With Government recording an increase in transfers and subsidies and wages and salaries over the past three months, Central Bank Governor Cleviston Haynes is cautioning that continued public sector reform will be critical to Government achieving fiscal sustainability.
Haynes explained that the faster the Mia Mottley administration was able to achieve efficiencies across state-owned enterprises, the faster it will be able to cut funding to those agencies.
For the April to June quarter of this year, current non-interest expenditure rose by just over $27 million, the result of increased spending on welfare and the household survival programme.
However, according to the latest central bank report, that increase was also due to “larger transfers to the Queen Elizabeth Hospital, partly to cover additional COVID related spending”.
At the same time, wages and salaries also expanded modestly to reach $202.2 million, up from $197.9 million for the corresponding period last year.
Transfers and subsidies increased by about $36.7 million to reach $236.7 million during the second quarter of the year.
There were increases in almost all line items including grants to individuals, grants to public institutions, subscriptions and contributions and nonprofit agencies.
During the review period, Government’s expenditure on goods and services contracted by roughly $13.7 million, reaching $51.5 million.
While the decline in capital works fell by about $15 million during the period, it was partly offset by higher transfers to other projects, including outlays to small and medium sized enterprises impacted by the national pause as well as improvements for road works.
Overall revenues declined by two per cent or $122 million, to reach 7.6 per cent of GDP; while expenditure increased by some $27 million, to reach 6.9 per cent of GDP at the end of June.
Stressing that the focus must be on improving efficiencies across all state-owned agencies, Haynes said he was satisfied with the progress of public sector reform at this stage.
“I think the process of reform is moving in the right direction. Perhaps in the last year we have not spoken a lot about the state-owned enterprises because I think everybody is caught up trying to deal with the COVID, but I do know in the background there is work on a number of entities that is ongoing, and which I believe in due course you will hear more about,” he said.
“The public enterprises aspect is critical to the overall fiscal sustainability. If you look back at what happens let’s say pre our IMF (International Monetary Fund) programme is that a lot of the rising cost really was attributable to what was happening at the enterprises and therefore reducing the cost – not necessarily reducing the services – of the enterprises, is going to be very important in helping us to get to that fiscal sustainability,” he explained.
Despite declining revenues and increased public sector spending, Government is maintaining a target of a zero per cent of gross domestic product (GDP) primary balance for the current fiscal year which will end March 2022.
Haynes insisted: “It is not necessarily about raising the revenues but being able to contain the cost by improving the efficiency with which enterprises are able to deliver their services”.
“Therefore, that is why those reforms remain critical because as we start to talk about primary balances, it is going to be partly because we have to make fewer transfers to those enterprises because they are operating in an efficient manner as one could expect,” he explained.
In its latest public report in June, the Barbados Economic Recovery and Transformation (BERT) Monitoring Committee did express concern about Government’s ability to meet the primary balance performance target of zero per cent of GDP for the upcoming 2021/2022 fiscal year.
It said it was also eagerly looking forward to continued review and transformation of state-owned enterprises.
Haynes said in his recent review that “in most cases, Government is trying to improve efficiency of the state owned enterprises”.
He also hinted at possible mergers of some “small entities” that could be on the horizon to help with the efficiency gains. (MM)
