The Democratic Labour Party was returned to office earlier this year, partly on the basis that the Barbados economy was “stable.”
In its economic press release issued in January, just weeks before the bell was rung for the elections, the Central Bank noted, in the very first sentence of its economic review, that “Barbados’ foreign exchange reserves increased during the year to $1,467 million, and the import cover at end-December stood at 18 weeks, even though there was no real growth in the economy in 2012.”
This was achieved despite a contraction in both output and lower foreign exchange earned from tourism.
In 2012, there had been a 6.2 per cent decline in long-stay arrivals, but spending on imports was lower, and therefore “the gap between import payments and foreign earnings was smaller than for 2011,” said the bank.
In fact, the main reason why the foreign exchange reserves were up was “thanks largely to the receipt of $167 million from the sale of Barbadian shares in the former Barbados National Bank.”
Now, according to the Central Bank, things went along smoothly for a few months. But suddenly, in the second quarter of this year, they “weakened considerably.”
But was the bank worried? Of course not. With “an import reserve cover of 16.4 weeks, recorded at the end of June,” it said, “the stock of reserves remains above an acceptable level.” (Central Bank press release on the economy at June, 2013.)
The report was a prelude to the national consultation held in late June, at which we were warned of serious belt-tightening to come by none other than Prime Minister Freundel Stuart himself.
After the stern warnings issued about the economy by top officials, including the prime minister, at that meeting, where, you will remember, the equally-sobering Medium Term Growth and Development Strategy was released, we got to the Budget Speech.
MID-AUGUST 2013: “…(W)e are also predicting that, without intervention to stem the decline, the net international reserves are likely to close the year just below the billion dollar mark or roughly around the international minimum standard of 12.5 weeks of import cover.” (Minister of Finance and Economic Affairs Chris Sinckler, Budget speech)
Sorry, Mr. Sinckler, we are there already.
LATE OCTOBER 2013: “…(T)he foreign exchange reserves declined to $1 billion, a fall of $447 million since December 2012. However, reserve levels were adequate to cover contingencies such as this and the foreign reserve cover was 13 weeks of imports as at the end of September.” (Central Bank press release on the economy at September 2013)
For the central bank, the glass is never half empty. It is always almost full, as long as you pour the water into a smaller glass.
Mr. Sinckler, referring to the fall in the reserves and the growing fiscal deficit, acknowledged in his Budget speech that “neither of these scenarios portends any favourable circumstances for Barbados or Barbadians. In this regard therefore it is absolutely necessary that Government intervenes now to alter the trajectory of the macro-fundamentals.” (Budget Speech, August 2013, pages 22-23)
But the first tentative efforts to reduce spending, which had to do with non-renewal of contracts for non-permanent workers which apparently would normally just be rolled over, caused a furore in the country.
The prime minister jumped in and dialled everything back a notch or two. Along with that, there was, and remains, mounting confusion over whether the garbage tax rate has been put at the correct level (although Mr. Sinckler says it was), and how far to extend the roll-back of the VAT to 7.5 per cent on tourism-related services.
Last week, the bank underlined the fact that nothing is really being done to curb spending as called for by all of the statements quoted above (and there have been many more), when it opined that “with the fiscal measures announced in the Budget not yet in effect, third quarter government revenues continued to be weak”.
How weak? Revenues, said the bank, were “estimated to have been $140 million lower than for the April-to-September period of 2012. Corporation tax receipts were down $59 million, and collections of VAT and personal income taxes each fell by $35 million. Expenditure was reduced, but by only $23 million, and the fiscal deficit widened by $117 million.”
Is there any movement on closing this widening gap? If we have already nose-dived through the $1 billion foreign reserves level through the outflow of capital that is not being replaced, what is the plan?
It seems as if the Stuart Administration has simply decided not to stir up this hornet’s nest again, at least for a while.
What will happen if and when that report comes in on those 19 or 20 statutory corporations or government agencies that are been considered for merger or streamlining in order to cut government’s overhead? Will that also be placed on the backburner?
It appears the whole idea of coming to grips with the budget deficit was just a summer dream. A reverie on a hot summer’s night.
The Central Bank last week seemed to indicate that it had more or less written off 2013 and 2014 as years in which any move toward recovery will be possible.
“The combination of the anticipated increase in earnings from tourism, increased FDI, and the dampening of imports, is expected to result in a recovery of the foreign exchange reserves in 2014,” it said.
And as the projects get going, the construction sector is expected to also expand after years of contraction. But growth will be marginal.
In fact, it won’t be until 2015 that we can expect good news, “as major projects come fully on stream, and initiatives to boost international competitiveness begin to bear fruit,” said the bank.
We are like Bassanio waiting for his ships to come in.
