In the wake of Barbados’ economic performance during the first three months of the year, the “stability” mirage has begun to subside. The notion that Barbados’ economy is stable has been unequivocally debunked by the facts; which reflect the lived reality on the ground.
According to the Central Bank of Barbados, the outlook for the rest of the year is also bleak, an indication that the near future isn’t bright. Perhaps the only silver lining is that the foreign reserves are still adequate and the leadership of the Central Bank has finally come to terms with the need for a course correction.
Hopefully, Bay Street will follow suit. A policy shift is imperative; a fact that was apparent to wiser heads nigh six months ago. Though the policy makers are yet to acknowledge it, the Barbados economy is again in recession, and likely to continue its decline throughout the rest of 2013.
The country is in dire straits. A comprehensive rescue mission needs to be pursued with vigour, beginning with cleaning up Government’s financial position and reforming its operations. The time for shrewd leadership is now! The time to act is now.
Apart from the decline of the productive (foreign exchange-earning) sectors — tourism, international business, manufacturing and agriculture — the construction sector also contracted and Government’s fiscal balance deteriorated precipitously.
It is time to seize the day. The pertinent challenges that the country has been facing since 2009 remain today. They are yet to be solved. The economy is suffering from an acute case of fiscal drag, made worse by high taxation and an insatiable public sector appetite for spending; not of the government’s making.
The stone cold truth is that Government has a serious spending problem which it has failed to arrest with the requisite vigour. Sad to say, the results have proven the economic policies of the Stuart Administration, a cataclysmic failure.
Today’s column is neither about diagnosing the country’s economic condition nor is it about proffering detailed prescriptions; much of that has been done in the past 36 months. Today’s writings are more of a call to arms, a call to action, a desperate plea for those with the responsibility for shaping the country’s future to “man-up” and stop the rot before it’s too late to pilot a home-grown solution. With each passing day, the challenges are being compounded and the “economic independence” that the governor of the central bank spoke of is diminishing.
One of the greatest fears is the island’s increasing inability to mitigate an external shock, such as a natural hazard, a major arms conflict, a global economic downturn or a spike in commodity prices; none of which are improbable.
The accumulation of public debt has been rapid in recent years due to a persistently high fiscal deficit. Government’s fiscal deficit in fiscal year 2012/13 (7.3 per cent) was just as high as it was in fiscal year 2009/10 (7.6 per cent). No meaningful progress has been made. That phenomenon has been driven by ballooning current expenditure which is now approaching $3 billion. Yes, billion with a B.
According to the Central Bank, Government’s interest on debt has reached almost a half billion dollars or 24 per cent of its revenue. This means that out of every dollar collected from taxpayers, almost 25 cents is going to service debt. The country’s debt has begun to chew up more and more of Government’s financial resources.
The implication is that fewer resources are available for education, health care, sanitation and other important social services. All of this is occurring at a time when demand for these services is increasing.
The country simply cannot afford the magnitude of its social investments at this time. Regrettably, the Government continues to bury its head in the sand. At some point, whether voluntary or by force the funding formula for tertiary education and health care will have to be altered in a manner that retains universal access and restores fiscal sanity. What is needed is a major reallocation of Government’s resources.
Resource reallocation ought to include: (i) lowering the tax burden which is stifling growth, (ii) increasing capital spending, and (iii) strategic cuts to current expenditure that exceed the combine fiscal impact of tax cuts and increased capital spending.
Across-the-board expenditure cuts or more taxation will not get the job done. Barbados cannot be lifted out of its slump without sacrifice.
On Tuesday, the governor of the Central Bank said that Barbados does not have a debt problem, but I beg to differ. Government’s persistently high fiscal deficit and the resulting rapid debt accumulation is the single largest threat to Barbados’ standard of living.
The Stuart Administration’s policy stance has been too defensive and reactionary. A progressive approach is needed. Preserving past gains rests on pioneering growth and prosperity, not on maintain the status quo.
In closing I would like to pose a few questions. How long can the National Insurance Scheme continue to be Government’s banker of first resort? NIS is currently banking rolling 52 per cent of Government’s fiscal deficit. At what point does that type of exposure put the pension fund at risk?
What is the actual unemployment rate in Barbados? The Central Bank continues to propagate average unemployment rates. This is a curious development and suggests to the discerning eye that the official unemployment rate is higher than what is being reported.
It’s a time for change, a policy change!
* Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience. C.R.Forte@gmail.com