A Failed Attempt At A Budget

Similar to last year, Prime Minister Mia Mottley delivered her version of the Budget immediately after the Estimates and with the country in the second Barbados Economic Recovery and Transformation (BERT) programme with the International Monetary Fund (IMF). Once again, the Prime Minister missed the opportunity to explain the connection between the Budget, the BERT programme, and the Estimates.

It is accepted that a budget is an important instrument of fiscal and economic management by the Government. Hence, the budget should be contextualised within the social, economic, and financial realities of the country. Also, the motivation for the measures included in the budget, and their impact, should be clearly articulated.

The impact of the measures may be assessed in relation to key economic variables such as employment, growth, balance of payments, debt, prices, and the fiscal deficit. Also, the impact of the measures on specific groups (businesses, consumers, vulnerable families) should be detailed.

Further, it is imperative that the budget includes quantitative information on the revenue-raising measures and the expenditure items. In the event that the expenditure items are not to be financed by new taxes and fees, borrowing will have to be undertaken.

One of the major failures of the presentation by the prime minister is the absence of quantitative information on the many initiatives contemplated. As a result, the exercise was more reflective of a manifesto presentation than a budget. Barbadians are left to wonder, similar to previous years, if the proposed initiatives are statements of intent or commitments that will be actualised.

There is a deficit of BDS$1.05 billion on a cash basis in the Estimates for the next financial year. The mix of borrowing to finance this large deficit is as follows: BDS$628 million from local sources and BDS$422 million from foreign sources, including the IMF.

With no information on the funds anticipated from the upward adjustment in existing taxes and fees (despite the pledge of no new taxes), the Barbadian public may have to accept a significant increase in the fiscal deficit in order to accommodate some of the items from the Prime Minister’s wish list.

It is expected that the Government will experience challenges in raising the anticipated BDS$628 million locally as a result of the lingering effect of the unexpected, hypocritical debt restructuring/debt repudiation (default) exercise in 2018. Thus, we can expect greater reliance on foreign financing to meet the spending requirements of the new expenditure items from the Budget.

During the presentation, the Prime Minister suggested that the economic and fiscal affairs of the country are healthy. She alluded to eleven successive quarters of growth and a manageable debt situation.

The persistent high prices and inflationary conditions have contributed to the growth in nominal gross domestic product (GDP) during the post-COVID period. Despite the size of the economy increasing to BDS$12.8 billion in nominal output at the end of 2023, the reality is that the size of the economy in 2023 was similar to 2019 in real terms.

There are underlying structural weaknesses in the economy which negate the claim that the economy is buzzing. These include unbalanced growth with the economy over-reliant on the vulnerable tourism industry, weak productive capacity, ineffective diversification efforts, low private sector investment, low labour force participation rates, especially among females, high trade deficit, and a high tax regime.

The view that the debt situation is under control must be challenged. The debt restructuring/debt repudiation programme undertaken by the administration in late 2018 resulted in a reduction in the public debt by about BDS$4 billion, taking the debt to under BDS$12 billion, a figure which existed in the first half of the financial year 2014/2015.

With the administration’s insatiable appetite for borrowing, the projected public debt (net of amortisation) at the end of the current financial year is about BDS$15 billion. With amortisation payments in excess of BDS$2 billion over the past five years, it is projected that by March 31, 2024, gross borrowing by the government since coming to office in May 2018 will exceed the saving of BDS$4 billion achieved in the debt restructuring/debt default exercise.

The escalating debt situation is imposing a heavy debt service obligation on the country. Amortisation and interest payments are estimated at a staggering BDS$1.37 billion in the current financial year. This figure is projected to increase to a record level of BDS$1.6 billion in the next financial year.

There is an inextricable link between public policy and the well-being of society. Good public policy, underpinned by a sound philosophy and knowledge of changing social and economic realities, will redound to the betterment of society.

The presentation by the prime minister was oblivious to the social conditions of Barbados. There was no response to the increasing level of dispossession and poverty as families buckle under the weight of high food prices and the high cost of living. The presentation also failed to address the lack of meaningful opportunities, especially for the youth. This situation contributes, to some extent, to their involvement in drugs, gangs, and other forms of anti-social behaviour. The more certified young persons are opting to seek employment opportunities overseas, thereby denying the country valuable human resources.

The prime minister mentioned 16 initiatives aimed at stimulating growth in the economy. These initiatives resemble a wish list since information on the costs, plans and time frames for operationalising the initiatives were not provided.

Most of the initiatives were heard in the past, including reviewing/modernising the tax system, digitising business processes, creating new investment funds, increasing access to financing by firms, increasing public and private sector partnerships, unlocking renewable energy investment, exporting capital to diversify investment opportunities, incentivizing a vibrant creative industry and film industry, addressing the island’s demographic challenges, establishing a pharmaceutical industry, and executing capital projects.

A new initiative is the establishment of Business Barbados, a commercial, state-owned enterprise (SOE) focused on transforming small business operations in the country. However, given the imperative in the BERT programme to reform the SOEs, it is rather confusing for the administration to consider another bureaucratic structure.

The implementation record of the administration is unimpressive. For example, only 20 per cent of the initiatives announced in the 2023 budget were undertaken during the last year. It is therefore likely that the success rate with the list of new initiatives will be very low.

A budget should not be an opportunity for rehashed rhetoric and vague, meaningless talk. Unlike a manifesto, a budget should not be about a wish list and handouts (Howard, 2024). Rather, its focus should be on the sources of funds, that is, the revenue-raising measures (with clear justification) and uses of funds, that is, the expenditure items (and their likely social and economic impact). At a minimum, quantitative information on the sources and uses of funds should be included in the budget.

While we thank the prime minister for the presentation, it is clear that the presentation did not meet the requirements of a fiscal budget. It can more appropriately be viewed as a political manifesto with a wish list of things to be undertaken. The prime minister is encouraged to revert to the methodology employed in the mini-budget of July 2018.

Anthony Wood is a senior economist, former Cabinet minister in the Owen Arthur administration and former lecturer in economics, banking and finance at the University of the West Indies Cave Hill Campus.