A local economist sees an urgent need to reduce cost and spending in Barbados, but thinks Government would be “reckless” if it moved to cut $400 million in expenditure in the short term.
Barbados Economic Society member Ian Gill, in an analysis titled What Will The Priorities Be?, said it was obvious Barbados “needs credit urgently”, but where the funds would be sourced from was the difficulty.
He also warned of the dangers of measures which would cause panic among Barbadians to the extent they would feel their savings were unsafe.
The development economist said: “The local banking system which is run by multi-national corporations and local and international investors seems to be losing confidence in Government long term securities and now prefer to deal in 60 and 90 day maturities.
“Obviously, a lack of confidence seems to be creeping into the financial system. Therefore, there is a need for an influx of foreign exchange, which will come at exorbitant interest rates because of our junk bond status. Monetary Policy will be important throughout this phase over the next year. Why?
“It will be critical to delay savings, therefore, an interest rate above the inflation rate will be necessary to encourage savings in the economy which will aid in reducing the deficit.
“That’s the monetary way but if Barbadians with savings sees any further drop in weeks of the international reserves, they will feel that their savings are threatened which would be subversive,” he added.
Gill said while Barbadians were worrying now, the source of the current problems could be traced back to the 2009 to 2010 period when government failed to take the necessary action to fix its fiscal problems.
“At that time, it was necessary to make a substantial expenditure adjustment based on the performance from the tax base and revenue collections,” he noted.
“But Government raised taxes to increase revenue and instead of using this increased revenue for capital projects, government continued to spend millions including transfers to para-statal companies that have not provided a surplus in a decade or more and those that have no clear development focus.”
There was also a focus on “funding institutions where there is a duality of purpose but where productivity would be done more efficient if carried out by the private sector and in some cases, work which should have been carried out by the ministries that were set up by our Father of Independence