Posted by Jean Luc Helis, Bruce Stacey and Bill Rafuse[1]
As part of the UK Government’s Climate Change Support, the IMF’s Caribbean Regional Technical Assistance Centre (CARTAC) reviewed how governments prepared their PFM processes for natural disasters and how successful these measures were in mitigating the effects of Hurricanes Irma and Maria in September 2017. Four of the six countries affected were reviewed: Anguilla, the British Virgin Islands, Dominica and the Turks and Caicos Islands. The reviews of Antigua and Barbuda and Saint Maarten had to be delayed until after the COVID-19 pandemic.
Important lessons learned include the following.
Lesson 1: All governments maintained a contingency reserve that could be used for emergency relief. Given the widespread destruction and loss of revenue, however, other sources of immediate and longer-term finance played a critical role. These sources include budget reallocations and virements, prioritizing spending to create space for emergency spending, insurance, lines of credit and overdrafts from banks. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) and emergency relief from donor institutions and parent governments were critical as pay outs were rapid, often within two weeks of the event occurring (the CCRIF of course does not apply to pandemics such as COVID-19).
Lesson 2: The continuation of Treasury operations was essential to provide relief to employees, pensioners, and suppliers/contractors during the disaster and pandemic. Examples included:
- Payroll, rerunning the previous month’s file and making corrections later;
- Establishing a physical location for the Treasury using local area networks where departments can enter data into SmartStream/IFMIS. In the case of the pandemic, secure, high speed internet connections have been essential for key personnel to access budget, customs and tax systems without having to return to the office; and
- Identifying stand-by people with the expertise to restore systems or data post-disaster/pandemic when the IT experts concerned are not available due to injury or sickness.
Lesson 3: Most countries had clauses imbedded in their legislation for flexibility in contracting and spending rules during an emergency. Following normal procedures can significantly slow the initial response. However, any emergency clause must ensure related spending is transparent. Those governments that negotiated standing contracts before the hurricane season for contractors or equipment at prearranged prices were of great benefit. These types of standing arrangements were also used in response to the pandemic in cases where the use of heavy equipment was required.
Lesson 4: Countries like Grenada and Barbados have been successful in introducing ‘hurricane clauses’ that provide for a deferral of principal and interest payments after a major natural disaster. Similar clauses have been used by the government defining the pandemic as a state of emergency.
Lesson 5: The Inland Revenue and Customs offered waivers and concessions to ease the financial pressure on taxpayers and businesses in both the hurricane and pandemic episodes. These waivers or concessions may complicate the calculation of tax revenue losses until deferment dates are reached:
- The hurricanes led to a boom in repair and construction activity which may partly or wholly offset the cost of the waivers/concessions provided by the government.
- An increase in tax arrears after both the hurricanes and the pandemic will require a greater effort to audit and collect the revenue.
Lesson 6: Transparency and accountability—timely disclosure of the results of emergency measures to Parliament and the public are critical to earning public support for the actions taken. Changes to the coding of the Chart of Accounts have been made to capture all revenues and expenditures related to the hurricanes or pandemic.
Lesson 7: Governments need disaster and pandemic management legislation, policies, and plans that are up-to-date, adequately resourced, and complied with:
- Training, simulations, drills, and exercises are needed, especially for budget officers, government accountants and procurement specialists, to prepare for emergency responses;
- Government departments need business continuity and disaster recovery plans that are up-to-date and tested;
- Governments need to report annually to Parliament and the public on actions taken, their impact, and response readiness.
Lesson 8: Better models and data are needed to forecast the financial impact of major natural disasters or pandemics on the budget and the economy, drawing on the experience of the forecasts made at the time of the hurricanes of 2017 and the COVID-19 pandemic.
Lesson 9: Agencies and units responsible for internal and external audit should reassess risks to determine what emergency measures should be audited:
- Higher risk areas could include Customs concessions, revenue deferral programs, emergency spending, and other programs temporarily operating outside normal budget control frameworks, such as guarantee schemes.
- Audits of disaster and pandemic aid received could also be considered, as well as audits of the Business Continuity Plans/Disaster Risk Profiles of ministries and agencies to confirm they have been updated and tested.
This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.
[1] Jean Luc Helis is a senior economist in FAD, Bruce Stacey is a PFM Advisor in CARTAC, and Bill Rafuse is a short-term expert.
Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.
