When the people who run your money-printing press tell you it’s time to slow down, you know you’re in trouble.
With the reserves once more in a precarious position – just below $900 million – and Government’s requirement for domestic financing not slowing, the Central Bank of Barbados reported in its half-year press release that the Barbados Government “required an additional $301 million from the Central Bank of Barbados”. The presses rolled once more to supply some of it.
With the Government relying more and more on the Central Bank to fund its operations, it is not surprising that the foreign reserves are under pressure. When you read the June economic statement, there is much less of the “But wait! There’s money just around the corner!” feel than in recent missives from the bank.
The tone is stark, more resigned. It speaks in volumes what it doesn’t directly state, which is that we are now really on the brink.
But having left it all too, too late, the Dolittle administration, and its financial strategist, Minister of Finance Chris Sinckler, last Tuesday made a non-courageous effort to deny the writing on the wall, not to mention the bank’s press release warnings.
You will recall that the Central Bank had said in that statement that “foreign exchange outflows will be tightened by the measures to be announced in the forthcoming budget”. Note the use of the word “will”.
But in what sounded like a repudiation of that comment, Sinckler declared that no new measures would be introduced to “limit Barbadians and/or businesses from accessing foreign exchange in Barbados”. He said what was already provided for in the Exchange Control Act of Barbados was “sufficient”.
However, Sinckler admitted there were serious problems facing the country, which he summarised as follows: First, “our debt levels are way too high and still climbing”; second “our fiscal deficit is still too large and must be better controlled”; and third, “as a result of the two variables above, our growth levels are being seriously restricted as we cannot find the fiscal space to assist in further unleashing growth”.
For a moment I thought, maybe we will have a real Budget today, you know, one that tackles these problems.
And before he dashed my hopes once again, the Minister of Finance actually admitted his past policies had failed, saying, “the policies which I am about to announce this evening do NOT represent a redo of any failed policy attempts of the past three years or even the past eight years for that matter.” (the capitals are his, not mine.)
The problem with the minister’s view of his past record is that it started in 2013, not 2010 when he took up the post. This allows him to keep repeating that he has been able to lower the fiscal deficit from the near 12 per cent it had reached at the end of fiscal 2013-14. He doesn’t like to admit that he had two fiscal years prior, when the deficit was 4.5 and 8.5 per cent respectively.
If he did so, Sinckler would then have to explain why he allowed it to actually get to nearly 12. So it is better to act like he came and found that figure and, by dint of his exertions, has managed to beat it down.
And having partly fixed the problem he himself had created, Sinckler explained on Tuesday how he did it: “We were able to first halt the rapid decline in reserves by reducing the demand for foreign exchange in the economy….”
So having saved us from, well, himself back then, what happened this past fiscal year, that, instead producing your expected deficit of about four per cent of GDP, as he said on Tuesday, “we ended up with a deficit of 6.9 per cent in 2015-2016”?
Well, said the finance minister, he had no choice “but to allow it to happen.” It would have meant pausing for a year the Barbados Water Authority’s capital works programme, which would “further exacerbate a horrific water crisis in Barbados,” and allowing the Barbados Agricultural Management Company to default on a $62 million dollar bond payment that was due in February.
Sinckler said that the Government could not have done those things “only because we wanted to come in to this Parliament and boast of having a deficit of three or four per cent of GDP. Fool’s gold it would be.”
My Internet dictionary describes “fool’s gold” as “a brassy yellow mineral, especially pyrite, that can be mistaken for gold.”
Announcing a reduction in the fiscal deficit is not something you can mistake for the real thing. It is indeed the real thing. It is the litmus test of your financial viability as an economy. And we have been running our country’s fiscal deficit so high for so long that the consequences are now virtually hard-wired for this economy’s future.
Sinckler obviously would not agree, because he closed his little “Fool’s Gold” speech by saying, “we did what had to be done knowing that it was in the best interest of the country.”
Of course, if Sinckler had been able to sell off the Barbados National Oil Terminal over Rubis Caribbean’s valid objections to the Government’s “preferred bidder” – as he said was imminent three or four months ago during his Estimates presentation – he would not have found himself in this deficit situation. Moreso, if some of those long-promised hotel investment projects had actually started and the foreign exchange was rolling in as long-promised by the Dolittlers.
But, for some reason, Sinckler’s efforts in those regards have still to bear fruit. And that is why he was unable to declare victory over the deficit for the fiscal year just ended, and why he, perhaps under pressure from the International Monetary Fund and other lenders, had to rush into Parliament, not to announce he had achieved his deficit reduction, but for the sole purpose of installing almost immediately a new cess on imports to try to extract another $140 million out of the taxpayers’ pockets.
Fool’s gold, indeed.