Almost thirty years ago, James Carville, one of former U.S. President Clinton’s election campaign managers coined the expression, “The Economy, Stupid”. He was satirically making the point that the 1992 U.S. presidential election should be appropriately contested on policy ideas aimed at improving the economy and paving a pathway for prosperity. That election campaign took place in the wake of a severe economic recession that affected many countries, including Barbados. As the people of Barbados and the political parties engage in the ongoing 2018 general election campaign, I humbly submit that a central theme of this campaign should be the economy. That is, stabilizing the Barbados economy, restoring sanity to the government’s finances, and building a firm foundation for sustainable, inclusive economic growth and social development.
Barbados is at a crossroads, and this election could be a watershed for the people of Barbados, their children, their grandchildren and the unborn. Given the magnitude of the economic, social and infrastructural challenges facing Barbados, politicians must rise to the occasion. They have a duty to tell us what they are proposing to do to stop the rot and improve the wellbeing of Barbadians while safeguarding their livelihood, and inspiring the prospect of a more prosperous future. They must also present their credentials and demonstrate that they have the capacity and the vision to deliver.
Barbados’ economy has stalled. Following a brief economic recovery in 2017, the economy is again on the brink of another recession. The public debt is dangerously high (about 150% of GDP); interest on government debt is absorbing about 25 per cent of government revenue; the government continues to spend far more than it can afford, and unemployment and prices (inflation) are on the rise. As if these economic metrics are not bad enough, Barbados’ foreign reserves are no longer sufficient to inspire confidence that commerce and government activities would be adequately supported over the course of the next 12 to 24 months. In order to halt the declining trend of the foreign reserves, intervention is required, and/or a remarkable change in Barbados’ exports and foreign direct investment fortunes.
My professional judgement suggests that Barbados’ economy is eager to grow. It’s nipping at the bud but is being stifled by an environment that is not conducive to doing business competitively in the 21st century. It’s also constrained by what economists call a fiscal drag. Barbados’ economy is being encumbered by the weight of excessive taxation, suboptimal spending, underinvestment in public infrastructure, and poor waste management and public transportation. At the root of these economic impediments are the poor state of the public finances of Barbados, the risk that portends, and the attendant unattractiveness to both local and foreign investors.
To address these issues, the next political administration of Barbados (of whatever political stripe) will have to expeditiously implement economic policies that target the root causes of the prevailing economic and social challenges. What are the root causes or drivers? At this moment in our history, Barbadians are not earning their way. Commercial activities are not earning enough foreign exchange to pay for our imports, service our foreign debt or finance foreign endeavours e.g. travel, education, diplomatic missions, etc. In addition, the government of Barbados is simply spending more than it can afford on transfers and subsidies (T&S) to institutions and individuals. It is also spending more than it can manage on interest payments on outstanding debt. The consequence of this is more debt, more interest and less and less revenue available to cover the additional debt servicing obligations. Transfers and subsidies to institutions and individuals include, but are not limited to, spending on UWI students’ education; health care at the QEH; financing the National Housing Corporation, Sanitation Services Authority, the Transport Board, the Urban and Rural Development Commissions, Barbados Tourism Marketing Inc, Kensington Oval, the Barbados Agricultural and Development Management Corporation, CBC and many more state-owned enterprises. Transfers and subsidies also include spending on the unfunded pensions of retired public servants as well as NIS non-contributory pensions.
It, therefore, stands to reason that in order to reduce the government’s fiscal deficit and wean the State off its addiction to spending it cannot afford and to debt that it cannot sustain, the next government of Barbados must: (i) refinance or restructure the public debt; (ii) reduce T&S to state-owned enterprises by restructuring some of them, dissolving some of them, merging others and privatizing some; (ii) implement public sector pension reform that includes a contributory pension fund for public sector workers; (iv) provide credible policy certainty; and (v) attract foreign direct investment.
These are all hard choices. But they are necessary if Barbados is to progress. The next government should also consider comprehensive tax reform to reduce the tax burden of the middle class and low-income earners while increasing revenue yield. It is regrettable that the Stuart administration did not implement most of the tax reform measures that it commissioned from CARTAC. Taxation should be fair, equitable and efficient. Tax reform should include broadening the tax base, reducing tax rates and abolishing ill-conceived taxes like the NSRL and the foreign currency levy. Taxes that are too high or poorly targeted dampen economic growth and sap enterprise, consumption and production.
I would also like to make it clear to Barbadians that IMF support, or the support of a similar multilateral financial institution that is pro-prosperity, pro-economic stability and pro-poverty reduction, is needed at this time. Though this fact is understood by the DLP, BLP and UPP, because of a lack of political courage and politicians’ cognizance of Barbadians’ misplaced fear of the IMF, they are thus far coy about stating their position on IMF assistance in the context of the current economic crisis. I am here to tell you that an IMF program of some sort will be a part of the policy framework of the next government. It does not matter which Party forms the government, an IMF type program is in Barbados’ post-Election18 future!
You need not fear, as it has become both necessary and prudent to engage the International Monetary Fund on a standby arrangement to (i) stabilise the Barbados economy, (ii) access cheaper public sector financing, (iii) access desperately needed foreign exchange, and (iv) lay a foundation for growth and prosperity. I would also like to assure Barbadians that they need not fear a currency devaluation as Barbados’ foreign reserves, at about six weeks import cover are still adequate (though tenuous). Moreover, the IMF is not the same IMF as it was in the 1990s, 1980s and 1970s. Devaluation is no longer their go-to prescription. More to the point, any IMF program that Barbados may enter into would be negotiated, as was the case in the early 1990s. The IMF of the 21st century has a vested interest in promoting economic and financial stability, sustainable inclusive growth and poverty reduction. It is also important to note that Barbados is already in the grip of an austerity program, albeit one that is exacting pain with little reward. The existing policy stance of the government will not stabilise the economy or usher in a period of economic and social development. If a new Stuart administration is re-elected, it too will have to pursue a different policy framework. Failure to do so will guarantee the demise of the quality of life that Barbadians have become accustomed and render a brighter future more unattainable.
(Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience. [email protected])