THE CONFUSION on what to expect of the Barbados economy in 2016 has started.
On the one hand, Minister of Commerce Donville Inniss has provided his own figure of two per cent growth in 2016. The day before, the governor of the Central Bank, Dr DeLisle Worrell, who is now blaming public sector workers’ inefficiency for the lack of economic growth, wrote that “growth is expected to be anaemic; well below the potential that is within reach”.
Given the lack of performance in the economy over the last eight years, growth of two per cent certainly cannot be described as anaemic.
But what is most fascinating to me is the observation by the governor that “raising public sector efficiencies will make all the difference”. The same governor argued in 2011 that high fiscal deficits are sustainable once the foreign reserves held by the Central Bank of Barbados are adequate.
Given his position on the sustainability of fiscal deficits, it was fascinating to read that “the biggest of these [economic] tasks, and the one where we have found little traction to date, is in the reform of the public service. Examples of public sector inefficiency are by now universal among the Barbadian population, and this is now the largest blot on the country’s competitiveness scorecard”.
Did the governor not know that the public sector was inefficient when he was recommending that a larger public sector was sustainable in 2011? The twists and turns are truly remarkable.
The governor concluded that the fiscal deficit was sustainable purely on the grounds that the foreign reserves at the Central Bank were adequate. The latter was repeated ad nauseam by him over the five years.
At the same time, the Minister of Finance was unfortunately using a threat to our exchange rate as the reason for imposing higher taxation. The strategy caused and continues to cause considerable hardship for Barbadians. But please note, the use of conflicting positions by the technocrats and the politicians is now an embedded strategy.
This year has therefore started on the same note. This time around the issue is one of economic recovery. The governor is predicting anaemic growth while the Minister of Commerce is suggesting reasonable growth out of his hat.
The perception of recovery will allow the Government to meet a different kind of political objective this time around. The ability to spend money for the 50th anniversary of Independence must be accompanied by the notion of reasonable, not anaemic, economic growth in 2016.
The real test for any such recovery will, however, be reflected in the condition of the other two most critical agents in the economy – households and businesses.
In the last seven years, only one business sector has grown, and that is the financial sector. The spokesmen for the sector are now happily instilling confidence via their mouths, but not their policies. The commercial banking sector, which is the largest component of the financial sector, is now able to offer Barbadians a mere 0.5 per cent on their deposits rather than 2.5 per cent.
Excess liquidity
During the economic decline, the same sector continued to make profits, though in declining amounts. The banks had excess liquidity, that is, a lot of money lying idle. They never made any serious attempt to lend to the non-traditional business sectors, especially small businesses, in spite of the excess money. In recent times, however, the spokesmen for the banks declared that they would take more risks in future.
There have been signs that tourist arrivals have been on the increase across the entire region since 2014. In fact, Barbados’ performance is matched, if not surpassed, by several destinations in the region.
Therefore, the experts need to explain that increased arrivals are a regional phenomenon. We all are happy about this and the fact that lower oil prices will help to sustain tourism travel.
However, unless and until the increased tourist arrivals translate to higher household incomes, the benefits will not be realised. Suppressed incomes accompanied by heavy taxation have characterised the economic landscape for the last seven years.
Unfortunately, one of the greatest challenges to economic recovery in 2016 is going to be the full effects of the budgetary measures introduced in June 2015 that took away all of the income allowances and deductions enjoyed by Barbadian taxpayers over the years.
The evidence of this tax assassination will be revealed as Barbadians submit their tax returns for income year 2015.
The Minister of Finance recently imposed more taxation and has not ruled out even more.
Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email: [email protected].
