## _cr07338 ## Source details **Canonical URL:** [_cr07338](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07338.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07338.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07338.pdf.json) --- ### Clarity of roles and responsibilities; institutional coverage - General government not clearly defined though largely consistent with Government Finance Statistics (GFS) principles; units of general government listed in source. - No local governments; numerous statutory boards perform local-government functions. - There are 16 extrabudgetary funds established by law and financed through earmarked revenues. - National Insurance Board (NIB): - NIB is a government department. - Operational costs included in the budget; revenue from contributions and investment income is off-budget. - Required to report separately to Parliament monthly and annually. - Main functions: collect contributions, pay benefits, invest surplus. - After a 2002 restructuring, NIB reported a substantial surplus equating to three percent of GDP for 2005. - Audited statements not made available; last annual report published in 2004 covers 2002. - Statutory boards: - Around 75 statutory boards and other agencies meet the nonmarket nonprofit institution criteria in the Government Finance Statistics Manual (2001). - Include 23 school boards, health councils, commissions and control boards. - Budgets approved by the reporting ministry; receive transfers from the budget. - User fees/own revenues offset operating costs and remain outside the Consolidated Fund (CF). - Not subject to the Financial Management and Audit Act (FMAA) but generally expected to follow similar requirements. ### Government relations with public enterprises and quasi-fiscal activities (QFAs) - No routine distinction between commercial statutory boards (public enterprises) and noncommercial statutory boards. - Four public financial institutions and 24 nonfinancial public enterprises currently identified. - Transfers to public enterprises are included in the budget; government loans/on-lending or advances to public enterprises are not included in the budget but appear in fiscal reports. - Quasi-fiscal activities: - Laws and establishing acts sanction QFAs and often reference Parliamentary-approved amounts and ministerial control rights. - QFAs are extensive due to regulated prices set below cost for transport, natural gas, water, housing, and other services. - Regulated prices create predictable ongoing budget support needs; Fair Trading Commission regulation may make rate increases costly. - Many enterprises must serve unprofitable rural areas with costly infrastructure. - Specific enterprise examples: - Transport Board: - Financial relations with central government not transparent. - Private transport services profitable; Transport Board not profitable due in part to route designations and below cost-recovery fares. - Regular budget transfer covers losses but only a small portion of documented need is budgeted. - 2005-6 budgeted transfer: BD$7 million; supplemental transfer expected: BD$30 million. - Perpetual cash shortages lead to supplier arrears. - Government-guaranteed loans are fully paid by government though remain on the Transport Board books. - National Petroleum Company: - Below-cost pricing led to consistent losses; the company does not receive budget transfers. - Consumer commercial prices not increased since 1994. - Declining national resources reduce natural gas available for sale; losses financed through arrears to the National Oil Company. - Plans to request a rate increase from the Fair Trading Commission; political feasibility unclear. - Profit treatment: - No profits/dividends paid to the budget from public corporations; profits reinvested or transferred to extrabudgetary funds. - Central bank is an exception (discussed elsewhere). - No establishing acts provide for profit transfers to the budget. ### Government equity, privatization, and state asset management - Government equity holdings, including fully-owned corporations, are extensive; public information on holdings is limited and state asset management not clearly defined. - Aggregate equity holdings reported in the Annual Estimates; conversion of cumulated losses to new equity not identified. - Public enterprises submit annual reports to Parliament and quarterly reports to the MOF Management Accounting Unit; no consolidated report of equity holdings by company. - Privatization: - Generally transparent though no specific privatization legislation. - Receipts from privatization reported to Parliament and paid into the Public Enterprise Investment Fund (PEIF); PEIF is extrabudgetary and managed by the Accountant General in the MOF for off-budget development projects. - Projected privatizations normally included in the budget speech. - Examples: Barbados National Bank and Insurance Corporation of Barbados, Ltd. privatized in 2006; government initially offered less than 50 percent equity then sought strategic partners. ### Extrabudgetary funds (summary) - Public Enterprise Investment Fund (Cap. 5A): resources include receipts from sale of government enterprises/shares, Parliamentary allocations, repayments, gifts; uses include sale costs, specific investment financing, debt repayment and administrative costs; quarterly reports made to the Minister of Finance and laid before Parliament. - Social Investment Fund (Cap. 50): financed from PEIF receipts and Parliamentary allocations; uses to finance poverty-reduction projects; quarterly reports by Accountant General; audited annually by Auditor General. - Agricultural Development Fund (Cap. 252B): managed by Enterprise Growth Fund, Ltd.; financed by transfers from Enterprise Growth Fund, Parliamentary amounts, revenue from tariffs on food imports (transferred from the Consolidated Fund), other sources; quarterly reports; audited annually. - Export Promotion Marketing Fund (New): managed by Enterprise Growth Fund, Ltd.; financed by a 2 percent environmental levy on vehicles and allocations from Parliament; uses to increase exports. - Other funds: Sugar Research and Development Fund; Sugar Industry Scholarship Fund (Cap. 270); Training Fund and Training Loan Fund (Cap 35); Arts and Sport Promotion Fund (New) financed 60 percent from lotteries; Enterprise Growth Fund; Tertiary Education Loan Fund (Cap. 41); Tourism Investment Fund (Cap. 332A); Small Hotel Investment Fund (SHIF); Tourism Loan Fund; Industrial, Investment and Employment Fund (IIEF); The Innovation Fund. - Enterprise Growth Fund, Ltd. manages a number of extrabudgetary funds, receives advances from government and earns interest on on-lending. ### Budget classification, macro framework, and medium-term planning - Expenditure and revenue estimates shown on a gross basis. - Expenditure classified by administrative, program, economic, and functional classifications. - Economic classification based on cash accounting and broadly consistent with GFS86. - Functional classification not consistent with COFOG at sub-function level. - Budget includes accountant general’s deficit (with amortization as expenditure) and deficit on GFS basis. - Public corporations report to Parliament separately; no consolidated public sector reporting. - MOF lacks its own macroeconomic unit and depends on CBB for macro estimates. - No statement on medium-term fiscal policy objectives in the budget; no explicit medium-term fiscal framework. - MOF aims to remain within an overall balance of 1 percent of GDP (on GFS basis) and to reduce debt to around 60 percent of GDP by 2012 by targeting a positive current balance, but no rules or guidelines provided. - Pilot medium-term framework in five ministries produced three-year estimates for 2006/07. ### Public investment and PPPs - Public Investment Unit (Ministry of Economic Affairs and Development) manages medium-term public investment program for projects over a quarter million US dollars. - Three classifications of capital projects: on-budget sector projects (including foreign-financed), on-lending to public enterprises, and public-private partnerships (PPPs). - Five PPP contracts signed for a desalinization plant, a prison, a judicial center, a highway, and a Coast Guard station; three PPPs in pipeline: hospital expansion, civic center, solid waste management center. - Desalinization plant includes a demand guarantee (minimum water purchase). - Tender and disclosure practices: - Technical committee evaluates, negotiates and selects firms. - Public informed at tender stage; values of winning contracts published in press but contract details not publicly available. - Not all PPPs had tenders; some projects treated as emergency exceptions. - PPP projects must have Cabinet approval. - Recommendation: More analysis needed of risks associated with PPP contracts and whether risks are sufficiently transferred from government to private sector. - Accounting treatment: leases paid under PPP found in central government budget under Ministry of Finance debt payments; under accrual accounting PPP assets and liabilities expected to be disclosed on government balance sheet. ### Accounting systems, transition to accrual, and budget execution controls - Smartstream FMIS in use since 1998; all budget agency transactions pass through treasury single account and Smartstream. - Smartstream records encumbrances, commitments and payments, and can provide automated arrears analysis, though current procedures prevent accurate automated arrears reporting. - Deficiency: fixed assets acquisition and movements not fully recorded in Smartstream; stocktaking and valuation begun as part of accrual move. - Supplemental appropriations: - Used to switch spending between line items; virement between specific line items not allowed. - For fiscal year 2005-6 there were 16 supplementaries. - Supplemental appropriations increased from 8 percent at year end to 10.5 percent of total original appropriations when final accounts produced for 2005-06. - Despite supplementals, 2005-06 expenditure outturn about 2 percent higher than approved budget. - Reporting on supplementaries is highly aggregated and does not identify reallocations. - Transition to accrual budgeting and accounting: - Move from cash to full accrual basis commenced 2003-04; implementation began fiscal year 2007-08. - Prime ex ante and ex post documents: operating statement, balance sheet and cash flow statement. - Project steering committee chaired by Accountant General; six working groups covering accrual budget, tax revenues, asset valuation, legislation and standards, chart of accounts, and training. - Smartstream retained for its accrual functionality. - Initial implementation focus on central government; second phase to bring statutory bodies into Smartstream for consolidated reporting. ### In-year reporting, audited accounts, and public access - FMAA requires monthly financial statements by the Accountant General be tabled before the last day of the succeeding month; generally tabled on time. - MOF not required to prepare a mid-year review; Parliament does not ordinarily undertake a formal mid-year review. - Audited final accounts available within nine months of fiscal year end. - Monthly consolidated central government report includes a wide set of items (recurrent/capital revenues, expenditure by ministry and sub-program, debt repayments by class, loans outstanding, sinking fund balances, opening/closing CF balances, other fund balances, etc.). All statements disclose annual budget, monthly movement and year-to-date balance. Monthly report is not audited. - Budget Estimates document provides prior year estimates/projected actuals and a 10-year historical series; some appendices include supplementary estimates and public debt data as of December 31. - Budget documents cover central government fiscal activities except extrabudgetary accounts and advances to public corporations; institutional coverage not consistent with GFSM2001 consolidation of general government. ### Contingent liabilities, tax expenditures and QFAs disclosure - Accountant General’s report contains statement on contingent liabilities including government guaranteed loans with lender, borrower and amount outstanding. - Estimates do not contain a contingent liabilities statement; loans by public sector entities not guaranteed by government are not disclosed. - Tax expenditures not presented in budget documentation; authorities estimated tax expenditures could roughly amount to about 6 percent of GDP or 19 percent of tax revenues for 2005/06. - No statements describing or costing QFAs in budget documentation or annual statements of public enterprises; no organization responsible for reporting QFAs. - Recommendation: identify and cost QFAs; transparently budget transfers to cover losses when services priced below full cost recovery; consider elimination or targeting of QFAs through pricing adjustments, targeted subsidies, or efficiency measures. ### Audit, oversight, and statistical capacity - Internal audit: - Internal Audit Unit (IAU) of Treasury Department has four staff: a manager and three auditors. - Only four central agencies have small internal audit functions (each one auditor). - IAU conducted on average five operational audits of central agencies annually over last three years; focus on regulatory compliance rather than systemic risk. - IAU reports furnished to MOF, agency management and Auditor General; reports are not public. - MOF lacks formal follow-up mechanisms for internal audit recommendations. - External audit: - Auditor General independent; mandate covers all government activities per Constitution and FMAA. - BAO staff: 72 staff with only three qualified accountants; capacity needs strengthening. - BAO generally follows INTOSAI auditing standards; predominant focus on financial and compliance auditing though some performance audits conducted. - Auditor General’s annual report for year 2005 does not present audit strategy/program. - Parliamentary oversight: - Public Accounts Committee (PAC) responsible for reviewing external audit reports; PAC was inactive in prior year but presently conducting investigations. - PAC lacks a secretariat, impeding effectiveness. - MOF requires ministries respond to Audit Report issues but no formal MOF mechanism to monitor/ report implementation of Auditor General recommendations. - Recommendation: create MOF follow-up unit; support PAC with qualified secretariat; have MOF and BAO observers at PAC hearings. - Statistical agency: - Barbados Statistics Service (BSS) not legislatively assured independence but technically independent in practice; mandated by Statistics Act of 1958. - BSS staff: 4 senior statisticians, 1 IT officer, 8 statisticians; total staff 67. - BSS launched new website in October 2006 and promotes quality checks; observes UN Fundamental Principles of Official Statistics. ### Findings on fiscal data reliability and variance disclosure - Budget data variances disclosed publicly; budget data not fully reliable. - Tax outturn variances: - 2004-5: main taxes 2 to 6 percent under original budget estimates. - 2005-6: main taxes 6 to 23 percent higher than original budget estimates. - Expenditure variances: - Recurrent primary expenditure generally 10 to 15 percent higher than original budget estimates for 2004-5 and 2005-6. - Capital expenditure generally fell below budget estimates. - Interest expenditure well below budget estimates in 2004-5 but higher than original estimates in 2005-6. - Total actual expenditure increased by 1.8 percent over original approved expenditure. - Some items, especially transfers to public enterprises, routinely under-budgeted. - No systematic document analyzing differences between planned and actual outturn beyond supplementary debate. ### Key high-priority recommendations (concise) - Conduct inventory of statutory boards to delineate government vs nongovernment public sector and extend Smartstream coverage to enable consolidated general government reporting. - Identify and cost quasi-fiscal activities and tax expenditures; include analysis with budget documents. - Strengthen audit functions: - Increase internal audit resources/training or establish agency-level internal audit with audit committees. - Strengthen Auditor General’s office staffing qualifications and enforce audited submissions from agencies (noting NIB lack of audited report since 2002). - Create MOF follow-up unit to monitor implementation of Auditor General and IAU recommendations. - Improve Public Accounts Committee effectiveness: revise procedures, provide qualified secretariat, require MOF/BAO observers. - Develop and publish a debt management strategy. - Improve PPP legal framework, disclosure, risk assessment and include future PPP payments in medium-term planning. - Reduce reliance on supplemental budgets; enhance reporting on supplementaries and consider limited virement powers. - Continue development of medium-term expenditure framework (MTEF) including public enterprise and extrabudgetary fund activities. - Improve dissemination and user-friendliness of fiscal data via websites and publications. ### Budget timetable and parliamentary debate - Government fiscal year: April 1 - March 31. - Budget calendar highlights: - June - July: Budget Department circulates request for fiscal information. - July - August: Framework estimates submitted. - August - September: Fiscal targets and budget circular issued. - October: Expenditure ceilings issued. - July-October: Ministries prepare emoluments schedules and draft estimates. - November - December: Reviews of personal emoluments and draft estimates. - December: Preliminary estimate meetings. - January: Major estimates meetings; Estimates Committee and Planning and Priorities Committee approvals. - February: Finalizes estimates and printing. - March: Cabinet approval and tabling of Annual Estimates and Appropriations Bill. - April - March: Minister may table supplementary budgets during year. - Before end of March: Supplementary Appropriation Bill introduced. - As soon as possible after year end: Final Appropriation Bill introduced. - Finding: timetable is tight; recommendation to lengthen the period between budget circular and submission of budget requests to allow MTEF estimation and to lengthen parliamentary review time (House: currently five days for Estimates; Senate: three days). - Recommendation: consider parliamentary sub-committees for agency-level review; increase public airing of policies and performance. *Source: IMF staff assessment as presented in the chapter "1. A Summary Assessment of Practices" and related sections of content unit _cr07338.* ### 1. A Summary Assessment of Practices ............................................................................34 ### 1. A Summary Assessment of Practices ### Clarity of Roles and Responsibilities — Definition of government activities - 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; numerous statutory boards perform functions commonly assigned to local governments. - There are 16 extrabudgetary funds established by law and financed through earmarked revenues; these are extrabudgetary accounts managed by government ministries or by a public financial institution (see Box 2 for details). - The National Insurance Board (NIB) is a government department: - Operational costs of NIB are included in the budget; revenue from contributions and income earned on investment is off-budget. - NIB is required to report separately on its finances to Parliament on a monthly and annual basis. - NIB carries out three main tasks: collects contributions from employers, pays benefits to recipients, and invests its surplus. - Statutory boards: - Around 75 statutory boards and other agencies meet the criteria of nonmarket nonprofit institution as defined in the Government Finance Statistics Manual (2001) and therefore fall within general government. - These include 23 school boards, health councils, and various commissions and control boards. - Statutory boards must have budgets approved by the ministry they report to and receive a transfer from the budget to finance activities. - User fees or own revenues are used to offset operating costs and remain outside the Consolidated Fund (CF). - Statutory boards are not subject to the Financial Management and Audit Act (FMAA) but are generally expected to follow similar requirements. - Many are created by establishing acts that explain purpose and reporting requirements; those fully funded by the budget have staffing approved by the Public Service Commission. ### Institutional coverage and budget treatment - No distinction is routinely made between commercial statutory boards (public enterprises) and noncommercial statutory boards, complicating identification of each type. - The Assignment of Responsibilities for the Business of Government does not distinguish between units within ministries and extrabudgetary funds, statutory boards, agencies, and public enterprises reporting to those ministries. - At present, there are four public financial institutions and 24 nonfinancial public enterprises. - Transfers to public enterprises are included in the budget; loans (including on-lending) or advances by the government to public enterprises are not included in the budget but can be found in fiscal reports. ### Government relations with nonfinancial public corporations and quasi-fiscal activities (QFAs) - Relations are governed by laws that sanction quasi-fiscal activities. Establishing acts often reference amounts approved by Parliament as a source of funds and describe ministerial rights to direct, control, and limit activities. - In general, there is no supposition that public enterprises will be self-financing; as a result, public corporations carry out QFAs—activities supporting government policy aims that would not be undertaken if operated solely on commercial incentives. - Quasi-fiscal activities are extensive due to regulated prices set below cost for public transport, natural gas, water, housing, and other services, creating predictable ongoing support needs from the budget. - Most of these public enterprises have prices intended to be regulated by the Fair Trading Commission, which may make rate increases costly for enterprises to obtain. - Many public enterprises must serve unprofitable rural areas involving costly infrastructure for relatively few customers. ### Specific public enterprise examples and fiscal implications - Transport Board: - Financial relationship with central government is not transparent. - Private sector transportation services are profitable while the Transport Board is not, owing in part to route designations and below cost-recovery fares charged to all users. - The Transport Board receives a regular budget transfer to cover losses, but only a small portion of the documented annual need is included in the budget. - In 2005-6 the budgeted transfer amount was only BD$7 million, but the supplemental transfer amount is expected to be BD$30 million. - The board operates with perpetual cash shortages, leading to arrears with suppliers. - The Transport Board has government guaranteed loans that are fully paid by the government, though the loans remain on the books of the Transport Board; such guarantees would appear in the list of guarantees included in the budget documentation. - National Petroleum Company: - Below-cost pricing has led to consistent losses in recent years; the company does not receive budget transfers. - Faces variable prices for natural gas from the National Oil Company while consumer prices (for commercial users) have not been increased since 1994. - Declining national resources reduce the amount of natural gas that can be sold; losses are largely financed through arrears on payments to the National Oil Company. - The company plans to request a rate increase from the Fair Trading Commission, but political feasibility is unclear. - Profit treatment: - No profits or dividends are paid to the budget from public corporations; profits are reinvested into the company or transferred to an extrabudgetary fund. - The central bank is an exception as discussed elsewhere in the source. - No establishing acts provide for profit transfers to the budget. - Some enterprises (e.g., National Oil Company, Ltd.) reinvest profits; others (e.g., Agricultural Development and Marketing Company) transfer profits to extrabudgetary funds. ### Government equity holdings and privatization - Government equity holdings, including fully-owned corporations, are extensive, but publicly available information on equity holdings is limited and state asset management is not clearly defined. - 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; the Unit maintains data on government equity but there is no consolidated report of equity holdings by company. - Privatization: - Generally carried out in a transparent manner though no specific legislation governs privatization processes. - Receipts from privatization are reported to Parliament and are paid into an extrabudgetary fund called the Public Enterprise Investment Fund (PEIF); PEIF is managed by the Accountant General in the MOF and funds are used for off-budget development projects. - Projected privatizations for the fiscal year are normally included in the budget speech. - Companies are typically corporatized and then shares are offered for sale. - The Barbados National Bank and the Insurance Corporation of Barbados, Ltd. were privatized in 2006; in those cases the government first offered less than 50 percent of equity and later sought strategic partners via request for proposals to financial institutions in the Caribbean region. ### Extrabudgetary funds (summary of Box 2) - Public Enterprise Investment Fund (Cap. 5A): - Resources: receipts from sale of government enterprises or shares; amounts allocated by Parliament; repayment by enterprises; gifts. - Uses: defray costs associated with sale of an enterprise; finance specific investment; finance repayment of debt; own administrative costs. - Accountant General makes quarterly reports on economic activity to the Minister of Finance which are laid before Parliament. - Social Investment Fund (Cap. 50): - Resources: amounts received from PEIF; amounts allocated by Parliament; other sources as determined by the Minister of Finance. - Uses: finance projects/programs to reduce poverty through enterprise creation and administrative costs. - Quarterly reports by the Accountant General; accounts audited once per year by the Auditor General. - Agricultural Development Fund (Cap. 252B): - Managed by Enterprise Growth Fund, Ltd.; financed by transfers from Enterprise Growth Fund, amounts from Parliament, revenue from tariffs on food imports (transferred from the Consolidated Fund), other sources as determined by the Minister of Agriculture, and gifts. - Uses: finance agricultural development projects/programs and administrative costs. - Quarterly reports prepared by the accountant of Enterprise Growth Fund, Ltd. for the Minister of Agriculture; accounts audited once per year by the Auditor General. - Export Promotion Marketing Fund (New): - Managed by Enterprise Growth Fund, Ltd.; financed by a 2 percent environmental levy on vehicles and allocations from Parliament. - Uses: finance projects/programs to increase exports. - Sugar Research and Development Fund and Sugar Industry Scholarship Fund (Cap. 270—Sugar Industry Law): - Financed from a levy on sugar producers; used to finance research and development and provide assistance to sugar producers. - Annual statement by Accountant General must be audited by the Auditor General and laid in Parliament. - Training Fund and Training Loan Fund: - Established by the Training Act (Cap 35); financed by Parliament. - Provide loans and scholarships for public servants and others; annual report on each fund made to Parliament. - Arts and Sport Promotion Fund (New): financed 60 percent from lotteries to promote sports and the arts. - Enterprise Growth Fund: - Managed by Enterprise Growth Fund, Ltd.; receives advances from government and earns revenue on interest charged for on-lending. - Provides resources for the separate funds indicated. - Tertiary Education Loan Fund: - Established by the Education Act (Cap. 41); managed by the Ministry of Education. - Financed by Parliament, proceeds of any loan raised by government for the Fund, and repayment of loans and interest. - Audited annual accounts required to be laid in Parliament. - Tourism Investment Fund: - A retained earnings fund financed from profits of the Barbados Tourist Investment Corporation (Cap. 332A), and used for purposes decided by the Board. - Small Hotel Investment Fund (SHIF): - Managed by Enterprise Growth Fund Limited; financed through PEIF. - Provides financing to small hotels that are members of the Intimate Hotels of Barbados for refurbishing properties, group marketing, training, and procurement. - Tourism Loan Fund: - Managed by Enterprise Growth Fund Limited; financed by amounts received from the Central Bank of Barbados. - Provides loans for refurbishing and upgrading hotels and attractions and/or construction of facilities for business in historical, cultural, and natural heritage attractions. - Industrial, Investment and Employment Fund (IIEF): - Managed by Enterprise Growth Fund Limited; financed through PEIF. - Provides loan and equity financing to help local manufacturers create growth-oriented companies. - The Innovation Fund: - Managed by Enterprise Growth Fund Limited; financed through PEIF. - Provides seed capital and technical expertise to entrepreneurs to commercialize innovative ideas. *Source: IMF staff assessment as presented in the chapter "1. A Summary Assessment of Practices."* ### 12. Laws and processes governing regulation of the nonfinancial private ### 12. Laws and processes governing regulation of the nonfinancial private ### Regulation of the nonfinancial private sector and company law - A survey of Caribbean companies found 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; - sets the accounting standards and required financial statements which must be audited by an independent auditor; - requires disclosure of these statements to the public unless an exemption is granted. - Information on relevant laws is available on the Corporate Affairs and Intellectual Property Office website; additional information on small and medium-size businesses is available at the Ministry of Commerce, Consumer Affairs, and Business Development website. - There is considerable public consultation in preparing new regulations (per discussions with ministry officials). ### Government relations with the central bank and public financial sector - The Central Bank of Barbados (CBB) is not independent. - The Governor 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, and five other Directors who are appointed by the Minister of Finance for three years and are eligible for reappointment. - A number of CBB activities require approval of the Minister of Finance, who can override CBB policy through written order; this order must be published in the Official Gazette. Since establishment of the CBB, no Minister of Finance has invoked this statutory authority. - There is no subsidized or directed lending by the CBB. - CBB as banker and fiscal agent of government: - receives no fees for its services and pays no interest on government deposits; - 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 (generally only short-term securities); - 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. - Transfer of CBB profits to the budget: - CBB law clearly defines calculation of net profits and specifies the percent of profits transferable to the General Reserve and usable to redeem government securities held by the CBB; - the percent of net profit to be transferred to the Consolidated Fund is not fully clear because “suitable amounts” out of remaining net profits can be transferred to special funds, with amounts agreed with the Minister of Finance; - distribution of profits has been left flexible and not fully specified by law. - Public financial corporations and quasi-fiscal activities: - most important public financial institutions were recently privatized; - four smaller public financial institutions remain 100 percent government-owned and submit quarterly management accounts to the MOF; three were set up for directed lending to certain projects or sectors; - these institutions receive loans from the government and on-lend, earning income on the interest received; - Enterprise Growth Fund Ltd. manages a number of extrabudgetary funds. ### Fiscal management relations among branches of government - Constitutional and statutory roles: - powers and composition of executive, legislative and judicial branches are clearly defined in the Constitution; - the Financial Management and Audit Act (FMAA) and its regulations set out fiscal roles of Parliament and the executive; - 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, with no automatic spending authority if 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. ### Legal and administrative framework for budget management - Key principles and provisions (Barbados Constitution, FMAA and associated rules): - (1) taxes can only be imposed by law; - (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 issuance and reporting of government guarantees. - Provisions for government borrowing are set out in the Treasury Bills and Tax Certificates Act. - The FMAA and associated rules provide for offices of the Accountant General and Auditor General, creation of the Consolidated Fund, and assign responsibility for budget preparation and execution to the Minister of Finance. - The law does not address management of composition of public debt, fiscal risk and sustainability, or financing arrangements such as public/private partnerships (PPPs). ### Public/private partnerships (PPPs) and extrabudgetary activities - PPPs: - A number of PPP infrastructure projects have been initiated in recent years without a surrounding framework law; - the process for agreement on such contracts is unclear; - while the nature of the contract is made public, the exact nature of the financial agreement and precise allocation of risk are unclear; - PPP arrangements are off-budget and in some cases indistinguishable from bond-financed government investment except that under PPPs, no debt is acknowledged in government accounts. - Extrabudgetary funds: - mechanisms for coordination and management of budgetary and extrabudgetary activities are not well defined; - there are sixteen extrabudgetary “funds” (off-budget accounts managed by various ministries); - total amount of expenditure by these extrabudgetary funds was not made available to the mission; - balances of these funds are included in the annual estimates, and most are audited by the Auditor General; - extrabudgetary funds are established under individual acts of Parliament specifying sources and uses in general terms; - the largest and most active fund 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 relationship between the government and the Enterprise Growth Fund, Ltd., which manages a number of extrabudgetary funds, complicates understanding of 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. - Loans to public or nonpublic enterprises: - loans may be made under terms agreed by the Cabinet but are not included in the budget nor individually approved by Parliament; - such loans have generally financed capital projects undertaken by public enterprises; only ex post information is given in the Accountant General’s report. ### National Insurance Board (NIB) reporting and holdings - The NIB has not met legal requirements to provide annual reports and audited financial statements to the Minister of Finance and Parliament. - The NIB comprises several funds: 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). - Audited statements for the NIB have not been made available; the last annual report published in 2004 covers 2002. - There are currently no penalties for failure to comply with legal reporting requirements. - Owing to a substantial domestic asset requirement, the NIB holds substantial quantities of government debt purchased at open auctions and nominally holds a 10 percent share in the Barbados National Bank. ### Legal and administrative framework for tax policy and administration - Taxes and legislative authority: - 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; - laws and implementing regulations leave little room for discretion by tax officials; discretion to modify or interpret generally rests with the Minister of Finance or the tax Commissioner; - while significant tax changes are addressed in the Financial and Economic Policy Statement, some tax laws permit the Minister of Finance to change rates or schedules of eligibility; in practice Parliamentary approval is required within a four month period when this right is exercised. - Tax incentive schemes: - 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; - (vi) special regimes for tourism, shipping, and other sectors. - 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. - Tax administration and taxpayer identification: - tax administration is fragmented among the Inland Revenue Department, Customs and Excise Department, and the Land Tax Department; - there is no taxpayer identification number used uniformly across all revenue agencies, although the Inland Revenue Department utilizes the National Registration Number as a Document Locator Number and this number is also utilized in customs and VAT administration; - a project is under consideration to merge the tax administrations to improve information sharing and effectiveness; a joint audit process is also being considered. - Taxpayer rights and appeals: - taxpayers’ legal rights are well defined and substantial taxpayer information is provided on departmental websites; - individual tax acts contain statements of taxpayer rights, including the right to object or appeal; - in some cases the period for initiating 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 recent years indicate few appeals and the majority were dismissed. ### Public servants’ code of behavior and anti-corruption activity - Public servants are subject to a code of conduct that includes key provisions of the United Nation’s International Code of Conduct for Public Officials. - 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 acquired through official capacity; - they are required to disclose any investment or shareholdings and must divest if these create a conflict of interest; - public servants are required to be prudent in the conduct of their private or financial affairs; - officials involved in tax collection do not have a separate code of conduct but are required to take an oath of fidelity and secrecy; - disciplinary measures may be taken for infractions; some fraudulent practices have been discovered and prosecuted. - Authorities maintain that corruption is not a serious problem in Barbados. ### Open budget preparation, execution, and reporting - The annual budget process is clear and reasonably open: - the budget preparation process is well established and understood by ministries, departments and units (budget agencies); - the annual budget circular is normally promulgated in early September, allowing budget agencies some six to eight weeks to prepare draft estimates; - expenditure ceilings are decomposed into 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 structure and content of draft estimates and presentational formats; - compliance with budget preparation requirements and timetable has been high in recent years; - the statutory requirement that the Estimates and Appropriations Bill be tabled before the commencement of the year has been met; - the period for legislative review is very short: the Assembly has only five days to consider the Estimates and the Senate is given only three days. - Box 3: The Budget Preparation Process (timing and activities; legal basis) - The Government fiscal year is April 1- March 31. - Main steps and months: - 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). *Source: _cr07338 - 12. Laws and processes governing regulation of the nonfinancial private (IMF chapter content).* ### 30. The budget classification is broadly consistent with GFS86; and ### _cr07338 - 30. The budget classification is broadly consistent with GFS86; and ### Budget classification and content of Estimates - Expenditure and revenue estimates are shown on a gross basis. - Revenue estimates are classified by type of tax or other revenue collected. - 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 is based on cash accounting principles and is broadly consistent with GFS86. - The functional classification structure is not consistent with the COFOG standard headings, and no information is provided at the sub-function level. ### Macroeconomic framework and fiscal indicators in the budget - The overall balance of central government excluding extrabudgetary activities is the main indicator of the fiscal position and 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; there is no reporting on the consolidated public sector. - Budget forecasts and some underlying macroeconomic assumptions are clearly presented. - The MOF does not have its own macroeconomic unit and depends on the CBB for macroeconomic estimates. - Macroeconomic assumptions are used internally to develop budget estimates; 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. ### Medium-term planning and fiscal risks - No statement on medium-term fiscal policy objectives is included in the budget document; fiscal sustainability issues are not presented. - No explicit medium term framework of fiscal policies exists nor an assessment of implications of current and new programs for fiscal sustainability. - Authorities are taking steps to develop a medium-term framework; it 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 sets out new policies for the next fiscal year but does not cover medium-term objectives. - The government has a Strategic Plan 2005-25 used to guide the public investment program. - There are no explicit fiscal rules; 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 no rules or guidelines for achieving the envisaged debt reduction. - Estimates of new initiatives and ongoing costs are not clearly distinguished in the budget documents; new program proposals are costed separately by ministries and combined into one internal document that is not publicly available. - The sensitivity of budget estimates to changes in economic variables is not assessed and fiscal risks are not discussed with the budget; no analysis of revenue under varying circumstances or uncertain expenditures is included in the budget documents. - The Accountant General’s report does contain a statement on contingent liabilities. ### Public investment projects and public-private partnerships (Box 4) - The Public Investment Unit (Ministry of Economic Affairs and Development) manages the medium term public investment program, including projects valued over a quarter million US dollars. - The unit makes recommendations to the Planning and Priorities Committee (PPC) of Cabinet; the PPC makes final portfolio decisions. - Three main classifications of capital projects: 1) Most projects are “on-budget” and fall under sector ministries in the annual Estimates document; foreign-financed projects are on budget and reimbursed by international agencies. 2) On-lending to public enterprises (example: on-lending to Cricket World Cup Barbados Ltd.). 3) Public-private partnerships (PPPs); government recently interested in PPPs to be more cost-effective and timely and to avoid explicit increases in government debt; under accrual accounting PPP assets and liabilities will be disclosed on the government’s balance sheet. - PPP status and examples: - Five PPP contracts have been signed for: a desalinization plant, a prison, a judicial center, a highway, and a Coast Guard station. - Except for the desalinization plant, contracts cover construction and maintenance only, not operation. - The desalinization plant has a demand guarantee that the government will purchase a minimum quantity of water. - Three PPPs are in the pipeline: a hospital expansion, a civic center, and a solid waste management center. - PPP procedures and disclosure: - A technical committee evaluates tenders, negotiates and selects firms. - At the tender stage the public is made aware of intent to contract out. - Values of winning contracts are published in the press, but contract details are not publicly available. - Not all PPPs had tenders—an emergency project did not. - PPP projects must have Cabinet approval. - More analysis is needed of risks associated with PPP contracts and whether risks are sufficiently transferred from the government to the private sector. - Leases paid under a PPP are found in the central government budget under the Ministry of Finance’s debt payments; the desalinization plant is under the Water Authority. ### Clarity of control of budget execution and accounting systems - Basic accounting and internal control procedures are generally in place. - All budget agency transactions pass through the treasury single account and are managed via Smartstream. - Smartstream facilitates automated funds control by recording encumbrances, commitments and payments against agency appropriations and checking funds availability. - Procedures for purchasing, supplier payments, employee emoluments, invoicing debtors, collecting and banking revenues, custody of cash and financial instruments, disposal and write-off of assets, and reconciliation appear standardized across central government. - One deficiency: registration and stocktaking of physical assets—acquisition and movements in fixed assets have not been recorded in Smartstream by budget agencies; stocktaking, recording and valuing of physical assets has begun as part of the move to accrual accounting. - Supplemental appropriations: - Used to switch spending from one line item to another; virement between specific line items is not allowed. - For fiscal year 2005-6 there were 16 supplementaries. - 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 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. - Financial management coordination and debt strategy: - Financial management practices are not well coordinated. - There is no formal debt management strategy at present. - The treasury prepares regular cash flow forecasts based on historical patterns and Smartstream data; cash flow statements are now required quarterly. - Recent improvements allow closer alignment between projected cash shortfalls and debt issuance; authorities are working on a formal debt management strategy. - Internal audit: - Internal audit is not undertaken comprehensively due to lack of resources. - The Internal Audit Unit (IAU) of the Treasury Department has four staff—a manager and three auditors. - Only four central agencies have small internal audit functions (each with a single auditor). - 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 regulatory compliance rather than assessment of systemic risk. - Treasury activities are audited daily; other agencies are selected via an annual audit plan or at request. - IAU reports are furnished to MOF, agency management and Auditor General, but reports are not public. - MOF lacks well established mechanisms for formal follow-up of internal audit recommendations. - The Treasury has requested CARTAC assistance with developing a strategic audit plan, an audit manual, and hands-on training of IAU staff. - The Accountant General seeks increased coordination between the IAU and the four agency internal audit units. - Procurement and civil service: - Procurement rules are in FMAA regulations. The Central Purchasing Department (CPD) handles procurement over BD$20,000. - For purchases between BD$ 20,000 and BD$100,000 there must be at least three quotes; for purchases over BD$100,000 a tender is issued. - The Minister of Finance determines the eight person tender committee composition; tenders are advertised in newspapers and brought in hard copy to the CPD tender box (normally closes at 4:30 on Wednesdays). - Once a tender decision is made only the winner is informed; no public posting. - Since 1972 there has only been one court case concerning procurement procedure and decision. - The CPD is audited annually by the Auditor General. - Civil service employment procedures are defined in the Civil Service Quality Standards; three service commissions make final determinations from a short list of three provided by the agency head. - There are no competitive examinations; senior positions are usually filled from within the organization or public service. - Promotions are primarily by seniority for lower level jobs; higher level positions place greater weight on merit given minimum experience. - The public service wage scale has been compressed; the ratio of highest to lowest salaries was 15 to 1 in 1960 and currently is 6.3 to 1. - A new Public Service Act is being prepared for Parliament in 2007; a Performance Management and Development System is being piloted in four ministries. ### Clarity of internal control and independence of tax administration - 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 is organized by functions rather than by tax to ensure proper controls. - An internal audit unit has been established in the Accountant General’s office and carries out audits in Ministries/Departments and Statutory Boards as requested by the MOF. - Tax agencies are subordinate to the Ministry of Finance and are not legally protected from political interference; authorities, 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; transition to accrual (Box 5) - The accounting system can produce accurate in-year reports on central government budget outturn but does not provide a reliable basis for assessing payment arrears. - Budget and accounts classifications are mutually consistent for central (core) budget agencies, facilitating alignment of ex ante and ex post data for this sector. - Statutory boards operating within the government sector have discretion to use the central chart of accounts; entities outside central government do not use Smartstream, complicating consolidation of general government. - Smartstream has capacity to provide accurate, automated analysis of supplier payment arrears, but current payment procedures prevent production of accurate, automated arrears data. - Invoices are processed immediately before payments are made, meaning the real arrears lag is not recorded; given present limitations the system cannot accurately assess payment arrears. - Arrears do not appear to be a serious problem; reporting should be rectified given changes in payment procedures since April 1, 2007 to reflect accrual accounting principles. - Fiscal reporting is monthly and covers the central government; neither the monthly nor the annual report contains a statement setting out institutional coverage. - The monthly consolidated central government report includes: - 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; - loans outstanding and balances of sinking funds formed to redeem loans; - total receipts and payments of the Consolidated Fund and totals for 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 disclose annual budget, monthly movement and year-to-date balance for each item. - The monthly report is not audited. - Transition from cash to accrual budgeting and accounting (Box 5): - The Government of Barbados has begun moving budgeting, accounting and reporting from cash accounting to full accrual basis. - Under the new system the budget and accounting classification systems are symmetrical; accounting and reporting follow international accounting standards. - Prime ex ante and ex post documents: operating statement, balance sheet and cash flow statement. - Appropriations will be on an accrual basis, though structure is still being considered. - Project encompasses financial legislation reform and cash management reform. - Project commenced in 2003-04 and began implementation in fiscal year 2007-08. - The project Steering Committee is chaired by the Accountant General and includes senior officials; six working groups cover accrual budget, tax revenues, asset valuation, legislation and standards, chart of accounts, and training. - Much foundation work completed or nearing completion: cultural change and communications strategy delivered; much of policy and procedures framework completed; new legislation (the FMAA) approved; accrual training delivered; fixed asset inventories and valuation commenced; chart of accounts complete. - Smartstream will be retained as it already has required accrual functionality; all budget agencies have used Smartstream since 1998. - Implementation will initially focus on central government; the second phase will bring statutory bodies within the general government into Smartstream to enable consolidated general government reporting. *Source: _cr07338 - 30. The budget classification is broadly consistent with GFS86; and* ### 48. The legislature receives timely in-year reports on budget outturn, but 3.4.1 ### _cr07338 - 48. The legislature receives timely in-year reports on budget outturn, but 3.4.1 ### In-year reporting and mid-year review - The FMAA sets out the structure of the financial statements that the Accountant General must prepare on a monthly basis 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. ### Audited final accounts and timeliness - The audited final accounts are available within nine months of the end of the fiscal year. - The Accountant General’s annual financial report, audited by the Auditor General, provides a comprehensive set of financial statements covering the Consolidated Fund and the other funds. - Detailed statements include original budget, supplementary budget, actual expenditure and annual savings/excess by sub-program; a statement of financial assets and liabilities; detailed information on public debt on issue, contingent liabilities, advances and loans, deposits, and Trust Fund and Special Fund balances and investments. ### Results-oriented budgeting and reporting - 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. - 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. ### Coverage and quality of budget documents - Budget documents cover central government fiscal activities with the exception of extrabudgetary accounts and advances to public corporations. - Institutional coverage is not consistent with the GFSM2001 standard for consolidation of all entities operating within the general government sector for two reasons: - (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. ### Content and historical series in the Estimates document - The Estimates document includes a memorandum with the previous year’s estimates and projected actuals, a summary of estimates using various classifications, information on financing, assets and liabilities, and a 10-year historical series of revenue and expenditure. - Appendices include a list of supplementary estimates for the current fiscal year, public debt data as of December 31, and balances of the sinking funds and the extrabudgetary funds. - Budget documents also 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. ### Past and forecast fiscal data - 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. - Budget estimates are given alongside the original and revised budget for the current year and the actual outturn of the previous year. ### Contingent liabilities and PPPs - 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 Accountant General’s report provides a full statement of government guaranteed loans, including lender, borrowing entity and amount outstanding, and 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. - Owing to the absence of a legal framework for PPP arrangements, details and any explicit or contingent liabilities—particularly for outer years—are not made explicit in policy statements or budget documents. ### Tax expenditures - Budget documentation does not contain estimates of tax expenditures. - There is no systematic analysis of tax expenditures published annually, though new tax policy costs and benefits are discussed in the budget speech when introduced. - 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 arise from contributions to extrabudgetary funds deductible in the amount of 100-130 percent of the actual contribution. ### Quasi-fiscal activities (QFAs) - Quasi-fiscal activities are extensive, and there are no statements describing or costing QFAs in the budget documentation or in the annual statements of the public enterprises. - No organization is responsible for reporting on QFAs; only some enterprises receive budget transfers to cover ensuing losses. - Transfers (except low bus fares for students and the elderly) are not based on the cost of the QFAs. - In some cases regulated prices are far below operating costs, implying eventual budgetary bearing of public enterprise losses. ### Publication of debt and financial assets - Information on gross public debt for the central government is published monthly and annually, though this may provide only a partial picture of public sector indebtedness. - The Accountant General’s monthly financial report provides details of debt raised during the month and year to date, by debt class and lender/project, and detailed composition of debt service for the month and year to date, by debt class; a statement of outstanding loans’ sinking funds is also provided. - The annual Report of the Accountant General provides similar debt information and a detailed analysis of debt on issue and outstanding loans, including interest rate and principal outstanding. - None of the reports provides information on debt arrears and debt swaps, nor a statement of past and future debt service requirements and strategies to manage future service requirements. - Information on central government financial assets is published monthly and annually but is incomplete: statements include advances, loans to public sector entities and Special Fund investments but 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. ### Regularity and dissemination of fiscal data - 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 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; both deadlines have been observed in practice. - The Accountant General’s monthly report is published; a monthly bulletin produced by the National Statistical Service contains monthly 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 are also published on the CBB website. Other fiscal data websites are listed in the Report. Barbados participates in the IMF’s General Data Dissemination System. ### Assurances of integrity — reliability and variance disclosure - Budget data are not reliable and the variance between budgeted and actual outturn of the main fiscal aggregates is disclosed to the public. - 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 the 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 1.8 percent over original approved expenditure. - Visits indicate some items, especially transfers to public enterprises, are routinely under budgeted. - Supplementaries require justification but are generally only debated for three hours in Parliament, and there is no document analyzing differences between planned and actual outturn. ### Accounting policies, reconciliation and systems - Formal statements on accounting policy are not included in the budget or final accounts documents. - The Auditor General’s Report for the Year 2005 states that the accounts of government are maintained on a cash basis. - There is a central government accounting manual, not reviewed for many years, soon to be replaced by a comprehensive manual on accrual accounting policy and procedures for central government based on IPSASB international accounting standards. - The Smartstream system provides management reports and enquiry functions, automatically and continuously reconciles accounting reports with budget appropriations, validates accounting entries against budget classification, performs internal reconciliations to ensure subsidiary ledgers reconcile to the general ledger, and automatically reconciles bank account transactions with banking system records. - Normally, the Treasury Department performs reconciliation of the treasury single account 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. ### Independent oversight and external audit - 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 after consultation with the Prime Minister. - Section 26 of the FMAA establishes the Auditor General as the auditor of government financial statements; the Auditor General remains in office until age sixty-two and may be removed for inability or misbehavior; the Auditor General reports to Parliament. - The FMAA requires the BAO budget estimates be transmitted to the House of Assembly through the Public Accounts Committee (PAC) and the PAC shall consider the estimates in accordance with subsection 4; the BAO must submit its staffing profile to the Ministry of Civil Service for approval. - The FMAA provides the Auditor General a broad mandate to audit all public accounts including the Consolidated Fund, Special Funds, departmental accounts and statutory bodies receiving all or part of their funds from the Consolidated Fund, and to examine the economical, efficient and effective use of resources. ### External audit capacity and practice - External audit capacity requires strengthening: the BAO has 72 staff, but most positions are clerks and only three are qualified accountants. - The Auditor General is empowered to engage professionals to assist audits, but there is a need to redefine staffing qualifications and provide further training, especially for implementation of accrual-based budgeting and accounting and IPSASB application. - The BAO generally follows INTOSAI international auditing standards and uses some modern systems-based audit tools and practices; the predominant focus is on financial and compliance auditing although a number of performance audits have been conducted. - The annual report of the Auditor General for the year 2005 does not present any account of the audit strategy and program for the year, nor the principal methodologies, techniques and tools employed. ### Compliance, follow-up and legislative oversight - Compliance with external audit requirements is generally good, but in a few cases documentation is submitted with considerable lags; some delays in submitting requested materials amount to more than a year. - At the time the Auditor General’s report was submitted, the accounts of the National Insurance Board had not been submitted for five consecutive years; efforts since early 2006 are reportedly correcting this problem. - 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 Parliament. The PAC is responsible for reviewing external audit reports and conducting inquiries into findings and recommendations. - The PAC’s functioning has been strained by controversy over procedural rules; the PAC was inactive in the past year but is presently conducting investigations regarding matters raised in the Auditor General’s Report. - The PAC does not have a secretariat, impeding effective discharge of responsibilities. - The MOF requires ministries to respond to issues raised in the Audit Report, but there is no formal mechanism for MOF to monitor and report on implementation of Auditor General recommendations; follow-up has relied mainly on efforts of the BAO and the Treasury Department’s IAU. ### Statistical agency independence and capacity - The Barbados Statistics Service (BSS) is not given legislative assurance of independence but has technical independence in practice; it operates under the Ministry of Economic Affairs and Development and is mandated by the Statistics Act of 1958 to collect, compile, analyze, abstract and publish reliable and timely information. - The BSS performs quality checks and queries agencies if data varies by more than +/- 10 percent from previous years, assists ministries to compile data and harmonize concepts, and revises historical series based on new methodologies. - The BSS has only 4 senior statisticians, one IT officer, and 8 statisticians out of a staff of 67; most staff are clerks and the agency has requested a redefinition of positions from the Ministry of Civil Service. - The BSS observes the United Nation’s Fundamental Principles of Official Statistics and is responsible for fiscal data publications such as the Monthly Digest of Statistics and the Barbados Economic and Social Report; it launched a new website in October 2006 and intends to promote it in the media. *Source: IMF staff commentary (content unit: _cr07338 - 48).* ### 70. Barbados meets the requirements of the fiscal transparency code in a number ### _cr07338 - 70. Barbados meets the requirements of the fiscal transparency code in a number ### Areas where Barbados meets fiscal transparency requirements (paragraph 70) - Government involvement in the private sector is conducted in an open and public manner, and on the basis of clear rules and procedures. - Tax and nontax revenues have an explicit legal basis, and are accessible and understandable with limited administrative discretion, though complexity is introduced by numerous incentive schemes. - There is a code of ethics for public servants that meet the key criteria of the UN International Code of Conduct for Public Officials and corruption appears to be limited. - It is a legal requirement to publish the budget Estimates, the annual Report of the Accountant General and the annual Report of the Auditor General. - Data on budget outturn is available from a number of sources including websites. - A statement on contingent liabilities is included in the Report of the Accountant General, though its scope and analysis could be expanded. - Full information on debt and financial assets is published in the budget documents. - Budget data and outturn are reported on a gross basis according to administrative, economic, functional, and program classifications, though the later two can be improved. - The budget and revised budget for the current year and outturn for the previous year are provided in the budget alongside budget estimates, according to the same classification. - An FMIS is in place which effectively controls revenue collection and expenditures, and a new system of accrual accounting began operation in April 2007. - Fiscal reporting includes all central government expenditure excluding extrabudgetary funds, and the fiscal position of the central government is included in the budget documentation. - Procurement and employment regulations are standardized and accessible. - The legislature receives monthly reports on budget execution and the audited financial accounts are presented to the legislature within a year of the end of the fiscal year. - Fiscal data is regularly reconciled with both budget and banking data. - A national statistics agency is provided with technical independence and verifies the quality of fiscal data. ### High-priority improvements (paragraph 71) - Full reporting on the consolidated general government, which also requires better definition of government institutions, as well as monitoring of the public sector. - Providing an analysis and costs of quasi-fiscal activities and tax expenditures in the budget documentation. - Strengthening audit functions and improving the effectiveness of the Public Accounts Committee. - Better analysis and disclosure of information related to public-private partnerships. - Additional recommendations: - Improvements to the legal framework and budget preparation process. - Move forward with plans to develop a debt management strategy. - Improve fiscal transparency through better use of websites, more user friendly publications, and stronger efforts to disseminate and publicize fiscal data. ### Improving coverage of government activities (paragraph 72) - Extend coverage to noncommercial statutory boards (nonmarket nonprofit institutions) financed primarily by budget transfers: - These entities are considered government entities under GFS Manual (2001) definitions. - A complete list of statutory boards and other agencies carrying out noncommercial activities financed primarily by budget transfers is not available; first step: carry out an inventory. - New accounting and reporting requirements needed to ensure their fiscal reports can be consolidated; ideally include them in the Smartstream system. - All fiscal activities should be open to public debate as part of the budget process: - Concern over proliferation of extrabudgetary accounts and their avoidance of usual checks and balances and Parliamentary approval. - Advances to public enterprises should be included in the budget process and approved by Parliament on an annual basis; if extrabudgetary, present a consolidated general government budget and report including these transactions. - Budget documentation should contain full information on proposed budgets and past budgets and outturns for nonmarket nonprofit institutions and extrabudgetary funds; the coverage of the general government budget should be clearly specified. - Given the high level of quasi-fiscal activities, strengthen oversight and monitoring of the public enterprise sector: - Attach budgets of public enterprises to the estimates document. - Include the public sector balance in the budget and fiscal reports. - Publish a report on government equity. ### Quasi-fiscal activities (QFAs) and recommended treatment (paragraphs 73–75) - Identification and costing: - The government may not be fully aware of the extent and cost of QFAs; first step: identify and cost QFAs. - Public enterprises charged with carrying out QFAs should have transparent treatment to assess policy costs and consistency with medium-term debt reduction. - Budget transfers and transparency: - Where a public enterprise provides services at prices/rates inconsistent with full cost recovery, transparency requires a transfer from the budget to cover losses, provided in the original budget with explanation. - Current practice of posting transfers to supplemental budgets, allowing losses to be covered by arrears or advances not recorded as loans, is not transparent and impedes meaningful analysis. - Consider elimination or targeting of QFAs (paragraph 74): - Evaluate whether there is a more appropriate way to achieve policy goals. - Options include automatic pricing adjustments relative to input prices, more targeted subsidies to assist low-income individuals, or efficiency measures if insufficient regulated prices stem from inefficiency. - Tax expenditures (paragraph 75): - Tax expenditures are extensive due to various incentive schemes. - Efforts are underway to estimate tax expenditures in all tax administrations; continue this effort. - Present a report on the major tax expenditures with the budget documents to enable policymakers to weigh costs against benefits of increased investment. - Note fragmentation: many extrabudgetary funds aim at similar goals (e.g., small business development), complicating full understanding of policies and costs. ### Strengthening audit and parliamentary oversight (paragraph 76) - Internal Audit: - MOF Internal Audit department is too small to carry out its mandate effectively. - Consider strengthening through increased resources, training and compliance with International Internal Audit standards. - Alternative: establish internal audit within each agency under agency audit committees that formulate annual audit programs based on risk assessments, oversee implementation, approve reports, and follow up on management implementation. - External Audit: - The General Auditor’s office requires staff with suitable degrees and training; redefine minimum qualifications of staff positions. - Enforce legal requirement that government agencies and statutory boards send final accounts and reports for audit. - Concern: the NIB pension fund has not had an audited report since 2002. - To improve effectiveness, require the Executive to respond to Auditor General’s findings; consider establishing a follow-up unit in the MOF to report on implementation progress of Auditor General’s recommendations. - Public Accounts Committee (PAC): - PAC is central to parliamentary accountability and fiscal transparency. - Given procedural difficulties, consider examining procedures and regulations in other countries. - PAC should be supported by a well qualified secretariat; a MOF observer and BAO observer should be present at all PAC hearings. - Establish an MOF unit to monitor and report quarterly on implementation status of BAO and IAU recommendations; where progress is unsatisfactory, the Minister of Finance should write to the responsible minister. ### Public-Private Partnerships (PPPs) transparency and risk management (paragraph 77) - Recognize PPPs can be more efficient but often entail greater risks, especially where guarantees are granted and contracts are frequently renegotiated. - General recommendation: if a PPP is to be excluded from public debt, the private partner should bear the majority of the risk. - Specific recommendations: - Consider developing a legal framework covering roles and responsibilities of PPPs, a clear definition of PPPs and their scope, and rules related to procurement, accounting, reporting, and audit of PPPs. - Disclose all forms of guarantees related to PPPs and assess their likely fiscal cost; publicly disclose PPP contracts including renegotiations; standardize and simplify contracts where possible. - Report and include future payments required under existing PPP contracts in medium-term planning. - Ensure the transfer to accrual accounting provides proper accounting of PPPs and related debt. ### Budget framework and supplemental budgets (paragraphs 78–80) - Reduce reliance on supplemental budgets: - No limitations or guidelines on use of supplemental budgets; Financial Management and Accounting Act (FMAA) and relatively high number of supplementaries suggest process could be improved. - FMAA permits the Minister of Finance to approve spending before Parliamentary authorization through a Final Appropriation Bill. - Absence of virement powers increases use of supplementary budgets for minor reallocations. - Reliance on supplementaries enables avoidance of including full transfer amounts to statutory boards and public enterprises in the budget. - Interim measure: enhance reporting on supplementaries to provide details on virement and overall budget increases approved. - Consider revisions to financial management legislation (paragraph 79): - Expand legislation to cover PPPs and include general requirements to promote transparency. - Consider permitting limited virement to reduce number of supplementaries. - Adjustments to the budget calendar could improve budget quality. - Medium-term expenditure framework (paragraph 80): - Continue efforts to develop a medium-term expenditure framework. - Absence of such a framework undermines government’s ability to present realistic assessment beyond the current budget year and undermines credibility of debt-to GDP ratio reduction commitments. - For effectiveness, include activities of public enterprises and extrabudgetary funds. ### Budget preparation and risk disclosure (paragraphs 81–83) - Macroeconomic assumptions (paragraph 81): - Macroeconomic assumptions should be open to scrutiny throughout the budget preparation process. - Options: MOF macroeconomic unit or use/invite private sector estimates. - Verification of policy costings (paragraph 82): - MOF could be required to verify costing of new policy proposals; currently budget agencies prepare their own costings and submit to Cabinet without independent MOF verification. - Important data from budget preparation, especially analysis of new proposals, could be included in the budget estimates document. - Statement of risks and contingent liabilities (paragraph 83): - Produce a statement of risks examining developments that might impede budget implementation and longer term fiscal goals. - Apply sensitivity analysis to key budget assumptions to show how alternative scenarios affect the budget. - Combine this with an expanded statement of contingent liabilities covering the public policy purpose of each government guarantee and other implicit/explicit contingent liabilities (e.g., bailout of an important public enterprise). *Source: _cr07338 - 70. Barbados meets the requirements of the fiscal transparency code in a number (excerpts).* ### 84. The budget timetable is tight and in particular, the discussion period for the ### _cr07338 - 84. The budget timetable is tight and in particular, the discussion period for the ### Budget timetable, MTEF, and parliamentary debate - Finding: The budget timetable is tight and the discussion period for the budget could usefully be lengthened. - Recommendation: Lengthen the period between the issuance of the budget circular and submission of budget requests to allow for the estimation of medium-term revenue and expenditure developments given the intention to implement an MTEF. - Recommendation: Increase the time allotted to the House of Assembly and Senate for consideration and debate on the Estimates to allow a more comprehensive public airing of the Government’s policies, past performance and medium term estimates. - Recommendation: Once annual Estimates have been tabled, Parliament could establish a number of sub-committees to examine individual Budget agencies’ estimates, and take evidence from agencies on program performance. - Finding: In countries where Senate Estimates committees conduct reviews of estimates, evidence taken from responsible ministers and senior ministry officials is normally on the public record. ### Parliamentary scrutiny, audit, and documentation - Finding: Adequate scrutiny by Parliament coupled with the activation of the PAC and improved budget documentation could provide the basis for a more meaningful public discussion of the choices that must be made in the interests of fiscal sustainability. - High priority recommendations from the assessment: - Strengthen internal audit functions. - Strengthen the external audit office and correct problems associated with the Public Accounts Committee. - Create a unit in the MOF to improve follow-up on audit recommendations. - Finding: The legislature receives timely in-year reports on budget outturn, but does not undertake a mid-year review. - Finding: The audited final accounts are available within nine months of the end of the fiscal year. ### Fiscal transparency, coverage, and reporting gaps - Finding: 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. - High priority recommendation: Take an inventory of all statutory boards to delineate those belonging in government versus nongovernment public sector. - Finding: Mechanisms for the coordination and management of budgetary and extrabudgetary activities are not well defined. - High priority recommendation: Report on all extrabudgetary operations and consider full incorporation into the budget. - Finding: The budget documents cover central government fiscal activities with the exception of extrabudgetary accounts and advances to public corporations. - Medium-term recommendation: Expand budget coverage to noncommercial statutory boards; expand coverage of Smartstream to statutory boards and report on general government. - Finding: 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. - Recommendation: Develop and publish a debt management strategy. ### Quasi-fiscal activities, tax expenditures, and contingent liabilities - Finding: Quasi-fiscal activities are extensive in the nonfinancial public sector due to regulated prices; 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. - High priority recommendations: - Clarify and cost QFAs. Consider alternative pricing to reduce or eliminate QFAs. - Report on public sector finances. Also report government equity holdings. - Finding: Budget documentation does not contain estimates of tax expenditures. - High priority recommendation: Report on the extent and nature of tax expenditures and quasi-fiscal activities. Expand the report on contingent liabilities to cover other types of contingent liabilities. - Finding: A statement on some contingent liabilities is included in the annual Report of the Accountant General. ### Fiscal rules, forecasts, and risk disclosure - Finding: A statement on medium-term fiscal policy objectives is not included in the budget document, and fiscal sustainability issues are not presented. - Finding: There are no explicit fiscal rules, but the MOF aims to remain within an overall balance of 2.5 percent of GDP (on GFS basis). - Finding: Budget forecasts and some underlying macroeconomic assumptions are clearly presented; assumptions for growth, inflation and exchange rate are provided in the Economic and Financial Policies of Government. - Recommendation: Produce a statement on fiscal risks to be included in the budget document; assess sensitivity of budget estimates to changes in economic variables. - Finding: Macroeconomic models and forecasts are not open to outside scrutiny; macroeconomic assumptions should be open to outside scrutiny. ### Accounting, systems, and procedural recommendations - Finding: 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. - Finding: Basic accounting and internal control procedures are generally in place; internal audit is not undertaken comprehensively because of a lack of resources. - Recommendation: Consider measures to improve budget realism and reduce the number of supplemental budgets. - Recommendation: Approve new public finance legislation that incorporates recent reforms and provides a legal basis for PPPs (medium term). ### Public availability matrix — key published items (as reported) - Central government (CG) budget estimates: Yes (Budget Estimates). - CG Defense Expenditures: Yes—as transfers, so details of items of expenditure are not available. - CG EBFs (including special development funds, social security funds, resource revenue funds): No (information on EBF account balances is public, but not information on inflows and outflows). - CG Budget outturns: Yes (Monthly and annual outturn is reported to Parliament; revised current year and actual outturn for 2 years prior to budget year). - CG Budget forecasts: No (5 ministries are piloting medium-term estimates). - CG Contingent liabilities: Yes for government guaranteed loans (Annual Report of the Accountant General). - CG Tax Expenditures: No. - CG QFAs: No. - Macroeconomic assumptions: Yes (Assumptions for growth, inflation and exchange rate are provided). - Analysis of fiscal risks/sensitivity analysis: No. - CG Debt information on gross debt: Yes (given by month, year to date, and by debt class and lender in monthly and annual statements). - CG Financial Assets: Yes (provided monthly and annually, but excludes equity investments in public enterprises). - Sustainability Analysis: No. - General government budget estimates: No. - CG Monthly/quarterly reports on fiscal outturn: Yes—Tabled in Parliament before the last day of the succeeding month. - Consolidated general government final accounts: No. *Source: _cr07338 - 84. The budget timetable is tight and in particular, the discussion period for the* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07338.pdf_