Although Caribbean economies are starting to show signs of recovery, it may be premature for governments to relax their fiscal policies now.
This assessment comes from Central Bank of Barbados economists Dr Kevin Greenidge and Mahalia Jackman in a paper entitled Perceptions On The Global Crisis And The Caribbean: The Impact, Policy Responses And Way Forward.
They noted that although Caribbean economies appear to be stabilising and output in the economies of the region’s trading partners continue to advance, full recovery throughout the region may not be immediate as output is likely to remain below its true potential for at least another year.
Moreover, they said the most recent International Monetary Fund World Economic Outlook forecasts that several Caribbean countries might incur debt-to-GDP ratios still above pre-crisis levels up to 2015.
“Not only does high debt limit the fiscal space, but it makes access to additional financing considerably costly. Thus, the main challenge at hand will be striking a balance between policies aimed at economic recovery and fiscal consolidation,” they said in the June 2011 Economic Review.
The economists said regional governments had to focus on gaining efficiencies in revenue collection and employing targeted fiscal support in key productive areas.
In this regard, they noted that governments might need to examine ways to improve efficiency in tax collections and broaden the tax bases.
“In some cases, it may result in the removal of some of the exemptions attached to many of the indirect taxes currently administered, particularly the VAT. It may also mean restructuring and upgrading tax collection agencies,” they said.
Greenidge and Jackman also recommended governments pay attention to containing transfers and subsidies to public institutions and supporting private sector development.
They also suggested that authorities pursue regional efforts in areas such as agricultural expansion, tourism marketing and development. (NB)