With the Freundel Stuart administration currently under pressure from trade unions to grant a double-digit pay hike to public sector workers, one of the island’s key regional development partners is suggesting that Government acts otherwise.
In fact, if the Stuart administration heeds the advice of the Caribbean Development Bank (CDB) it could be a while before any significant wage increases are granted.
Speaking to Barbados TODAY on the sidelines of Wednesday’s regional press conference at the Bank’s headquarters here, Director of Economics Justin Ram strongly urged Government to consider putting a cap on its wage
bill relative to its gross domestic product (GDP), while pointing to the urgent need for the country to reverse its high debt-to-GDP ratio and to reduce its massive transfers and subsidies bill.
The economist explained that by capping the wage bill at a certain percentage of GDP, public sector workers would be afforded an increase once the economy grows.
However, he said the catch was that state departments and agencies would have to be reformed and public sector workers would have to become more productive in order to help drive that growth, which he said should be led primarily by the private sector.
“As it relates to wages, we have been advocating for most of our borrowing member countries to have fiscal rules, and one of those fiscal rules says that perhaps wages of central government should be no more than a certain percentage of GDP,” Ram told Barbados TODAY.
Using Grenada as an example, he said public sector wages were capped at about nine per cent of GDP, while suggesting that Barbados should consider putting a similar cap in place.
“We think that nine per cent level is quite good. Here is where the crux of the matter is, We say to workers in the public sector, ‘if you want to have an increase in your wages that should be matched by an increase in productivity’. So public sector workers have to have an interest in ensuring that the economy grows as well, because once the economy grows and if you have that cap on wages, let’s say nine per cent of GDP, then you could imagine your wages will rise if the overall pie is increasing.
“ . . . So when unions ask for increases in salaries you should ensure that those increases are also matched by improvements in productivity as well,” he stressed.
The National Union of Public Workers has been pressuring Government for a 23 per cent wage hike for its members, while its sister union, the Barbados Workers’ Union, has been demanding a 15 per cent pay rise.
However, Ram cautioned against a double-digit increase at this time, pointing out that Government was still saddled with a high debt despite a slight improvement last year.
Just last week, the Central Bank reported that gross Government debt dropped slightly to 145.9 per cent of GDP between April to December last year, from 147.5 per cent of GDP the previous year.
“Why did we have those improvements? Primarily because the Government did not spend enough on capital expenditure and we are seeing that with respect to infrastructure,” Ram said.
“What has to happen is that the Government needs to put in place a plan to coherently deal with bringing the debt to GDP ratio down to a sustainable level within a certain period of time,” he added.
The CDB economist said it was about time Government reforms state enterprises in an effort to reduce transfers and subsidies, which he said was “just too high in Barbados”.
While there was a marginal decrease in the wages and salaries bill for the April to December period last year, there was a $49.9 million increase in transfers and subsidies, which reached $803.4 million at the end of December.
“It means that state-owned enterprises need to be reformed. So the Government needs to look at that in its entirety and decide which state-owned enterprises are providing useful benefits to society and which of those state own enterprises may not be providing such a useful benefit, and then Government can decide if it wants to improve productivity or perhaps use a type of public private partnership to improve productivity of those state-owned enterprises thereby reducing the transfers on Government expenditure,” Ram recommended.