THE PRESENT HIGH level of uncertainty in the country calls for a type of political leadership that would inspire confidence in private enterprise.
But economist Professor Michael Howard also warns that at the same time, Barbadians have to exercise financial prudence and curb their appetites for luxurious living since “they will have to endure this crisis for an uncertain time”.
“The strategy of ‘watchful waiting’ is necessary to ride out this recession,” he told the DAILY NATION.
Howard suggested that the only appropriate policy action Government had in the present economic situation was to continue to reduce its current account deficit and at the same time maintain the level of social welfare for the most vulnerable groups in the society.
He also said Government needed to deliver a financial statement rather than a budget at this time, noting that such a statement would tell the country how Government was dealing with current account expenditures such as wages, salaries, transfers and subsidies.
He said such a statement would address Government borrowing and the national debt and the serious problem of Barbados’ declining credit rating.
Howard also urged Government to resist the temptation of raising additional revenue from increasing VAT and income tax at this time.
“Such increases on a shrinking revenue base would inflict further damage on the fragile economy and also result in significant political fall-out for the ruling DLP Government.
“Again, in the context of a declining revenue base, Government cannot give out generous tax incentives to the private sector,” he added.
Howard also noted Government could not pursue “counter-cyclical or expansionary policies which would require the printing of money” since it would lead to a depletion of the country’s foreign reserves.
“In this scenario, the private sector will struggle to maintain their cash flows to keep people employed. The uncertainty of the duration of the recession will result in some firms eventually going out of business. Firms will have to adopt creative measures to stay in business.”
The economist said one of the most serious problems facing the economy was the financial uncertainty among individuals relating to debt and financial investments.
“The problems of life insurance industries including CLICO have created great financial uncertainty among Babadians. In the CLICO case, depositors have been deprived of their liquidity and now face an uncertain financial future. Such financial uncertainty can slow down the recovery effort,” he said.
