Wednesday, April 24, 2024

THE HOYOS FILE: Economy stable, citizens on critical list

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In the fiscal year just ended, Government’s revenues, expenditures and the fiscal balance were on target with the Medium Term Fiscal Adjustment Strategy. . . . The Estimates of Expenditure for the fiscal year which began this month are designed to further reduce the deficit to 4.4 per cent of GDP, with additional declines in future years until the budget is balanced in FY 2016/2017. – Central Bank Review Of The Economy for first three months of 2012.
While we are projecting a deficit-to-GDP in keeping with the MTFS, we are still considered to be in a precarious situation. . . . (W)e need to get to a position where we borrow to finance only the repayment of the principal and make a contribution to our capital budget. With this as the focus for the future it will be necessary to reduce the deficit including amortization to within $500 million as a matter of urgency. – Chris Sinckler, Budget Speech, August 2011.
The three main reasons for Barbados’ second attempt to get on a deficit-reduction treadmill, known in loftier circles than the ones I inhabit as the Medium Term Fiscal Strategy, were because government turned just over US million worth of subsidies into loans, brought in just over $230 million revenue, most of it from VAT, and enjoyed the benefit of higher oil and other commodity prices.
The first initiative has been controversial because what were previous operational subsidies to the UWI, the hospital, Transport Board and a couple of other entities were classified last year as loans. Overall, government expenditure was reduced by about $75 million.
The second initiative, while increasing Government revenue, took over $200 million more out of the disposable income of individuals through the removal of personal allowances and the increase in the excise tax on gasoline, and also raised the cost of living and doing business economy-wide through the increase in Value Added Tax.
These cruel austerity measures reduced the actual amount of Government’s operating deficit from three-quarters of a billion dollars to just under half a billion. But that still would not have been enough to allow us to get under the MTFS bar, so perhaps we should be thankful for rising oil prices, which increased our gross domestic product by almost $300 million to $8.8 billion.
When you work out the percentage of that deficit of $473 million against the estimate of total output of $8.8 billion, you come up with 5.4 per cent deficit.
Sounds a lot better than the 9.1 per cent deficit which Barbados posted the previous year, with the dollar amount of the deficit showing as $775 million and the GDP as $8.5 billion.
For the fiscal year we have just started, the Government expects the dollar amount of the deficit to be around $50 million less than it was last year, coming in at around $412 million, but with GDP continue to expand due to higher import prices, projected to reach $9.2 billion, we should be able to claim a percentage deficit to GDP of 4.4 per cent.
By the way, just for reference, here’s how Investopedia defines GDP:
“The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.” – www.investopedia.com
So, dear friends, as can be seen from the above, what may be good for the Government’s finances may be disastrous for ours as individuals, households and companies.
Which is exactly what is going on right now in Barbados.
The only sector of the economy that is being rewarded for what it does, and of which the least change in circumstances is being effected, is the Government itself.
 As Finance Minister Chris Sinckler said last week – rather proudly, I thought – the main goal of the Government has been to keep everybody on its payroll in jobs. Therefore, the almost doubling of unemployment to over eleven per cent currently, is of course regrettable . . . and everything possible would be done to . . . [whatever and so forth].
If you are a government employee you are impervious to the recession in terms of your job, but of course you are feeling the inflation just like everyone else.
There are at least three main segments in a society: the government, the private sector, and households.
The strategy of this Government is to protect the first at all costs and leave the second and third to fend for themselves, at least until the economic storm has passed.
So in the short term the Government, applauded by the Central Bank’s policymakers, has adopted the same strategy economically as King Charles II’s doctors performed on him medically.
You may recall that in the case of the king, leeches were placed on his body every day after he had fallen ill with some kind of very bad cold. They sucked and sucked the blood out of him, to the cheers and encouragement of the doctors, who believed that to cure the patient, “bad” blood had to be removed from circulation.
And while he was being magnanimous abut the whole thing – apologizing for being so long a-dying, and exhorting his family to let not poor Nell suffer – his life was indeed being sucked out of him.
In the case of Barbados, the economic lifeblood of its citizens is being sucked out of them by a cool and calculating finance ministry which must reach its fiscal targets or else suffer the ignominy of being the first administration to achieve junk bond status for its national debt. To do this, it has chosen austerity measures only, and as it continues on this path, it finds it impossible to come up with any creative initiatives that would spur economic growth.
And in the wings, the Central Bank sings favourable chorus lines on the theme of fiscal “stability”, while the average citizen’s economic status is anything but, and in many cases on the critical list.

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