As Government gets set to hold discussions with trade unions later this week under the umbrella of the Social Partnership, a United Nations agency is pouring cold water on recent demands by the trade unions for a wage hike for public servants.
While suggesting that the island is currently on track to achieve growth in the order of 1.5 per cent this year, the Economic Commission for Latin America and the Caribbean (ECLAC) warned that given Government’s fiscal position, a public sector wage hike was unlikely at this time, in spite of pressure coming from trade union officials.
“Public sector wages and salaries remain high despite a marginal year-on-year decline of 1.3 per cent in fiscal year 2016/17,” ECLAC said, adding that “notwithstanding intensified pressure from trade unions to increase wages, Barbados’ limited fiscal space means that these demands are unlikely to be accommodated”.
In its recently released annual economic survey of Latin America and the Caribbean, the UN agency also pointed out that the country’s primary challenge remains the need to reduce its fiscal deficit, which narrowed from 8.2 per cent of Gross Domestic Product (GDP) in 2015 to 6.1 per cent in 2016 “but remains unsustainably high”.
“The decline can be attributed to a number of revenue-boosting and expenditure-cutting measures introduced in 2016. However, the pace of improvement has continued to be slow,” it added.
Pointing to Government’s recently introduced controversial tax measures which are aimed at raising $542 million in revenue and to close the fiscal deficit, the UN agency also cautioned that “Barbados’ stricter fiscal policy is expected to dampen economic growth for the remainder of 2017”.
However, it said “if planned tourist hotel and other commercial projects can advance and external conditions remain stable, the Barbados economy is forecast to expand by at least 1.5 per cent”.
In its last economic review and outlook, the Central Bank of Barbados had predicted between 1.5 per cent and two per cent economic growth for this year, following a 1.6 per cent rate of growth in 2016.
The Central Bank is expected to give an economic update next Wednesday, August 16.
In the meantime, ECLAC has pointed out that while public sector debt, excluding central government debt, contracted by 12.3 per cent to reach 98.5 per cent of GDP in the first quarter of this year, the decline was largely driven by a build-up of debt at the Central Bank of Barbados and borrowing by the National Insurance Scheme.
The agency also pointed out that at the end of the first quarter of this year the fallen reserves had put increased pressure on the currency peg, which is currently two to one against the US dollar.
“The Central Bank has attributed the sizeable fall in reserves to larger than usual net public sector capital outflows. There is an expectation that the sale of Government assets, higher inflows associated with public sector projects, the continued strengthening of the tourism sector and the two per cent commission on foreign-exchange transactions designed to dampen demand will serve between them to stabilize international reserves by the close of 2017,” it said.
“However, the stability of international reserves in the medium to long-term depends heavily on success in reducing the fiscal deficit, which remains the primary factor driving them lower. Furthermore, the weakened British pound poses some downside risk to the stability of reserves, as it may negatively impact tourism-related spending and real estate inflows.
“In the fiscal year 2017/18 Budget, in an effort to stem the demand for foreign exchange, particularly for purchases of consumer durables, the Government of Barbados announced that commission would be payable on all foreign exchange transactions with effect from July 2017,” the report noted.
It pointed out that the recent significant increase in the Social Responsibility Levy, which rose from two to ten per cent, “may serve to lower the import bill, with the potential in turn to further reduce the external current account deficit for the remainder of 2017”.
At the end of 2016, the external current account deficit was estimated at US$207 million or 4.5 per cent of GDP.
In its report, the UN agency predicted growth of 1.1 per cent for the Caribbean and Latin America this year.
It underscored the importance of macroeconomic policies to invigorate long-term growth and move toward the necessary structural change in the region’s economies.