IT IS AN INTELLECTUAL CRIME for the governor of the Central Bank to change the format of reporting to present a false positive with respect to the performance of the foreign reserves for the first quarter of 2015.
Typically, the reserves at the end of March 2015 would have been compared to the figure for the corresponding period of 2014. Instead, the reserves were compared to the end of December 2014.
Done the usual way, the foreign reserves declined by $34.5 million, which represents a major failure given the economic circumstances that prevailed over the 12-month period ending March 2015.
According to the most recent review, the Barbados economy benefited from a reduction of 42 per cent in the country’s oil import bill, which means that it used over $300 million less to import oil. This constituted a major part of the estimated decline of 12 per cent in the country’s total import bill.
In addition to the very favourable environment for using less foreign exchange, the increase in tourist arrivals during the first quarter was expected to shore up the Central Bank’s stock of foreign reserves. This did not happen, which is worrying.
The method of comparing the March figure with the December figure did not suggest any improvement in the foreign reserves that can be attributed to the tourism sector or any other export activity. In fact, the governor identified grant funding of $55 million from the European Union and $84 million from Sandals for the purchase of Almond Beach as the major new inflows of foreign exchange for the first quarter of 2015.
The performance of the foreign reserves was not the only disappointing area of the economy; so too was the anaemic growth. Those of us in the know understand that an expansion of four per cent in tourism GDP (real output) does not easily translate into one per cent growth in the entire economy. In fact, the actual figure in the review was 0.6 per cent, which should not approximate to one per cent in such an important report. But these are the times.
The concern about the anaemic growth is justified when it is reported that output in construction fell, while it remained unchanged in the retail and distribution, manufacturing and non-sugar agriculture sectors when compared to the first quarter of 2014. No mention was made of financial services and Government which account for almost 40 per cent of the country’s GDP. However, they also remained statistically unchanged.
The ongoing lack of meaningful growth in the economy is best reflected in the rising unemployment rate and the failure of the Government to meet its fiscal targets. The latter has come about largely from the underperformance of Government revenue, notwithstanding the imposition of new taxation and higher rates on existing taxes.
Furthermore, the stated reduction in grants to public institutions on the expenditure side is questionable, since the details have not been made public.
It is estimated that Government revenue increased by just over $170 million for fiscal year ending March 2015, compared to the previous year. The insipid economic growth contributed a mere $32 million to Government revenue as the consolidation tax, municipal solid waste tax, financial institution asset tax and the Government grant from the European Union accounted for the remaining $138 million in revenue. This speaks volumes about Government’s persistently inadequate fiscal policy.
More worrying than the Government’s failure to meet its fiscal target was the fact that the Central Bank continued to be the primary source of financing of the deficit.
The Bank continues to make losses but denies that it is still printing money. The question is where would the Bank have sourced a further $183.7 million and $43.5 million to buy additional Government debentures and treasury bills, respectively?
Furthermore, why would these transactions be classified as public sector debt held by the Central Bank? In addition, the Government drew down just short of $60 million of its deposits at the Central Bank, half of which was used to pay the principal on foreign debt.
In addition, the National Insurance Scheme is also under pressure to help finance the worsening fiscal deficit. The national debt continues to rise in the face of rising unemployment, weak economic growth and discouraging prospects for new investment.
Unfortunately, the Government and its policymakers continue to fool themselves with the numbers, including that the public sector is a saver. If it were so, public sector investment and economic growth would have been on the move some time ago.
Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email email@example.com