Bajans warned increased hardship likely to come

One economist is warning of more tough times ahead for Barbadians. Kemar Stuart, Director of Business Development, Finance and Investment with Stuart & Perkins Caribbean, is sounding an alarm that Government may need to implement more fiscal rules in an effort to meet future debt obligations.

What is more, Stuart said given the ongoing impacts from the COVID-19 pandemic, unemployment could remain high, leading to continued low productivity in the economy.

“Local demand for goods and services continues to be depressed by high unemployment, reduced work hours and price increases across the board for example gas prices, supermarket goods and utility bills.

Unless private sources of income are injected into the local economy, massive voids will be left to plague the country due to a pulling back of government spending in the economy,” said Stuart.

“In the financial year 2022-2023 increased taxation and further unemployment will be unavoidable due to the implementation of a fiscal rule coupled with a return to running primary surpluses on government books,” he predicted.

He reasoned that the price increases and inflation being felt in Barbados currently could be attributed to “a self-correcting adjustment due to loss of income as a result of the COVID-19. Stuart said without Government’s intervention, residents will have to pay overall price increases to “bring the economy back”.
“With the restrictions of the International Monetary Fund-endorsed Barbados Economic Recovery and Transformation plan on no increases in subsidies, legal and economic restrictions on the central bank and National Insurance Scheme debt or hardly any option to increase income to the government, increased prices at this point is the way the government can collect increased income without overall increases in the taxation rate,” he explained.

“Since taxation is charged as a percentage of price, increased prices will increase collection rates. The continued increases in debt to the international financial institutions will become burdensome to the Barbadian tax payer due to overall decreases in productive activity,” he added.

Barbados’ debt stock currently stands in excess of $13 billion, or 150.3 per cent of gross domestic product (GDP).

For financial year 2020/2021, Government was forced to borrow a whopping $1.2 billion as it shored up the reserves and bolstered social services in light of the effects from the coronavirus pandemic.

While pointing to the recent International Monetary Fund (IMF) virtual staff visit to discuss implementation of the Barbados Economic Recovery and Transformation (BERT) plan, Stuart said the Special Drawing Rights (SDR) allocation of US$129 million effective August 23, 2021 “confirmed the government’s commitment to avoiding an external devaluation of the exchange rate peg away from BDS$2 to US$1”.

Stating that the continued bolstering of the island’s international reserves was due to “the loss of foreign exchange earnings in travel and tourism receipts”, Stuart explained that this borrowing would only serve to benefit major users of foreign exchange “without any linking of the reserves to developmental policy to increase possibilities of earned income for locals”.

He warned that any further borrowing by the Mia Mottley administration would “place a severe burden on an already overtaxed and shrinking tax base” when the debt becomes due.

“The more borrowed reserves increase, the greater adjustment must be made locally and the Barbadian taxpayer will be required to pay higher prices to bring the economy in balance. Any ease in adjustment will have to come from government intervention,” he said.

“The choice to keep the external peg in place comes with measures to adjustments on the local front make in the form of an internal devaluation.

The internal devaluation comes in the form of the government reducing the labour and wage bill, reducing funds allocated to ministries, reducing pension monies to citizens, placing caps on capital expenditure and investment, engaging in debt restructuring and overall reducing government expenditure that is linked to income to citizens,” he explained. (MM)

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