World Bank urges ‘fiscal policy legislation’ for small states

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Antigua & Barbuda is once again being called on to consider adopting fiscal responsibility legislation – this time by the World Bank (WB) – in order to bring long-term fiscal control over its expenditure.
The call is coming from a WB executive who was speaking at a Miami conference co-organized by the WB and by the Miami Herald Media Company under the title “The Caribbean Dilemma”.
Deputy Chief Economist at the WB, David Letterman, said there was “one relatively powerful macro-economic policy tool” which small island developing states (SIDS) had “to weather the storms that we see ahead” and this was “fiscal policy”.
Letterman is the author of the report “Open and Nimble: Finding Stable Growth in Small Economies” which looked at the growth prospects for many economies in the Organisation of Eastern Caribbean States (OECS).
“Consider setting up various types of fiscal rules that would have a self-insurance component to them so that you would save for a rainy day,” Letterman said.
During an official visit to Antigua & Barbuda in May 2016, the Governor of the Eastern Caribbean Central Bank (ECCB), Timothy Antoine said the bank wanted all Eastern Caribbean Currency Union (ECCU) members to consider adopting fiscal responsibility legislation as was done in Anguilla and Grenada.
Antoine said the components of such legislation would include the adoption of a debt ceiling and a cap on state payroll.
Meanwhile, the WB economist also warned of the “contingent liability” risks to which some governments which favoured public-private sector partnerships (PPPs) were exposing themselves.
He also said that tax regime practices in larger economies need to be assessed before they are adopted in smaller ones. Letterman argues that “when small economies are highly specialized in what they produce” something like “import taxes then function as sales taxes”.
He explained that whereas import taxes may encourage local consumption in a larger economy where production is diverse, in a small specialised economy where many products have to be imported, the import tax is similar to an unavoidable mandatory sales tax that must be paid on goods.
Antigua & Barbuda’s OECS Commissioner Colin Murdoch attended the conference which was held on Thursday and told OBSERVER media that Grenada was presented as an example for OECS countries to follow due to its fiscal rules laid out in legislation.

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