Marshall knocks Govt on tight spending

The decision to tighten public spending at a time of deep economic uncertainty as a result of the COVID-19 pandemic is “the single greatest policy flaw bedraggling the Mia Mottley administration”, leading University of the West Indies academic Dr Don Marshall has suggested.

The International Monetary Fund-approved Barbados Economic Recovery and Transformation (BERT) programme is too restrictive at a time when the economy’s recovery depends heavily on Government spending, he declared.

Dr Marshall, head of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES) at Cave Hill, said the “April arrangement with the IMF shockingly restricts the Barbados Government from increasing its expenditure despite the demands for relief that continue to mount”.

In a recent social media posting, Marshall said the island faced very limited options with the ability to print money through Central Bank financing ruled out, he said the Mottley administration was now seeking to bypass this through the Barbados Optional Savings Scheme (BOSS).

BOSS allows Government to reduce its current spending by diverting a portion of some public servants’ salaries to interest-bearing bonds which can be purchased by individuals and private sector institutions from the Central Bank.

But Marshall noted: “Since Barbados reports to the IMF on a cash accounting basis as opposed to an accrual accounting one, government elites can present Barbados as curtailing its expenditure and in lockstep with the target of achieving a fiscal surplus of one per cent. (Spending via off-budget measures has not been a part of the calculus of performance since Barbados entered into the IMF Extended Fund Facility programme in September 2018.)

“So we cannot print the money we need to provide relief and kick-start economic activity. This is despite many other countries doing so. We can blame this on the policy elites who painted the country into a corner in its renegotiation of the [Barbados Economic Recovery and Transformation] BERT in April 2020.

“A casual read of the Key Policy Responses to COVID-19 by the 196 countries in the world as at June 4, 2020 published by the IMF, point to declared levels of high expenditure (as a percentage of GDP) in the budget and off-budget.

“Yet here we are, trapped in yesterday’s logic of fiscal consolidation when today’s budgetary governance feature [actions such as] relieving hard hit economic sectors, sustaining or increasing public health protection costs, providing credit guarantees for banks supporting small businesses, support for vulnerable populations, forbearance meaning support for affected households in need of utility services, investment incentives, and wage subsidies and support.”

The IMF, in its April review, said: “The ongoing global coronavirus pandemic poses a major challenge for the economy, which is heavily dependent on tourism.

An economic contraction of more than ten per cent is projected for 2020”.

The multilateral lender however noted that its Executive Board was expected to approve an additional $180 million (US$90 million) in support for Barbados.