Spending cuts coming, says Stuart

With the start of the new fiscal year just over a month away and the Mia Mottley administration expected to introduce a new budget in a matter of weeks, one economist is declaring that there could be some deep cuts to government expenditure as it continues to meet demands under the ambitious Barbados Economic Recovery and Transformation (BERT) plan.

Kemar Stuart, Director of Business Development, Finance and Investment at Stuart & Perkins Caribbean, said as preparations are being made for the 2022/2023 financial year, he did not expect any new taxes, but indicated that “increases in current ones are possible”.

However, he said “The hallmark of the impending budgetary proposals will be the cutting of expenditure as it relates to the wage bill which stands at $808 million, and transfers to government enterprises at $1.16 billion at the end of 2021.

“These expenses will bear the brunt of the knife coupled with the phasing out of COVID-19-related expenses throughout the financial year,” he said.

Pointing out that international debt service payments resumed in the latter part of 2022, he also noted that Government will need to prioritize repayments of debt, implement a fiscal rule and  return to a 6.5 per cent primary surplus target up from a -1 per cent primary deficit in order to meet the 2035 target of 60 per cent debt to GDP.

“This is approximately a $500 million adjustment in mainly expenditure cuts and some measures of increased revenue via sales and mergers of government assets and increases in point of sale fees at some government institutions,” said Stuart.

Highlighting the growing demand on pension, he also indicated that pension reform should feature highly on Government’s agenda in the next fiscal year.

Stuart’s comments come in light of the February 7 -11 virtual mission of the International Monetary Fund (IMF) to Barbados, in which the delegation discussed the implementation of the BERT plan, which is supported by the fund under the Extended Fund Facility arrangement.

The IMF noted that all indicative targets for the end of December last year under the arrangement were met.

“Strong steps have been made in implementing structural reforms. The Fair Credit Reporting Act, adopted by Parliament in December, will support financial sector development. The Minister of Finance issued regulations for a procedural fiscal rule in December—a key milestone towards enhancing fiscal sustainability,” the IMF said in its latest report.

“The Barbados Customs and Excise Department took important steps to improve performance management, risk management, and trade facilitation during 2021. Work has been initiated on reforms to enhance the sustainability of the public sector pension scheme,” it added.

The IMF team, led by Bert van Selm, further noted that the ongoing COVID-19 pandemic continued to pose challenges to the island’s tourism recovery.

Stuart said he suspected a white paper would be brought to Cabinet for discussion on the long-term sustainability of the public service pension scheme and that he expected the IMF to do its own review.

He predicted that the upcoming estimates and budgetary proposals should highlight where and the extent to which expenditure cuts will be made to “set the tone” for a submergence or emergence of the Barbados economy.
marlonmadden@barbadostoday.bb