SANTIAGO, Chile (CMC) — Latin America and Caribbean governments will need to improve public sector management and capacity, including budget allocation, to compensate for the pressure on public finances from sliding commodity prices, according to a new report by the Organisation for Economic Cooperation (OECD) and the Inter-American Development Bank (IDB).
The second edition of “Government at a Glance: Latin America and the Caribbean,” covers Brazil, Costa Rica, Ecuador, Haiti, Mexico, Argentina, Uruguay, El Salvador, Panama, Dominican Republic, Colombia, Chile, Paraguay, Jamaica and Peru.
It states that restoring stagnant productivity, reducing income disparities and improving social safety nets will require better managed government spending and overall public governance.
The report finds that public spending on public schools and hospitals can ease income inequality – but governments in Latin America and the Caribbean (LAC) mostly under invest in such public services.
In all, LAC countries spend just 8.7 per cent of gross domestic product (GDP) on average on social programmes like education, health, unemployment benefits and pensions compared with 16.8 per cent in OECD countries.
“A combination of stagnant productivity, high inequality and low revenue collection is putting a pinch on LAC governments. There is very limited room to expand public budgets, so LAC governments will need to better target their public spending and improve policy design to ensure better living standards for citizens,” said OECD Deputy Director of Public Governance and Territorial Development, Luiz de Mello, launching the report at an international ministerial meeting on Productivity and Inclusive Growth here.
Vicente Fretes Cibils, IDB Division Chief for Fiscal and Municipal Management said that in the last decade, Latin America and the Caribbean combined growth with a better income distribution, supported by favourable external conditions that facilitated the region’s growth and fiscal management.
“With a less favourable international scenario, governments must improve the efficiency and effectiveness of public spending. That means better design and implementation of public programs so they can ensure every penny spent can contribute to the reduction of social inequality and poverty and increase productivity in order to improve people’s quality of life,” he added.
Among the key findings of the report include the size of the state varies across LAC countries but is generally relatively small. Government spending in the LAC countries studied averages 31 per cent of GDP compared with 41.5 per cent in OECD countries, although the gap is decreasing.
Similarly, public employment as a share of total employment averages 12.4 per cent in LAC countries compared with 21.6 per cent in OECD countries.
The report also notes despite recent progress, LAC remains a highly unequal region in terms of household income, as demonstrated by an average Gini coefficient after taxes and transfers of 0.49 in the region compared with 0.29 in OECD countries.
It said LAC governments could contribute to economic productivity in the region by lowering barriers to trade and investment, which are much higher than for the OECD area. Product market regulations also tend to be more restrictive in LAC countries.
The report also notes that fiscal policy plays a more limited role in income distribution in LAC than in OECD countries due to the low distributive impact of tax and benefit systems.
Among the findings of the report is that leadership and co-ordination by centres of government have increased, but they still focus more on procedures than policy content. LAC governments also lack a culture of policy evaluation that can lead to better design, budgeting and implementation.
“In terms of quality of public services, most LAC countries now have a national citizen portal as a single point of access to government services. However, to reap the full benefits of these portals, new technologies should be adopted across governments.
“Governments in the LAC region are making efforts to have their data openly available to the public. However, they could do more to facilitate its use by citizens and engage with them in designing solutions that will meet their expectations and needs,” the report noted.