The Keith Mitchell-led New National Party (NNP) government in St. George’s could he heading for a major showdown with public sector unions in the new year.
THE NEW TODAY has obtained a document prepared by the Ministry of Finance, headed by Prime Minister Mitchell and in which top civil servant, Timothy Antoine serves as the Permanent Secretary and which seeks to affect the status of civil servants.
According to the document, it is proposed that the Grenada Constitution be amended to strike out that section which guarantees public officers a full pension by the state in cases of arbitrary removal from their posts.
The documents states, “The Government will ….seek to amend article 84.8 of the Constitution in its upcoming 2014 review, which is the main impediment to public sector retrenchment due to the guarantee of a full pension to retrenched employees regardless of their time in service”.
One of the persons who benefitted from this section in the Constitution is former Accountant-General in the Ministry of Finance, Richard Duncan, the current General Manager of the Grenada Co-operative Bank Limited.
Apart from his salary at Co-op Bank, Duncan receives a monthly pension from government running into thousands of dollars after he was unceremoniously removed from his post at the ministry of finance by a previous Mitchell government.
A veteran trade union leader told this newspaper that any such move by government to amend the constitution to do away with guarantees to public officers would be “seriously resisted” since it could lead to massive retrenchment of civil servants by government as part of the so-called home-grown Structural Adjustment Programme (SAP).
The Mitchell government has complained that 70 percent of government review is going to pay the salaries of public officers and the remaining 30% on servicing the national debt estimated at EC$2.4 billion and with little less for spending on other areas in the economy.
Following are excerpts from the document that was prepared for possible consideration by the NNP regime:
The second pillar of the fiscal program is addressing the debt overhang through a comprehensive debt restructuring.
While the fiscal consolidation (as) outlined would set debt on a firmly downward path, it will not be sufficient to bring a lasting solution to the negative effects of debt overhang that continues to stifle government finances and the economy.
Accordingly, we announced on March 8, 2013 that we will undertake a “comprehensive and collaborative” restructuring of the public debt. With the assistance of our debt advisors, the Government will engage its creditors in a debt exchange aimed at both reducing the level of debt and achieving cash flow relief; this will supplement the fiscal consolidation in attaining the ECCU-wide debt targets.
The debt exchange will be comprehensive, with all public and publicly guaranteed debt eligible for restructuring with the exception of loans from multilateral institutions and Treasury bills issued on the regional government securities market (RGSM) to limit the impact on the regional economy.
We will seek Paris Club and non-Paris Club bilateral creditors for relief on terms comparable to those provided under the debt exchange. We expect to make a debt exchange offer by end-2013, and to finalise the exchange in the first quarter of 2014.
Consistent with the financing envelope of the program, making satisfactory progress in the negotiations with the creditors will be a prior action.
Fiscal Structural Reforms
The third pillar of the fiscal program will focus on structural fiscal reforms to ensure fiscal discipline going forward. They will be aimed at imposing meaningful constraints on the conduct of fiscal policies and to provide a fiscal anchor to guide policy decisions.
Reforms will focus on strengthening five areas:
(i) the fiscal policy framework, through the introduction of a rule-based framework and stronger fiscal risk management;
(ii) public financial management;
(iii) improved management of parastatal entities;
(iv) pension reform; and
(v) debt management:
Fiscal policy framework:
The Government intends to transition to a rule-based fiscal framework that will provide guidance on how fiscal policies would be steered to the medium-term debt target, as well as after its achievement.
The rule will cap real spending at potential GDP growth, while allowing revenues to absorb cyclical fluctuations; this will ensure that- once the desired fiscal balance is achieved – it is broadly maintained over the cycle.
The fiscal policy framework will also be amended to improve the analysis and management of fiscal risks through:
(i) strengthening control over the finances of the rest of the public sector (local governments and parastatal entities);
(ii) widening the scope of public financial management legislation to the general government and producing consolidated public sector accounts; and
(iii) strengthening capacity to monitor fiscal risks by creating a (fiscal risk/public investment) unit to monitor and manage risks associated with parastatal entities, PPPs, and other risks.
The introduction of umbrella legislation for the fiscal framework in line with these reforms will be a structural benchmark for end-June 2014. To implement this framework, we will approve relevant regulations by end-2014.
Public financial management (PFM) legislation:
*To strengthen the budget process, financial discipline, and accountability, the Government will revise the public financial management legislation to:
(i) limit the use of executive orders to spend above budget;
(ii) approve all extra-budgetary spending through mid-year budget reviews in parliament;
(iii) introduce meaningful contingency funds within the budget;
(iv) strengthen control over expenditure commitments, including through the introduction of strict personal and institutional penalties; and
(v) prohibit implementation of changes to the tax system without parliamentary approval.
The revised legislation will also strengthen the capital budgeting process, including through institutional reforms, value-for-money and sustainability criteria in the selection of investment projects, move to multi-year budgeting process and the development of a medium-term strategy plan that will help prioritise government investment projects and guide the multi-year budgeting process.
We have sought IMF technical assistance on the revision of the PFM legislation, and intend to obtain parliamentary approval of the revised legislation by end-June 2014 (structural benchmark), with relevant regulations to be approved by end-2014
*Improving the financial performance of the statutory bodies will be an integral part of reforms to secure lasting fiscal discipline, as they represent an important source of contingent liabilities for the Government.
After initial diagnosis of the financial situation in the statutory bodies undertaken with technical assistance from CARTAC, the Government will undertake a strategic review of the functions and the rationale of the existing statutory bodies, as well as new statutory bodies being considered (the Printery and Statistics Grenada), and develop a strategic plan for the sector.
The plan will:
(i) provide up-to-date information on the financial viability of each statutory body, including the sustainability of any long-term pension arrangements;
(ii) classify each as being in line for liquidation, privatisation, or retention, and provide a time schedule for such action; and
(iii) lay out concrete plans to restructure financially weak statutory bodies that have been retained.
We will seek technical assistance for this review from the World Bank (and the approval of the strategic plan by the Cabinet will be a structural benchmark for end-September 2014).
Financial control over the statutory bodies, including strengthened reporting requirements and a unit to monitor their performance, will be dealt with in the context of the revised PFM legislation.
Public sector modernization:
*In addition to the planned reduction in public sector employment through attrition, the Government will undertake a strategic review of the public sector with a view to ultimately reducing the size of the public sector and making it more efficient.
This review will include government functions, public hiring (with a particular attention on refocusing the Department of Public Administration and reforming the Public Service Commission), as well as that of civil service size, composition and remuneration structure.
We will seek assistance from the World Bank in undertaking such a review, and will develop a strategic action plan on its basis by end-September 2014 (structural benchmark).
Parliamentary approval of revised legislation on government functions, civil service, and public compensation (including the 1969 Public Service Law and the constitutional provisions with regard to the Public Service Commission) will be a (structural benchmark for end-March 2015).
The Government will also seek to amend article 84.8 of the Constitution in its upcoming 2014 review, which is the main impediment to public sector retrenchment due to the guarantee of a full pension to retrenched employees regardless of their time in service.
• Tax incentive regime:
The Government plans to overhaul its process for granting tax incentives in order to prevent the erosion of the tax base and maximise the economic impact of incentives granted.
The reforms will aim at revising the relevant legislation to require that all new tax exemptions are codified in legislation, no discretionary exemptions are permitted, and that the beneficiaries of all exemptions file appropriate tax returns (structural benchmark for end-May 2014); technical assistance for these reforms will be sought from the IMF. Information on the amount of revenue foregone under all statutory and discretionary tax exemptions will be published annually in the budget presentation to parliament.
The Government intends to reform the current public pension system with a view to consolidating the two different schemes, ensuring more equitable outcomes among different types of beneficiaries, and providing a competitive return to allow the public sector to retain qualify staff.
The Government has already formed a working group on pension reform and will also seek technical assistance from the CARTAC to assess the fiscal implications of the various pension reform proposals.
The Government aims at submitting reform legislation to parliament by March 2015.
Treasury Single Account:
To ensure an adequate management of its financial resources and save on interest costs, the Government will aim to transition to an effective treasury single account.
We will seek technical assistance from CARTAC to undertake an assessment of the cost effectiveness of the Government’s banking arrangements, facilitate a full audit of the bank accounts, and to develop a strategy for closing bank accounts and moving to a treasury single account (either within the commercial banking system or at the ECCB).
We will seek Cabinet approval of the strategy by end-February 2014 and aim to fully implement it by end-October 2014.
Strengthening debt management will also be important in managing and monitoring portfolio risks, as well as in ensuring that future financing needs are met at reasonable cost.
The Government will seek technical assistance on strengthening debt management, including on guarantee fees, from the IMF and the World Bank.
Strengthening public procurement:
The Government will also seek parliamentary approval for revised public procurement legislation, aimed at making public procurement more efficient and more transparent, by end-March 2014.
Financial Sector Policies
The Government will take a proactive approach to ensuring the continued stability of the financial system.
We will focus on assessing the impact of the debt restructuring on the financial sector capitalisation needs and on strengthening the non-banking sector regulatory frameworks and financial position:
*We will work with the ECCB to gauge – through stress tests – the potential impact of the debt restructuring on income and capitalisation of financial institutions to assess the possible need for a preemptive capitalisation.
We will also assess the potential impact of the debt restructuring on the long run solvency of the NIS.
The Government has significantly strengthened the regulation and supervision of the non-banking sector over the past few years, and is proactively tackling identified weaknesses.
To further strengthen the regulatory framework for the credit unions, we intend to enhance the supervisor’s toolkit by adding a prompt corrective action regime (“ladder of compliance”) to ensure clear supervisory repercussions; developing crisis management procedures for the credit unions, including options for providing liquidity support to them; establishing a temporary regulation requiring that profits be retained as capital; requiring credit unions to increase capital to assure adequate capitalization over the next three years, based on the stress tests for the debt exchange impact.
In the banking sector, the Government will reach understanding with the ECCB to institute, before March 2014, similar requirements for retaining profits and for preemptively recapitalising banks based on the findings of the Financial Sector Task Force, the stress test results and the findings of the recent onsite examination of the indigenous bank.