Government is facing a significantly deeper financial hole — at least $400 million more — than contemplated in its 2013-2014 budget approved by Parliament last month.
Barbados Economics Society President Ryan Straughn said based on the 0.4 per cent economic decline between January and March this year reported by the Central Bank of Barbados, the current administration would have to rethink its revenue expectations between now and April next year.
And based on the millions of dollars it is spending simply to pay interest on money borrowed locally, he added, the Freundel Stuart Administration will have little choice but to pursue a privatisation or divestment programme. Speaking during an interview with Barbados TODAY, the economist based his pronouncement on the conservative gross domestic product performance likely for the rest of 2013.
He pointed out that while Government’s Estimates of Revenue and Expenditure were predicated on GDP of $9.2 billion the $2.2 billion attained in the first quarter was not a good sign.
“The (Central Bank) governor … said (yesterday) that no growth in the economy is of little concern and he is making reference to doing things right for the long term, but the problem with that is that the Government has just passed its Estimates of Revenue and Expenditure based on what was an assumption of GDP of around $9.2 (billion),” he explained.
“Based on the Central Bank’s estimates for the first quarter GDP was just $2.2 approximately and usually the first quarter is the largest, so even if I am optimistic and assume that you replicate that exact thing right through the year then you end up with something in the region of $400 million short of what the Government would projected for its fiscal year.
“And so that to me raises even more concern. If the GDP is now estimated to have a shortfall of that magnitude then obviously revenue projections that would have just been passed in the Estimates also will fall short of whatever targets the Government has.
“And therefore in the absence of spending less, cuts to expenditure, then it means then that the Government’s fiscal deficit will get even larger, which means next year you will pay higher interest payments as a larger part of revenue and you haven’t solved the problem,” Straughn added.
The BES representative said another worrying factor highlighted in the Central Bank first quarter review released on Tuesday was that almost a quarter of the money Government was spending was interest payments on domestic borrowings.
“The net result obviously is that you have less resources to continue with the provision of social services, so it is really clear now that the government has to privatise some of the state enterprises that are causing concern and are a strain on the public purse,” he stated.
“And that obviously is a part of the solution, but the Government has at times said they are going to do it, but at time said they are not going to do it. So as this particular metric gets higher, because the longer that you take to cut expenditure on the current account side specifically as far as government is concerned then that debt service number will continue to increase and put even further strain on the resources that you have and you are collecting.
“And so that certainly is something that the Government needs to really keep an eye on and as the governor specifically said that is unusually high and that is not the kind of area that we want to be in at all. We are operating in some serious times here,” he added.
The Central Bank’s January to March 2013 review had pointed out that while government was able to reduce its external indebtedness, it was now owing more locally.
“After accounting for Government’s financial assets, net public sector debt was equivalent to 54 per cent of GDP, up from 49 per cent at the end of the last fiscal year. The increase in domestic debt pushed interest costs higher and this, coupled with declining tax receipts, meant that interest payments absorbed 24 per cent of revenue, a slight deterioration from the 21 per cent one year earlier,” it said. (SC)