The fiscal challenges of Barbados and Jamaica have different causes.
The fiscal problem in Barbados is the very high cost of Government operations. The day-to-day running costs of Government – wages, use of services, supplies, and interest payments to pension funds, pensioners and investors – exceed tax revenues collected by Government. This is the reason the national debt keeps growing.
Jamaica’s fiscal problem is quite different. The Jamaican Government has achieved a balance on the current account but the interest costs of government borrowing are very high. Even after two bond exchanges, the interest rate on Jamaican Treasury Bills is twice as high as for Barbados.
Cuts in Government’s wages bill and reductions in transfers to state-owned entities are the way to eliminate the deficit on the current account. The tax burden is already considered high. Interest payments cannot be touched; pensioners and pension funds depend on that income. Purchases of Government supplies have already been cut to the bone. That leaves only wages and salaries and transfers to state-owned entities as targets for expenditure reduction.
Decisive reform of the public service releases the fetters on investment and enterprise in tourism, other traded services, renewable energy, branded merchandise and cultural activities, opening the path to robust and sustained growth of the economy, and richer opportunities for all.
The full text of the July letter is posted to my website at http://www.delisleworrell.com/The%20Fiscal%20Challenges%20of%20Barbados%20and%20Jamaica%20Have%20Different%20Causes.
(Dr Delisle Worrell is a former governor of the Central Bank of Barbados)