Government’s home-grown fiscal strategy today got a vote of confidence from a top economist.
Contrary to what many observers have said, former Chairman of the advisory council on the economy Sir Frank Alleyne said he was convinced the Medium Term Development Strategy 2010/2014 was working.
“It is inaccurate to say that the Medium Term Development Strategy failed. Not so. It is because of the Medium Term Development Strategy that this economy is turning around and showing growth. The growth is not as significant as we want it to be . . . but the economy is showing growth and all the estimates suggest that in the next ten-month period growth is going to pick up to a further extent,” Sir Frank today told the Democratic Labour Party (DLP) lunchtime lecture on Fiscal Consolidation in Small Developing Economies at the DLP’s George Street, St Michael headquarters.
The retired academic pointed to the performance of the tourism sector and the fact that the international business sector had “turn the tide and is tracking again” as proof.
However, he blamed “persistent downgrades and the cost of going to borrow money” for the failure of the agriculture sector to live up to expectations.
Sir Frank said the economy had already “hit bottom” and was now beginning to pick up, but it would require fiscal discipline to drive down the debt to gross development product (GDP) ratio to about 70 per cent, insisting the most effective way to reverse the fiscal challenge was to control public spending.
However, with an election due next year, he was not certain the administration had the “courage” to take the risk.
“Reduction in the tax ratio as a percentage of gross domestic product as the value of goods and services in Barbados is better said than done, but it takes courage to do it especially with the election 15 months down the road. But failure to do that has enormous negative consequences in our society,” he warned.
Nevertheless, the respected economist advised against blanket cuts, stressing it would be dangerous to do so.
He explained that some services such as education up to secondary school level, health services, social services and infrastructure and developmental projects ought to be the last areas Government should seek to cut, and that health care funding should be tailored to help the most vulnerable.
In seeking to pin point the source of today’s economic woes, Sir Frank revisited the period of the Erskine Sandiford (now Sir Lloyd) administration in the early 1990s.
He argued that the fiscal measure implemented at the time, including a cut in public servants’ salaries, had worked, and by moving away from it the economy was again placed on a path to trouble.
“I am convince that the failure to embrace this adjustment strategy set by Sandiford in large measure accounts for our difficulties or our lack of capacity in dealing with the collapse of the financial services sector in the western world in 2008,” Sir Frank said.
The Sandiford Government collapsed in 1994 and the Barbados Labour Party under the leadership of Owen Arthur – who at one time was tipped to replace Sir Frank as head of the economic advisory group – oversaw a period of sustained growth.
Sir Frank added that reduced productivity and a lack of reward for productive staff also contributed to the shrinking economy.
In any event, he said “there are times when budget deficits are unavoidable”, but warned against taking such deficits to the extreme.
“What we know is that budget deficits carried to extremes are dangerous. They can lead to the collapse of the economy, and when I say budget deficits carried to the extreme I am speaking about situations where from year to year you are generating a budget deficit on current account,” Sir Frank said.