The restoration of a viable Barbados economy must rest upon three fundamental pillars: (1) stabilisation of the country’s fiscal and debt condition; (2) sustainable economic growth and (3) genuine modern political leadership.
In the absence of such an agenda, the inevitable social decay that is already in evidence will accelerate.
It is virtually impossible to address meaningful restoration if the country’s fiscal condition is not tackled in a balanced way. This requires a better understanding of the role of Government from the perspective of its priorities.
In this regard, the major constraint is obviously its size and by extension its ability to finance a tolerable excess of spending over revenue.
In the past seven years, the biggest failure of the Government has been a lack of appreciation for the damage its loose fiscal policy has done in undermining the viability of the Barbados economy and the financial security of Barbadian households.
It is not yet fully appreciated that the current administration borrowed $5 billion in six years, much more than the $3.5 billion borrowed by the previous administration in 14 years.
Furthermore, it is not yet understood that the current Government did not borrow to invest in making the Barbados economy viable, but instead borrowed to satisfy its tendency to consume excessively rather than invest to keep the country on a sustainable path of growth and development.
The warped thinking was informed by the political philosophy of sharing the fatted calf.
The stabilisation of the country’s fiscal and debt condition must start with the recognition that the national debt is the only policy variable over which control can be genuinely exercised. In an effort to balance the country’s need for fiscal stability and economic growth, it is imperative that new debt be invested in the latter.
In the meantime, the size of any new national debt has to be constrained by the size of the debt servicing for the year in which the new borrowing occurs. By the way, the constraint is not the total debt servicing amount but rather the part that will control the growth of the national debt.
A vital part in understanding the role of government is in restricting the role of the Central Bank as a financier of excessive Government spending. Proposed new fiscal rules, if introduced and more so enforced, are important. But even more critical is legislating the role of the Central bank in the financing of the Government’s excessive fiscal deficits.
A potpourri of ill-advised fiscal and monetary policies contributed to the lack of economic growth over the last six years. It included justification for unprecedented and unsustainable excess spending on current expenditure over Government revenue.
This was followed by the Government being encouraged to run much higher fiscal deficits on grounds of the adequacy of the Central Bank’s foreign reserves.
In the face of it all, a galloping national debt was promoted as manageable, with the attendant comment that debt restructuring is ignorance.
On the monetary side, failure reached beyond the central Government as major institutions have been forced to finance the Government’s excessive and misguided spending to their detriment, chief among them the Central Bank.
Having suffered significant losses on its foreign investments because of low international interest rates, the Bank restricted treasury bill rates in the face of rising inflation in 2011 merely to contain the cost of Government debt servicing. As a consequence, the Central Bank compounded its losses from local investments and realised overall losses in five of the last six years.
And once again, the workers, not the policymakers, will become the sacrificial lambs.
This leads us to the need for genuine modern political leadership as an inescapable factor in the pursuit of economic restoration, since the choice of communication is the thing that has changed most in effective leadership.
There are some who still believe that this is the era of telling a child that “a baby was delivered via a plane”. Access to information is now too widespread for such thinking.
There is a pattern of political leadership that is at variance with today’s reality. The chief economic adviser is permitted to stop holding Press conferences and issuing timely annual reports.
The Minister Of Finance chooses to restrict information by presenting a ministerial statement and not a budget. The Prime Minister speaks to the most mundane issues when he likes.
In essence, the country’s wider political leadership is now a law unto itself, choosing how, when and where to provide information to the public.
Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email [email protected]
