My comments on the performance of the BLP administration on its one-year anniversary are largely shaped by the fact that I am of the view that by May 24, 2018, the economic and financial challenges being faced by Barbados could not be addressed via home grown solutions, and that an IMF Structural Adjustment Programme was key to galvanizing the international support needed to address the challenges of lack of access to financing, low and declining foreign reserves, high deficits and high debt as shown in the table below.
I commend the Government for having the political will to enter an IMF Structural Adjustment Program and the speed with which such was achieved. Urgent action was needed and urgent action was taken and deserves the highest commendations. The urgent action enabled Barbados to unlock low-cost loans from various multilateral agencies which have provided much needed financing as well as improved the foreign exchange reserves. The Government also needs to be commended on meeting, and in some cases exceeding, the targets set for the first IMF review and the improvements in key economic indicators as shown in the table below.
The debt restructuring exercise has served to reduce the debt levels and the financing pressures of debt service on Government finances. Again, the Government and its advisors deserve high commendation on the speed with which the domestic debt re-structuring was achieved. The external debt re-structuring is still outstanding. However, such negotiations can be contentious and protracted and the 12-month period to date is not especially unusual. The broader point is that the vast majority of the available evidence points to an increase in investor confidence which is critical given that investment will be needed to drive growth during the fiscal adjustment programme.
I am of the view that the next 12 months could well be the most challenging part of the adjustment to date. Under the terms of the IMF Structural Adjustment Programme, the initial Primary Balance target was set at 3.30 per cent of GDP, and the current financial year will be the first where the 6.0 per cent of GDP Primary Balance target will have to be met.
The new administration inherited a Primary Surplus as shown earlier and the additional adjustment required to meet the targets in the first year was relatively modest. However, an adjustment of an additional 3.1 per cent of GDP will be required in the current financial year. This will require serious fiscal discipline and will severely test the patience of the austerity-weary people of Barbados and by extension, the resolve of the Government. The Government and its advisors will do well to take their own advice and “Stay the Course.” Also, while the fiscal adjustment programme is innovative, carefully and skillfully designed, there are risks inherent in some of the choices made in the attempt to spread the burden of the adjustment, and over the next year, we may get a better sense of the impacts of some aspects of the adjustment programme, such as higher taxes on tourism and hospitality.
The fiscal adjustment program and debt re-structuring are causing real pain across Barbados and the government and its advisors will do well to acknowledge such and resist any temptation to minimize the real pain and disruption many of the adjustments are causing for various segments of our society.
The Government and its advisors should be prepared to make adjustments where initiatives are not working well or have unintended consequences. There are always alternative views; meaningful and sustainable change will require persuasion and “bringing people along” rather than dogmatism. We have always benefited from a vibrant democracy with many views contending and I hope that can continue. The right “messaging” will be critical as we go through this difficult but necessary fiscal adjustment program.
Dr Robinson is Senior Lecturer in Management Studies & Dean of the Faculty of Social Sciences at the UWI, Cave Hill Campus.