In the Mid-Year Report for 2018, under the section captioned: “Economic and fiscal risks and proposed policy responses”, one of the things highlighted by the Finance Minister is the weak institutions within Government that continue to hamper the quality and delivery of Government programmes. Unfortunately, as the caption of this section suggested, no explicit policy response(s) was/were outlined in this regard on how the Government intends to address these issues. This article thus seeks to address this issue from an empirical standpoint – in a developing country’s context.
The impact of institutional quality on economic growth and development
“During the last thirty years, economics literature and debates have increasingly referred to institutions as the answers to the longstanding questions concerning how economic growth arises; what policies can be used to promote best results in terms of economic performances; and what accounts for differences in GDP levels among countries, so that the analysis of the institutional framework under which any economy operates has now become an indispensable object of research” (Valeriani et.al., 2011: p1).
Political institutions and governance
The ability of the state to provide those institutions that support growth and poverty reduction – often referred to as good governance – is essential to development. Countries that have failed in this respect have seen incomes stagnate and poverty persist. Hence the importance of political institutions in creating incentives for governments to provide good governance. Political institutions such as constitutional rules, the division of power among levels of government, independent agencies, mechanisms for citizens to monitor public behaviour, and rules that inhibit corruption all succeed in restraining officials of the state from arbitrary action, and good governance will likely take root. There is no blueprint for change in political institutions to support good governance (World Bank, Development Report, 2002).
The nature of political institutions and the interaction of public officials with their constituencies dictate the type of policy advice most effective in a given country, and affect the policies adopted. Institutions affect how responsive Governments are to a broad spectrum of citizens in society, and how responsive they are to social and economic concerns. In so doing, they provide information, increasing competition, and clarify and enforce rights among different Government agencies and between the state and the governed. These are important considerations when building particular Government structures. For instance, the current popularity of policies such as greater decentralisation, or greater formal autonomy for regulatory or revenue agencies, needs to be tempered with the realisation that the success of these innovations depends heavily on complementary political and social institutions (World Bank Development Report, 2002).
If governments lack the broader checks and balances that would keep them from intervening in independent agencies, these agencies will be independent in name only. If political institutions that align to local government incentives with national interests are absent, and if local governments are no more accountable to their constituents than central governments, the benefits of decentralisation may not be fully realised.
Moreover, local capacity and general literacy levels may hinder the types of activities that can be effectively decentralised (World Bank Development Report, 2002).
Governance principles, institutional capacity and principles
Institutions are now widely viewed to be important in explaining performance. Countries that strive to respond effectively to crises and to build resilience need adaptable, capable institutions. A better understanding of how institutional capacities within countries form a building block for effective responses to economic shocks is essential for sustaining human development gains, including progress towards the MDGs (citations from UNDP, 2011):
Institutional capacities and qualities: While institutional performance is the foundation of state capacity to function and fulfil its obligations towards its citizens, it is not a sufficient condition for countries that need to respond to shocks and deal with a changing environment. Building resilience also requires institutions that are stable, yet adaptable.
Application of institutional qualities to core country systems: While each country’s context requires its own specific set of interventions and policy options, all countries can enhance their institutional capacity by introducing short-term measures, such as offering incentives to attract competent and educated members of the diaspora to support their country’s response to crisis.
Public financial management systems (PFM): Well performing systems become particularly relevant during an economic downturn, when countries’, particularly developing countries’, fiscal positions deteriorate.
Monitoring and evaluation: Reliable data and monitoring and evaluation systems at the national and local levels are critical for designing evidence-based responses and targeting interventions.
Governance principles: Core values and principles of democratic governance are important means of achieving and maintaining development goals (MDGs), which include: participation, equity, non-discrimination and inclusiveness; gender equality; rules-based; transparency; and accountability and responsiveness.
In Guyana’s context, it would appear that there is no clear-cut policy responses to address the acknowledged institutional weaknesses to deliver effectively Government programmes. In order to do so, a thorough analytical review of the current institutional frameworks needs firstly to be conducted, to inform policy changes in this respect – premised upon the core governance principles as highlighted within this article.
