Haynes: Gov’t only has so many choices to cushion consumers

By Marlon Madden

With the uncertainty surrounding the continuation of the compact between the Government and the private sector to cap mark-ups on some products, Governor of the Central Bank Cleviston Haynes is warning that some tough decisions will have to be made.

While the price-easing measures for consumers come to an official end on January 31, Haynes said a careful balancing act was needed to ensure that consumers continue to be protected from inflationary pressures while making sure that businesses are not being squeezed.

His assessment came on Wednesday while responding to questions from journalists during a press conference to review the country’s economic performance for 2022.

In mid-July 2022, Prime Minister Mia Mottley announced that Government would forgo some $17.5 million in Value Added Tax (VAT) and duties on some essential food items after the private sector signed a compact that would see supermarkets reducing the mark-ups on 47 items between the period of July 21, 2022, to January 31, 2023.

However, the private sector served notice late last year that the compact was unlikely to continue as businesses grappled with high and rising prices that were out of their control.

Government had also agreed to forgo $10.5 million in revenue by reducing the VAT rate to 7.5 per cent for the supply of electricity on the first 250 kilowatt hours used by households.

“We don’t know fully what is going to happen in terms of the pressures from abroad. We have to recognise that inflation in Barbados is impacted by several things, the primary one being the prices that we buy our goods from abroad. That impacts not only goods but also services that we utilise . . . .

“If you can see energy prices falling, we can see food production increasing and therefore food prices are starting to come back down. That will have a favourable impact on domestic prices. But that is a situation over which we have no guarantee. We are really living in what I would say is a very uncertain economic global environment,” he explained.

Haynes suggested it was “manageable” for the Government to forgo some revenue as a result of the compact given that revenues last year increased as a result of the same high inflationary environment.

In 2022, Government’s overall revenues increased by $254 million, on the strength of broad-based increases in tax revenues. VAT increased by about $86 million and import duties rose by $16 million. However, excises and fuel tax declined by $9.8 million and $12.6 million, respectively.

“Obviously, it is a policy judgement which the Minister of Finance will have to make because some balance has to be given. We don’t want to leave the society in a situation where they are unable to be able to sustain themselves, but we also have to look in terms of what impact it has on the government,” he said.

At the same time, he said, the private sector component is a little “trickier”. He indicated that one had to take into account what such a measure was having on the balance sheets of those businesses that are involved.

“I think that being able to cap the mark-ups on select goods is important because I think that helps the consumers. By helping the consumers you also have to continue to stimulate demand, because if prices get too far out of hand then obviously what will happen is the overall demand in the economy will contract.

The Central Bank Governor explained that should the external inflationary pressures ease and there was also a softening of the compact measures, then consumers may not realise the benefits for quite some time.

“It is a careful road that has to be navigated and I believe that with the best will, we will be able to achieve that [ease in the cost of living] going forward,” said Haynes.

marlonmadden@barbadostoday.bb