The constitutional amendment which prevents Government from cutting public sector pay is restricting its ability to solve the island’s fiscal problems.
Noting that such a policy helped Barbados “avert the balance of payments crisis” in the early 1990s, rating agency Standard & Poor’s today implied it was an option it believed the Freundel Stuart Administration would now love to have.
And while the two have been at odds over the measures to be pursued, S&P also said there was no fundamental difference between what the ruling Democratic Labour Party and Opposition Barbados Labour Party saw as “priorities”.
In a full report on the island released today, following its recent announcement that Barbados’ ratings were maintained but the outlook was reduced to negative, S&P analysts Richard Francis and Kelli Bissett-Tom asserted there was public consensus “on most of Barbados’ social and economic policies”.
But they also suggested not being able to cut the wages and salaries of civil servants had reduced government’s policy flexibility.
“Although the tripartite relationship remains strong, the constitutional amendment passed in 1994 no longer allows the Government to cut public-sector wages, thereby reducing policy flexibility,” S&P stated.
The agency also suggested, however, that trade unions here seemed to support Government’s austerity measures, including no salary increases.
Speaking in the context of the inability to cut pay, the organisation said “nevertheless the nominal increases (declines in real terms) in public-sector wages since the onset of the crisis and modest demands for 2013 suggest the unions’ continuous support for the Government’s austere policies”.
S&P saw the issue of public sector incomes as an important one in the context of fiscal consolidation challenges facing Barbados.
“A tripartite partnership among Government, businesses, and trade unions has historically manifested itself in agreements that support moderate wage increases and commitments to share profits and improve productivity,” it noted.
“These income protocols have allowed both the Government and businesses to assuage union wage demands without compromising the public purse or diminishing competitiveness.
“For instance, during the 1991 crisis, the Government cut public-sector wages by eight per cent, froze private-sector wages, and downsized the public sector as part of the International Monetary Fund’s stabilisation programme to avert the balance-of-payments crisis,” it added.
In terms of the policy stances adopted by the opposing DLP and BLP, S&P saw no real difference.
“Although some may perceive the governing styles of the current Prime Minister Freundel Stuart and the Opposition Leader (Mia Mottley) as very different, both parties have the same priorities — to restore growth, protect the social safety net (which includes efforts to alleviate poverty amid economic shocks), and maintain the currency peg with the US dollar,” it noted.
S&P also reiterated that its negative outlook for Barbados “reflects the potential for a downgrade if the Government doesn’t bring down its wider fiscal deficit or if external pressures of persistent current account deficits mount”.
“We could revise the outlook to stable if the government significantly reduces its general government fiscal deficits, leading to a declining debt and interest burden in the next three years,” it stated. (SC)