on public debt on issue, contingent liabilities, advances and loans, deposits, and Trust Fund and Special Fund balances and investments. 3.4.2

Results-oriented budgeting and reporting

50. The objectives and expected results from government activities are discussed in general terms. Policy objectives are articulated in very general terms in the Strategic Plan 2005-25 and in the Economic and Social Reports that precede the budget process. These objectives are supported by a variety of programs, of which some are included in the budget, and others are financed through extrabudgetary funds. Statements of expected results in policy statements and budget documents are limited, and too general to provide a basis for assessing results. Internal assessments of major programs are made at the beginning of the budget process, but this material is not made available to Parliament in a systematic manner. 3.2.2, 3.4.3

The coverage and quality of budget documents

51. The budget documents cover central government fiscal activities with the exception of extrabudgetary accounts and advances to public corporations. The institutional coverage is not consistent with the GFSM2001 standard for consolidation of all entities operating within the general government sector. There are two reasons for the inconsistency: (1) the budget estimates do not include all spending by extrabudgetary funds nor do they include advances or on-lending to public enterprises; and (2) the budget estimates do not set out complete estimates of revenues and expenditures for all statutory boards, but only show recurrent and capital transfers to these entities. Defense expenditures are not comprehensively reported in the budget, but are shown only as a capital and current budget transfers for defense. 2.1.1

52. The Estimates document contains a wide range of data on public finances. A memorandum includes the previous year’s estimates and projected actuals, a summary of estimates using various classifications, and information on financing, assets and liabilities, and a 10-year historical series of revenue and expenditure. Various appendices of the Estimates document gives a list of supplementary estimates for the current fiscal year, data on the public debt as of December 31, and balances of the sinking funds and the extrabudgetary funds. In addition, budget documents include the Economic and Financial Policies of Government and the annual Report of the Accountant General which are sent to Parliament at a different time than the Estimates document. The content of these reports is described in section B.

Past and forecast fiscal data in the budget

53. The budget document discloses the actual outturn of the previous year using the same classification as the budget estimates, but there are no outyear estimates. The budget estimates are given along side of the original and revised budget for the current year and the actual outturn of the previous year. 2.1.2

54. A statement on some contingent liabilities is included in the annual Report of the Accountant General. The Estimates document does not contain a statement of contingent liabilities but the report of the Accountant General provides a full statement of government guaranteed loans, including lender, borrowing entity and amount outstanding. It also provides a full account of contingent liabilities taken over by the central government. Loans taken out by public sector entities which are not guaranteed by the government are not disclosed in the statements. Owing to the absence of a legal framework for PPP arrangements, the details and any explicit or contingent liabilities—particularly for outer years—are not made explicit in policy statements or budget documents. 2.1.3

55. Budget documentation does not contain estimates of tax expenditures. There is no systematic analysis of tax expenditures that is published on an annual basis, but when a new tax policy is introduced, its costs and benefits would be discussed in the budget speech. Nevertheless, tax expenditures are significant, owing to the broad array of incentive schemes (see paragraph 25). The authorities estimated that the total could roughly amount to about 6 percent of GDP or 19 percent of tax revenues for 2005/06. Separate exemptions may be granted by the Ministry of Finance on an individual basis and other tax expenditures are realized from contributions by individuals to extrabudgetary funds—which are deductible in the amount of 100-130 percent of the actual contribution. Each revenue administration conducts some internal analysis of the cost of some tax expenditures.²⁸ 2.1.3

56. Quasi-fiscal activities are extensive, and there are no statements or describing costing quasi-fiscal activities in the budget documentation or in the annual statements of the public enterprises. No organization is responsible for reporting on QFAs, and only some enterprises receive budget transfers to cover the ensuing losses. Except in the case of low bus fares for students and the elderly, transfers are not based on the cost of the QFAs. In some cases there seems to be a lack of recognition in the government that regulated prices are far below operating costs, and that public enterprise losses will eventually have to be borne by the budget whether or not it is an intentional policy to maintain prices below cost. 2.1.3

Publication of data on debt and financial assets

57. Information on gross public debt for the central government is published monthly and annually; however this may provide only a partial picture of public sector indebtedness. The Accountant General’s monthly financial report which is tabled in Parliament provides details of debt raised during the month and for the year to date, by debt class and lender/project. The report also provides a detailed composition of debt service for the month and year to date, by debt class. A statement of outstanding loans’ sinking funds also is provided. The annual Report of the Accountant General, which is audited and tabled in Parliament, provides similar debt information for the year. In addition it provides a detailed analysis of debt on issue and outstanding loans, including interest rate and principal outstanding. The Monthly Digest of Statistics produced by the Barbados Statistics Service provides information on debt charge only. None of the reports provides information on debt arrears and debt swaps, nor do they provide a statement of past and future debt service requirements and strategies to manage the future service requirements. 2.1.4

58. Information on central government financial assets is published monthly and annually but is incomplete. The monthly and annual financial reports of the Accountant General that are tabled in Parliament contain statements of the central government’s financial assets, including details of advances, loans made to public sector entities and Special Fund investments. However, the statements do not provide a full picture of all financial assets, such as equity investments in public enterprises. With the shift to accrual accounting, future financial reports will contain a complete statement of government assets and liabilities. 2.1.4

59. Formal commitments for more regular publication of fiscal data have been made but advance release data calendars are not announced. The FMAA requires the Accountant General to prepare and transmit a set of annual financial statements to the Auditor General within four months of the close of the financial year. The FMAA also requires the Auditor General to report the results of his audits to Parliament no later than nine months after the close of the financial year. Over the past several years, both of these deadlines have been observed in practice. In addition to the Accountant General’s monthly report, which is published, a monthly bulletin produced by the National Statistical Service is published regularly. It contains data on capital and current expenditures and current revenue by month according to the functional classification for the latest fiscal year, and annual data for the last three years. Monthly and annual fiscal data is also published on the CBB website.²⁹ Other websites for fiscal data include www.barbados.gov.bb/landtax www.barbados.gov.bb/IRD www.barbados.gov.bb/customs and www.barbados.gov.bb/finance. Barbados participates in the IMF’s General Data Dissemination System. 2.2.1, 2.2.2

Integrity of data processes

60. Budget data are not reliable and the variance between budgeted and actual outturn of the main fiscal aggregates is disclosed to the public. As noted above, the outturn for previous years’ budget is provided in the budget documentation. Outturn of the main taxes was 2 to 6 percent under original budget estimates in 2004-5, while it was 6 to 23 percent higher than original budget estimates in 2005-6. For those same years, actual recurrent primary expenditure was generally 10 to 15 percent higher than original budget estimates, while capital expenditure generally fell below budget estimates. Interest expenditure was well below budget estimates in 2004-5 but higher than original budget estimates in 2005-6. Total actual expenditure increased by 1.8³⁰ percent over original approved expenditure. Visits to ministries and public enterprises receiving budget transfers indicate that some items, especially transfers to public enterprises, are routinely under budgeted. Although the supplementaries require justification, they are generally only debated for three hours in Parliament, and there is no document analyzing the differences between planned and actual outturn. 4.1.1

61. Formal statements on accounting policy are not included in the budget or final accounts documents. The Auditor General in his Report for the Year 2005 states that the accounts of government are maintained on a cash basis. Neither the budget nor reports contain formal statements of the accounting principles and policies adopted in the preparation of these documents, or a statement of compliance with the cash accounting standard issued by the IPSASB. There is a central government accounting manual, but it has not been reviewed for many years, and will soon be replaced by a comprehensive manual on accrual accounting policy and procedures for central government. The accrual accounting framework is based on the adoption of international accounting standards issued by the IPSASB. 4.1.2

62. The process of accounts reconciliation and fiscal reporting is effective. The Smartstream system provides a range of management reports and enquiry functions which assist management with budget execution and control and resource management. The system automatically and continuously reconciles accounting reports with budget appropriations. It automatically validates accounting entries to ensure that accounting classification is in line with budget classification, and automatically performs a range of internal reconciliations to ensure that subsidiary ledgers are reconciled to the general ledger. It also provides for the automatic reconciliation of bank account transactions with banking system records. Normally, the Treasury Department performs the reconciliation of the treasury single account³¹ and the other (around fourteen) central bank accounts on a monthly basis, but at present this has fallen several months behind. Reconciliation of revenue collections to banking records is performed on a daily basis. Reconciliations of original and revised budgets with accounting outturns are shown explicitly in the accounting reports.³² 4.1.3

Independent oversight

63. External audit is independent of the executive branch, and its mandate covers all government activities. Section 102 of the Constitution provides that the Auditor General shall be appointed by the Governor General on the recommendation of the Public Service Commission (PSC) after the PSC has consulted the Prime Minister. Section 26 of the FMAA establishes the Auditor General as the auditor of the financial statements of the government. The Auditor General remains in office until he reaches the age of sixty-two. He may be removed from office because of inability to discharge his functions or misbehavior. The Auditor General reports to Parliament. With the recent passage of the FMAA, the budget estimates for the Barbados Audit Office (BAO) are “transmitted to the House of Assembly through the Public Accounts Committee; and the Public Accounts Committee shall consider the estimates in accordance with subsection 4.” As with other central agencies, the BAO must submit its staffing profile to the Ministry of Civil Service for approval. 4.2.1

64. The FMAA provides the Auditor General with a broad mandate to audit all public accounts including the Consolidated Fund, Special Funds, departmental accounts and statutory bodies which receive all or part of their funds from the Consolidated Fund. The Auditor General should satisfy himself that all financial laws and regulations have been observed, but he also has a mandate to examine the economical, efficient and effective use of resources of any ministry, department or other government entity.

65. External audit capacity requires strengthening. The BAO has 72 staff, but most positions are clerks and only three are qualified accountants. Although the Auditor General is empowered to engage professionals to assist with the conduct of audits, there is a need to redefine staffing qualifications and to provide further training to enhance the technical capacity of staff. This is especially true with the implementation of accrual-based budgeting and accounting to ensure that international accounting standards are correctly applied. 4.2.1

66. The BAO generally follows international auditing standards issued by INTOSAI and there is some use of modern systems-based audit tools and practices. While a number of performance audits have been conducted, the predominant focus is on financial and compliance auditing. The annual report of the Auditor General for the year 2005 does not present any account of the audit strategy and program formulated for the year, nor the principal methodologies, techniques and tools employed.

67. Compliance with external audit requirements is generally good, but in a few cases documentation is submitted with considerable lags. The Report of the Auditor General notes that in some cases, delays in submitting requested materials amount to more than a year. As noted above, the accounts of the National Insurance Board at the time the report of the Auditor General was submitted, had not been submitted for five consecutive years. Efforts since early 2006 are reportedly correcting this problem.

68. The legislature has formal mechanisms to discuss external audit reports but these have not been effective, and follow up on audit findings was lacking until recently. All external audit reports are tabled in the Parliament. The Public Accounts Committee (PAC)³³ was established with responsibility for reviewing external audit reports and conducting inquiries into the findings and recommendations contained in these reports. The functioning of the PAC has been strained by controversy over procedural rules, particularly the rules associated with the questioning of, and the taking of evidence from public officials. As a result of this, the PAC was inactive in the past year, but is presently conducting investigations regarding matters raised in the Auditor General’s Report. In Barbados, the PAC does not have a secretariat which is another impediment to the effective discharge of its responsibilities. The MOF requires ministries to respond to issues raised in the Audit Report, but there is no formal mechanism for it to monitor and report on the implementation of recommendations made by the Auditor General. The follow up on recommendations has relied mainly on the efforts of the BAO and the Treasury Department’s IAU. 4.2.1

69. The Barbados Statistics Service (BSS) is not given legislative assurance of independence but has technical independence in practice. The agency operates under the Ministry of Economic Affairs and Development and has a mandate to collect, compile, analyze, abstract and publish reliable and timely information relating to the social, economic and general activities or conditions of the inhabitants of Barbados (Statistics Act of 1958). The BSS performs quality checks on the data received, and if it varies by more than +/- 10 percent from previous years, they will query the agency supplying the data. They also assist ministries to help them correctly compile data, and to harmonize concepts and definitions. From time to time historical series are revised based on new methodologies.³⁴ However, the BSS has only 4 senior statisticians, one IT officer, and 8 statisticians out of a staff of 67. Most of the staff are clerks from the time when data was compiled manually. The agency has requested a redefinition of positions from the Ministry of Civil Service to improve its ability to carry out its mandate. 4.2.3

The BSS observes the United Nation’s Fundamental Principles of Official Statistics. These principles require compilation and availability of statistics on an impartial basis; methods and procedures determined solely by the head of the agency according to professional considerations; and entitlement to comment on erroneous interpretation and misuse of statistics. While the BSS would not publicly correct or comment on data of other government agencies, it would comment on misinterpretation or misuse of statistics by journalists in the media. The BSS is responsible for data in numerous publications. Fiscal data can found in publications such as the Monthly Digest of Statistics and the data reported in the Barbados Economic and Social Report which is published annually. They also launched a new website in October 2006³⁵ and intend to promote the website in the media.