Former Prime Minister Owen Arthur yesterday warned that Government’s fiscal consolidation programme was driving the country down “an economic and financial cul-de-sac” out of which it would be almost impossible to reverse.
In fact, the economist said the island had entered a new phase of its development, which was characterized, by “extraordinary turmoil, uncertainty and instability”.
“At the centre of this has been a period of low or no growth accompanied by disorder in the public finances as reflected in large and unmanageable fiscal deficits,” said Arthur as he addressed the monthly business luncheon of the Barbados Chamber of Commerce and Industry (BCCI) at the Lloyd Erskine Sandiford Centre today on the theme Stabilizing and Transforming the Barbados Economy.
“A fiscal consolidation programme, without significant countervailing measures to neutralize its more adverse effects will only suffice to place the nation in an economic and financial cul-de-sac from which reversal is difficult and forward movement is almost impossible,” he added.
His comments came two days after Prime Minister Freundel Stuart and Minister of Industry Donville Inniss dismissed critics of the ruling Democratic Labour Party (DLP), saying they were satisfied the island had done well in light of current global economic conditions.
However, Arthur argued that the fiscal consolidation programme being undertaken by Government was “still very much a work in progress”, adding that some of the major fiscal initiatives that would lead to “far-reaching adjustments” were yet to be undertaken.
“Much of the adjustments to-date have been in relation to central Government expenditures. Fiscal stability can however only be restored if almost $200 million in adjustments are made to Governments transfers and subsidies to its state enterprises,” suggested Arthur, who led the country for 14 growth years.
“The brutal truth is that the economy can no longer carry the full range of state enterprises and welfare support programmes that have been put in place over the past 50 years. To carry out such an adjustment, fundamental issues relating to Governance will have to be addressed,” he added.
Arthur also took issue with those who were satisfied with the current rate of economic growth, saying it was “a disturbing and distressing sign” when growth of 0.1 per cent was not seen as falling within the margin of error, and when a growth rate of 1.7 per cent was seen as a major accomplishment for an economy that required a growth rate of over three per cent per year.
“Barbados has also now passed the debt overhang threshold where the ratio of debt to GDP is a significant drag on growth, and where the proportion of revenue needed to service the debt leaves too little behind to service the other obligations of the Government,” he said.
“In the circumstances, and faced with few viable financial options, potentially ruinous recourse is being made to the printing of money to meet the financing needs of the state,” he said, adding that “the role of the Central Bank in Barbados’ affairs” was a “vexatious issue”.
Arthur proposed that “the optimal path” that the Barbados economy “must traverse” in order to achieve growth was “one that transforms it from being a trade preference economy, which it has traditionally been, and a debt propelled economy which it has recently become, to being an investment-driven economy in search of its preferred and ultimate best option of being a genuinely expelled economy”.
Arthur, who currently sits as the independent representative for St Peter in the House of Assembly after recently turning his back on the Opposition Barbados Labour Party, said the Freundel Stuart-led administration should acknowledge that it has a debt problem and therefore carry out debt restructuring initiatives to give itself fiscal space.
“The successful carrying out of a fiscal consolidation programme will require the recourse to new forms of public/private sector partnerships that enable the private sector to expand its activities into spheres of activity historically deemed to be the preserve for the involvement of the state,” he said.
However, he said the most recent Auditor General report indicates that there was much that needs to be done to put in place protocols for transparency and good governance that can inspire confidence that such partnerships can work to Barbados’ advantage.
Highlighting a range of areas to be addressed in order for the island to become more competitive, including logistics, business facilitation and trade policies, Arthur also suggested that changes were needed to the “archaic and arcane sectoral policies, especially in relation to the industrial sector”.
“It is therefore necessary that in order to become an investment-driven and export propelled economy, as required by prevailing circumstances, Barbados should begin to incorporate best practices and best global benchmarks in its trade and business facilitation programmes and change its business culture to make such adjustments become of lasting effect,” said Arthur, adding that the island was also in need of “a comprehensive new Investment Act”.
Arthur, who was this island’s fifth Prime Minister, also posited that the economy should be powered by new technology, entrepreneurship and innovation, as well as substantial contribution from the energy sector.
He called on the private sector to have “a special consultation, involving its various parts, to conceive of a strategy at the core of which is new proposals for funding the activity of risk takers”.
Despite the challenges highlighted, however, Arthur said he believed the Barbados brand remained strong “and still very serviceable”.
“I believe that this, the 50th year of Independence should be dominated by a great national conversation as to how we can strengthen the brand, and make our country’s next 50 years even better and brighter that the first 50,” he said.