Minister of Finance Chris Sinckler is reminding Barbadians that the measures announced in the 2017 Financial Statement and Budgetary Proposals are mainly designed to stop the decline in foreign reserves, which stood at only 10.7 weeks of import or $705.4 million at the end of March.
Sinckler, who is currently under pressure to withdraw his May 30 revenue measures, also reiterated today that his $542 million austerity package was designed to lower the fiscal deficit of $537.6 million, which he acknowledged was still too high and unsustainable, leading to more Government borrowing, including from the Central Bank because of the lower lending appetite of other state creditors.
Stating that Government was not an earner of foreign exchange, Sinckler said the public sector was “a large driver of the deficit”.
“So if you are not earning foreign exchange but you are a major part of the utilization of the foreign exchange then you have to find a way to bring your demand or appetite for the foreign exchange under control, and if that appetite is being driven by a higher deficit you have to get the deficit down as quickly as possible,” he told reporters following the signing of a US$34 million loan agreement with the Inter-American Development Bank for expansion of renewable energy and national gas use on the island.
“So in the context of those objectives, you have to see what are the best measures to adopt. Barbados is a small economy and we don’t have a lot of options. We can’t switch out from external earnings into domestic reliance like an economy like . . . Brazil or one of the bigger economies,” he said.
In an effort to close the fiscal deficit and shore up the foreign reserves, Sinckler announced a whopping 500 per cent increase in the National Social Responsibility Levy from two to ten per cent, introduced a two per cent levy on all foreign exchange transaction and an increase in taxes on petrol in his May 30 Budget.
This has been met by a huge public outcry including from ordinary Barbadians, the private sector, the Opposition Barbados Labour Party and trade unions, all calling for a repeal of the measures, which they say will lead to a rise in the cost of living and will deal a severe blow to the island’s competiveness.
However, Sinckler reiterated today that the measures were put forward after weeks of consultation on a number of different scenarios, proposals, options and measures.
He said they were designed to make the island more competitive, earn more foreign exchange and end the drain on the reserves.
“We looked at all the options and I laid out those in the Budget. Some of them are quite far more draconian than we have chosen, so we have put options on the table and said, ‘what are the ones we are going to pursue?’ And I understand the reaction. Austerity is never easy. It is painful. Nobody relishes or holds a party when they hear there is austerity because it means there is going to be some pain,” he said.
“The question is, if you don’t do that, what are the alternatives? The alternatives are much worse. We can lose jobs, we can continue to lose value in our economy, suffer more downgrades, find ourselves in a position where we can’t pay our debts, social services continue to deteriorate and then we are forced in a position where we have to take even harsher decisions.
“My view is that we have to weigh everything in the balance and see the ones that can achieve your objective with less disruption as possible,” the Minister of Finance said.
With two weeks to go before the controversial tax measures are implemented, Sinckler however left the door open for alternatives.
And he gave the assurance that the Central Bank would “define shortly” how the two per cent tax on foreign exchange transactions would be implemented, a concern raised by the Barbados Bankers Association and other private sector groups.
In response to suggestions from the Barbados Renewable Energy Association that the measures would negatively impact the sector, Sinckler pointed out that the Freundel Stuart administration had made several investments in the sector.
“Why would we do all of that to now come and collapse it?” he asked.
However, he said Government would try to mitigate, as much as possible, the impact of its controversial tax measures.