The Freundel Stuart administration is continuing to grapple with a serious debt problem which worsened during the first half of the year.
Reviewing the performance of the economy in a prepared statement today, Central Bank Governor Dr Delisle Worrell reported that Government’s net indebtedness to the private sector at home and abroad continued on “an upward trend”.
He said this result reflected “the fact that the fiscal deficit continues to exceed the growth of GDP [gross domestic product]”.
“The net public sector debt to GDP, which was no more than 28 per cent in 2008, has now risen to 68 per cent,” Dr Worrell observed. “The major burden of this debt is the interest cost, which absorbs 29 per cent of all Government revenues.”
Another notable highlight of the 2015 first half was a $22 million decline in revenue from value added tax (VAT), which Dr Worrell partly blamed on industrial action by Customs officers at the Bridgetown Port earlier this year.
Overall, though, there was a $50 million increase in Government revenue.
The industrial action, in the form of a go-slow taken by Customs officers towards the end of May, was to protest against the proposed absorption of the Customs Department into the Barbados Revenue Authority (BRA).
Dr Worrell said the higher revenue intake was mainly due to property taxes yielding an additional $99 million. Excise taxes were also up by $15 million.
“Receipts were especially high because of the rate increase in lieu of the now repealed Municipal Solid Waste Tax and the fact that tax bills were distributed earlier than in 2014,” he explained.
The fiscal deficit for the period under review was $19 million less than for the same period last year.
Government spending, however, was up. Dr Worrell said it was primarily because of an additional $17 million in domestic interest payments and a $20 million increase in transfers to public institutions.
However, the Central Bank chief pointed out that tax changes were expected to yield $81 million in additional revenue during the second half of the fiscal year.
“Tight controls on Government’s expenditure will be maintained to stay on course for the fiscal year target deficit of
four per cent of GDP,” he said.
Net private capital inflows fell to $417 million up to September, compared with $542 million one year ago, said Dr Worrell.
Additionally, “the public sector recorded a net outflow of $178 million, primarily because of significantly higher amortization payments, and the payment of Government’s equity subscription in the Andean Development Bank,” he said.
“Commercial bank financing expanded by $108 million for the fiscal year, up to September 2015. Banks’ holdings of Government paper increased by almost $1 billion between 2011 and 2013, and after a small cutback in 2014, their appetite for Government paper appears to be returning. Private individuals and companies subscribed $82 million in Government securities, mainly Savings Bonds,” reported Dr Worrell.
He also highlighted a dramatic fall in payments for imported fuel and lower commodity prices, saying these developments have had a major impact on the country’s inflation rate.