If Barbados or any other Caribbean country wants examples of “well-designed fiscal rules” that have helped to guide consolidation efforts it should look no further than Grenada, Jamaica or St Kitts and Nevis, the head of the International Monetary Fund (IMF) has suggested.
In a hard hitting address today at the 2017 High Level Caribbean Forum, Christine Lagarde tore into Caribbean leaders for allowing “politics and electoral cycles” to get in the way of fiscal adjustment programmes designed to grow their economies.
“Politics and electoral cycles can have a strong impact on fiscal policies and economic outcomes – a phenomenon that has been observed around the world, and has also played a major role in shaping economic developments in the Caribbean,” she told the one-day forum in Jamaica, themed, Unleashing Growth and Strengthening Resilience.
“Too often, promising reforms have been cut short by policy reversals driven by political pressures. Not in all cases I have to say, but in many instances. So we need strong institutions and fiscal frameworks that can help safeguard and sustain prudent fiscal policy over time,” the IMF’s managing director said, while pointing to Grenada, Jamaica and St Kitts and Nevis as countries where “well-designed fiscal rules” have helped to guide consolidation efforts.
“The experience of these countries, which has been very successful, can provide a good example for other countries in the region,” she added.
Lagarde did not single out any country for criticism, preferring to address the issue broadly.
However, the Freundel Start administration has been under increasing pressure from top economists and the private sector to turn to the IMF for help to reverse the worrying slide in foreign exchange reserves and close the over $340 million deficit.
Several homegrown programmes have failed to achieve the desired goal, but Government has steadfastly refused to go the IMF route.
A medium-term fiscal strategy introduced several years ago, with no oversight committee, was subsequently abandoned, with Minister of Finance Chris Sinckler announcing in May that a new Barbados Sustainable Recovery Plan would be implemented by the end of this year.
The new plan, structured and developed by three working groups that came out of a meeting in August of the Social Partnership, is meant to address the areas of foreign exchange earnings, competitiveness, and the major challenges associated with implementation, and will include the establishment of an oversight committee, Sinckler said.
Lagarde today promoted the formation of fiscal councils “as tools to promote sound fiscal policies by providing independent information and analysis, and by monitoring compliance with fiscal rules.
“Well-designed institutions can play a key role in securing broad political consensus around important reforms,” she insisted.
The IMF boss complained that several Caribbean countries have been recording low economic growth for decades, which she said has led to social problems, including crime and youth unemployment.
And while she said some leaders had been making an effort to grow their economies, it was “a bit of a puzzle” why growth remains stagnant.
“Unfortunately, economic growth in the Caribbean has been low for several decades. This has led to rising social and economic challenges including poverty, inequality, unemployment, and crime. While many authorities in the region have made the effort in terms of macroeconomic stability, in terms of fiscal efforts, yet growth is somehow resisting those efforts and it is actually a bit of a puzzle as to why that is,” she told the gathering, which included Acting Central Bank Governor Cleviston Haynes, the Barbados-based Caribbean Development Bank’s economist Dr Justin Ram, several former and present regional leaders and other high level officials.
Still, the international lending agency’s head identified several reasons, some of which she said were avoidable.
She listed external shocks, such as natural disasters and loss of international trade preferences, and “structural impediments”.
A few come to mind: the high cost of electricity, limited access to credit for households and medium and small enterprises, high rates of violent crime, and a persistent outflow of highly-skilled workers – the brain-drain,” she explained.
During the one-day conference IMF and regional officials discussed a range of issues affecting sustainable economic development in the Caribbean, including climate change, crime and violence and youth unemployment, and how to work more closely to improve economic growth and create more job opportunities. [email protected]