With the economic situation as it now stands and the almost two-week-old Mia Mottley-led Government currently in discussions with the International Monetary Fund (IMF) on a balance of payments support programme, a spokesman for one of this island’s minority political parties says he is not holding out much hope that the ruling Barbados Labour Party (BLP) will be able to honour any of the major promises it made during the recent general election campaign.
“In particular, without significant tax reform, this Government will be unable to remove the dreaded NSRL [National Social Responsibility Levy] and reduce VAT [Value Added Tax] down to 15 per cent as promised,” said Solutions Barbados spokesman on Finance and Economic Affairs Scott Weatherhead.
“In fact, far from reducing VAT, I fully expect them to increase the rate of VAT,” he told Barbados TODAY.
Weatherhead, who was defeated by the BLP’s Ryan Straughn in Christ Church East Central which was also contested by Ronald Jones of the Democratic Labour Party and independent Ogeji Dottin, further suggested that promises of a public sector salary increase or coping subsidy would “certainly” be broken, as well as that of meeting the tuition payments of Barbadian students attending the University of the West Indies (UWI) by September.
Just yesterday, the National Union of Public Workers announced that it had agreed to accept Government’s offer of a 4.5 per cent pay hike for public servants over the three-year period beginning 2016 and ending 2019.
However, with the details of that accord yet to be finalized, Weatherhead, whose Solutions Barbados campaigned against the island going the IMF route, is warning that instead of any financial inducements, Barbadians should brace themselves for more austerity in the form of public sector wage and job cuts.
The Solutions Barbados spokesman is also not ruling out a devaluation of the Barbados dollar, which is currently pegged two to one against the United States currency.
“We can fully expect that under an IMF assistance programme, there will be significant staff cuts, and or salary cuts in the public service; privatization of many state assets resulting in staff retrenchment, and even the unthinkable devaluation of the Barbados dollar will not be off the table as some of the conditions to IMF financing,” he cautioned, adding that ‘it is amazing to me to see trade unionists singing the praises of Government for going to the IMF for assistance.
“I wonder if these persons will be singing the same tune a year from now when many of their members are on the breadline under an IMF austerity programme,” he added.
In light of Prime Minister Mia Mottley’s announcement that the country’s debt now stands at 170 per cent of gross domestic product and its international reserves at a low of only US$220 million or seven weeks’ worth of import cover, Weatherhead also warned that there was no avoiding austerity.
And while some local commentators have said that IMF assistance programmes were not as onerous as they had been in the past and loan conditions had improved, he said research had shown that this could not be farther from the truth.
He pointed to an April 2014 Reuters report which showed that the number of conditions the IMF attaches to its loans had grown in recent years, despite promises to the contrary.
In fact, the report quoted the European Network on Debt and Development, known as Eurodad, as saying that nations desperate for cash were at a disadvantage in dealings with the IMF, which were likened to negotiating “at the barrel of a gun”.
“The IMF attached nearly 20 conditions, on average, to each loan it has approved in the past two years, said Eurodad, which comprises 48 non-governmental organizations from 19 European countries. That was more than the Eurodad had calculated in two prior reports,” the Reuters report said, adding that many of the conditions focused on politically contentious areas, such as public sector wage cuts or private sector reform.
Eurodad looked at the period from October 2011 to August 2013, covering 23 loans.
And while in a 2011 review, the IMF promised to keep “conditionality parsimonious and focused on macro-critical issues”, Eurodad said: “The IMF is going backwards – increasing the number of structural conditions that mandate policy changes per loan, and remaining heavily engaged in highly sensitive and political policy areas.”
With that being said, Weatherhead said “there is, of course, another way out of this economic mess, but I do not expect this Government to take the route Solutions Barbados proposed”.
This called for removal of the NSRL, the 17 per cent VAT; the two per cent foreign exchange commission; a reduction in personal income tax from the range of 16 to 25 per cent down to a ten per cent flat tax with no deductions; removal of import duties and taxes on healthy foods; a reduction in land taxes through agricultural incentives and removal of all taxes on pensions for retirement benefits.