by Shawn Cumberbatch
Government has lost further ground economically and its own economists are urging it take urgent corrective action.
In a series of policy recommendations issued following an analysis of the first six months of the current financial year, the Ministry of Finance’s Economic Affairs Division has warned that Barbados’ big appetite for foreign “consumer goods” is costing the country millions of dollars in foreign exchange and a “dampening” of exports should be instituted.
And amid concerns of falling revenues from Value Added Tax, despite a 2.5 increase in tax rate, the economists are recommending an investigation into the reasons for the decline since it has negatively affected the island’ fiscal performance.
The advice is based on the same period of economic performance, January to September, most recently reviewed by the Central Bank of Barbados.
In that review Governor Dr. DeLisle Worrell reported that the island lost $108 million in foreign exchange reserves, and he also noted that VAT revenues fell by four per cent.
In the wake of that report, the Economic Affairs Division has determined that “the persistent decline in the NIR is a major cause for concern, with an import cover of 15.8 weeks”.
“Greater growth in tourism and international business receipts along with further dampening in the level of imports, particularly consumer goods are needed,” it advised.
In the case of VAT, it stated: “Urgent efforts are needed to reverse the increasing trend of the fiscal deficit which is currently estimated to be 3.2 per cent in contrast to the (Medium Term Fiscal Strategy) target of 1.9 per cent (April to September 2012).
“The main problem stems from the under-performance of the VAT and Special receipt revenue generating facilities. Further investigation may be needed in evaluating the operating efficiency of the VAT and other revenue collecting items.
That was not the end of the “policy recommendations”, however, as Government is also being urged to make greater efforts “to stimulate the growth in credit, given the relative fixity”.
Additionally, the advisors said the “sharp decline in long stay and cruise passenger arrivals” warranted a “more strategic approach” to tourism marketing”.
The economic paper said several factors continued to suppress Barbados’ achievement of economic growth in 2012 and beyond, including declining tourism arrivals, continued high inflation, elevated unemployment and sharp decreases in the level of revenues collected.
“Monthly comparison for the month of September, showed that total government revenue decreased by 2.6 per cent, while total government expenditure decreased by 13.8 per cent. However, a slight deterioration of the fiscal deficit position was realised,” the analysis stated.
“At the end of August 2012, total exports increased by 5.2 per cent, while imports decrease by 19.4 per cent in contrast with August 2011. The month on month assessment showed that total domestic exports rose by $5 million and year on year it increased by $3.5 million.
“The fiscal deficit to GDP ratio for the period April to September 2012 stood at an estimated 3.2 per cent in contrast to the MTFS target of 1.9 per cent,” it added.