IMF says Government involvement with credit programs reduces scope for efficient financial mediation

​An IMF report has warned of government’s significant involvement with credit programs through public financial institutions, saying, this “reduces the scope for efficient financial intermediation.” In light of the island’s fiscal outlook, the report made several suggestions. “The fiscal outlook underscores the importance of a timely implementation of the fiscal consolidation package. The efforts to improve tax administration should be maintained, to make the gains in compliance durable. On the expenditure side, the government should limit the increase in the wage bill, and prepare specific plans for the gradual unwinding of the expenditures related to recovery and reconstruction, in the aftermath of Erika.”
 
It said fiscal consolidation “should focus on reducing the underlying primary balance, excluding unpredictable revenues such as CBI flows, and transitory factors. Given the risks to the fiscal outlook, the authorities should also explore contingent fiscal consolidation measures such as developing a formal tax incentives policy for private investment, preparing a revenue enhancing tax reform, and improving spending efficiency through better targeting and means testing of social programs. In addition, strengthening fiscal management is critical for the durability of the fiscal consolidation gains, including through enhancing budget preparation and execution processes, further improving the integrity of the CBI program, and considering the adoption of fiscal responsibility legislation.”
 
The report also noted that improving the conditions for private investment, especially for export activities, is key to accelerating growth. Specifically, the government should enhance labour market legislation, and better target education programs, in order to improve labour productivity and mobility across sectors; reduce the cost of doing business, especially in terms of resolving insolvency, registering property, paying taxes, and obtaining construction permits; explore the potential for expansion and further diversification of tourism markets; enhance the resilience of public infrastructure to natural disasters; and advance on the development of geothermal generation of electricity.” The IMF Team visit was led by Alejandro Guerson. His team met with Prime Minister Roosevelt Skerrit, senior government officials, labour unions, and private sector representatives, while on the island.