Saturday, March 2, 2024

WHAT MATTERS MOST: Just another way of printing money


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In the prevailing economic circumstances facing Barbados, the Opposition Leader should not have had to go for a no-confidence motion in the Minister of Finance to trigger a debate on the economy on matters that are critical to our current survival and our capacity to prosper in the future.
This debate should have been triggered by the failure to finance Government’s excessive spending without recourse to an alternative way of printing money by the Central Bank that does not have to be approved by the Parliament of Barbados. It is a fundamental flaw in the budgetary process.
As far back as September 2011, the Central Bank of Barbados revealed that the Government had been unable to make some payments on schedule.
In short, the Government was having difficulty financing its excessive spending.
It was suggested that the Government had almost reached its limit for printing money; there was an absence of external funding; commercial banks were reluctant to buy more Government securities and the National Insurance Scheme (NIS) was finding it difficult to sustain its already high financing of Government’s spending.
Over the last two years, the Government’s ability to pay its bills has worsened and the sources of financing are no better. Its recent attempt to secure external funding was aborted because of our unprecedented international credit rating status.
In addition, the limit for printing money that is set in Parliament has been reached. However, a Government that is in the worst fiscal condition ever is able to sidestep debating the economic issues in Parliament because the Central Bank’s board can use discretion in setting a limit on the holding of primary issues (treasury bills), which is an alternative way of printing money. This is wrong.   
Furthermore, commercial banks have not changed their lack of appetite for more Government securities. In the face of it all, the Government has not reduced its excessive spending. For the first six months of this current fiscal year, the fiscal deficit has again increased, even though a strategy for lowering the
deficit was supposed to be in place. The problems of financing identified by the Central Bank in September 2011 remain the same, but the foreign reserves have plummeted. At that time, the Central Bank’s board “formally approved the current excess holdings of primary issues [treasury bills]” and “a temporary increase in the limit of primary issues held by the bank from $120 million to $250 million until March 31, 2012”.
In Jamaica, the limit on the holding of primary issues (treasury bills) has to be approved by parliament, but this limit is at the discretion of the Central Bank board in Barbados. In both cases, it is just another way of printing money which has the same negative effects on the country’s foreign exchange reserves. This discretion has to be taken out of the hands of the board of the Central Bank of Barbados.
If it were necessary for the Government to bring the limit of the holding of primary issues (treasury bills) at the Central Bank to the Parliament for approval, Barbadians would have benefited from a thorough debate on the state of the Barbados economy. But the board’s discretion has circumvented this very important right that the people’s representatives ought to have in a mature parliamentary democracy.
In the circumstances, the recent economic review is a peculiar document both in what it said and did not say. It said that the foreign reserves fell by $447 million since December 2012
but it did not say that the fall actually occurred since April 2013, which makes a big difference with respect to the economic analysis. It said that the fiscal deficit widened by $117 million but it did not say explicitly how it was financed.
However, in the absence of external funding, the government relied more heavily on the NIS and the Central Bank for financing. It was identified two years ago that “the NIS’ inability to sustain financing at the 2010-11 levels [was] because of off-budget pressures”.
These pressures have not abated. Rather the Central Bank’s holding of treasury bills at September 13, 2013 was $310 million, which is $190 million more than what the bank is supposed to be holding since the increase in September 2011 was to be temporary. Perhaps this is another occasion for “temporary” to be defined.   
Beware of the ides of March!
 Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy.


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