A senior economist with the International Monetary Fund (IMF) is sending a strong warning to Barbados that it must accelerate a number of critical structural reforms in order for there to be real economic growth in the medium to long term.
Barbadian-born Dr Kevin Greenidge said while there had been transformation in some areas, it had not gone far enough, especially in the areas of trade, financial and tax policy reforms.
“If we can improve our regulatory control [and] quality of our regulations – utility, registering businesses, regulation of banks and financial institutions et cetera – you can almost squeeze almost close to a percentage point in growth,” he said.
“We need to get started now with structural reform. It takes a while but it gives you the bang . . . where we need to focus our attention – transforming growth on the Government side, making Government more effective, making the rule of law more effective, transforming the fiscal position so that it enable more private sector development that would stimulate the private sector in terms of growth, and continue transforming on the trade and the banking sector.”
Greenidge encouraged the country to maintain a stable political climate and improve accountability and transparency.
He also recommended the continuation of the reform of the public service and the removal of restriction on the flow of finance, as well as the examination of exchange controls.
Stressing that he was not saying whether it was right or wrong, Greenidge said while the island’s restriction on foreign exchange protects against financial instability it may also “restrict the contribution of the technical growth”.
“It takes time. So if you want to transform the economy, if you want to transform Barbados, you got to start thinking about transforming these things now,” the IMF economist told the 23rd annual conference of the Institute of Chartered Accountants of Barbados at the Lloyd Erskine Sandiford Centre Friday morning. The conference had as its theme, Structural Reform & Growth: What Really Matters?
Zeroing in on Government’s tax policies, and specifically the 17.5 per cent Value Added Tax (VAT), Greenidge suggested that it had the potential to rake in significantly more funds for the ailing economy.
However, he said this would not be possible unless the tax system was more efficient and Government took a second look at the amount it offered in concessions.
“If we get the tax index going up and make the tax structure much more effective you can squeeze another . . . one fifth per cent growth,” he said.
Greenidge explained that a high VAT rate accompanied by “a host of exemptions was less effective than a lower rate with fewer exemptions.
In either case, he advised, it was critical to have effective administration.
The economist said Barbados was not alone in believing that concessions were a critical deciding factor for investors, a position for which he said there was no supporting evidence.
Instead, he said, investors’ primary concerns were the macro framework, the quality of institutions and the return on their investments.
“The direction that countries have to go in transforming is to make the tax system very simple and transparent and effective. If you plug those holes you can have a lower rate [and] a more effective VAT system – people understand what they have to pay [and] they can factor it into their cost,” he recommended.