Govt not spending enough says Forte

Government’s response to the COVID-19 pandemic has been inadequate, says Barbados-born economist Carlos Forte.

The Canadian-based Forte, who was giving his assessment of the latest Central Bank report, said given the small fiscal balance of $21.5 million recorded for the first six months of the current financial year, he believed the Mia Mottley administration was simply not spending enough to stimulate economic activity and to mitigate the economic fallout from the pandemic.

At the same time, he suggested that Government should extend the payment of unemployment benefits to at least one year to sufficiently help households cope.

“In an effort to mitigate the worse impact of the economic decline, certainly one would expect the Government would increase its expenditure. The Government should definitely be spending more in this time. There is a lot of scope for direct income support,” he said.

“I think the Government should extend the unemployment benefit to 12 months in these circumstances. I am aware that the requisite national insurance fund would not be sufficiently capitalised to bear that expense. Government would, however, out of tax revenues or borrowing, top up the National Insurance Scheme (NIS) so that it would be able to finance extended unemployment benefits,” he explained.

He said other direct income support would include welfare assistance or other assistance to those who do not qualify for NIS benefits.

“More importantly I would prefer Government increase its capital expenditure – that includes fixing the roads – there is a need for water distribution capacity . . . there is some capital expenditure that is going to be needed with respect to upgrading the sewage plant, and there are a number of projects that have been in the pipeline for quite some time, this is a good opportunity to advance those projects and generate some economic activity,” he argued.

Forte said while he believed the Central Bank report, which was delivered on Wednesday, was comprehensive, it failed to report the true unemployment levels.

The economist said this was “unacceptable” of the island’s leading financial institution, and he called for greater transparency in that regard.

While not mentioning Government’s need to meet targets under the International Monetary Fund’s Barbados Economic Recovery and Transformation (BERT) plan, Forte insisted that the fiscal balance recorded for the April to September period was small and therefore indicated that Government could have spent more.

He said it meant that projects announced as part of a $1 billion stimulus package back in April were not implemented.

“In the present circumstances, one would expect the Government would increase its capital spending quite significantly. Some may call that counter-cyclical policies,” he said, while accusing Government of extracting more from the economy than it has been putting back.

“In circumstances where we have a significant recession, the Government’s response has been inadequate to date. To the extent they made announcements or that there will be future announcements, they are late. The year is almost over,” he said.

He said the “unprecedented” 16.3 per cent economic decline for the past nine months of this year could have been mitigated and the island record “perhaps a 10 per cent decline” instead, had Government spent more on capital projects to stimulate economic activity, especially over the last six months.

Forte maintained that with a number of capital projects yet to get started or be ramped up, it seemed the current administration was having difficulty in facilitating or attracting the type of domestic or foreign investment that the country would need.

“This speaks to some structural issues with respect to facilitation for those projects and also with the investment climate as it relates to investors’ appetite to go ahead and invest,” he said.

Forte, who was speaking on a radio call-in programme on Friday, suggested that Government must keep a close eye on its significantly increasing foreign debt, pointing out that it would need to be repaid in foreign currency in the near future.

Government has so far received more than $300 million in foreign financing, for policy loans and projects.
marlonmadden@barbadostoday.bb