President of the Barbados Economic Society (BES) Jeremy Stephen is not on board with any hasty move to the International Monetary Fund (IMF), even as he suggested that the deciding factor could be the performance of the government’s 19-month fiscal adjustment programme.
Stressing that the ball is in the court of the Freundel Stuart administration, Stephen told Barbados TODAY the government must tread cautiously and make a decision in the country’s best interest based on hard evidence.
“The only indicators I’m willing to stand by are whether the 19-month exercise has reduced the fiscal deficit. If you can tell within the 19-month exercise if the fiscal deficit is between five to eight per cent then you know that you are trending in the right direction. If you realise that you can’t conceivably reach that, you have the advantage as a government to know that you will need assistance in the medium term, so it will be best at that point to seek financial assistance quickly and if the IMF is the right entity to do so,” he said, responding to a suggestion from businessman and financial analyst Peter Boos that Government should go the route of the IMF sooner rather than later.
Stephen however expressed the view that the Government would be better off if it seeks alternative sources of funding that could be used for investment projects and closing the financing gaps.
“So really and truly it comes down to Government’s ability to raise financing outside of the traditional sources, outside the IMF and I do reasonably believe that they have the opportunity to do so,” he said.
The BES President added that while the IMF might bring needed discipline to the state, the Government should not agree to any programme that would bring undue hardship on Barbadians and the private sector.
“We would hope that it doesn’t mean that we have any form of foreign exchange adjustments, devaluation, none of that, but rather it looks at making sure the Government, on the fiscal side, becomes more efficient. At the very least we would hope the social safety net could be maintained, but we just hope the IMF comes in with a theme of efficiency while not overly increasing the burden on the private sector, a burden which we are no position to accept at this time or willing to bear at this time,” he said.
Stephen also weighed in on an IMF report that has strongly advised the Government to review its domestic tax policy because substantial revenue is being lost as a result of more than $2 billion in tax exemptions and allowances.
While he stressed that the issue is deserving of more study, he noted there has always been concern about the tax base. He insisted that the issue of collection is a critical factor.
“What the IMF is proposing is a widening of the tax base. Yes, it could be widened, but we say it must come hand in hand with efficient collection . . . Exemptions must follow the theme of efficiency – that is, if you are exempted it must mean that it wouldn’t cost the state or the public much more than the benefit that the individual or the entity would be receiving,” the economist said.
Stephen also shared his views on the latest Standard & Poor’s rating which affirmed a ‘BB-’ long-term and ‘B’ short-term sovereign credit rating of Barbados along with a negative outlook.
He said he was not surprised by the report but was pleased that the island did not suffer a further downgrade.
Stephen welcomed the rating agency’s view that Barbados could be in worst position if it did not have strong political institutions, including the social partnership.