IN BARBADOS, the size of the Government is not too big; the economy is too small. This does not mean that there is not a need to improve efficiency and effectiveness in the delivery of Government services.
Equally, it does not mean that the Government is right for squeezing the oxygen out of households and businesses to keep itself alive.
Government policies are responsible for the economy becoming too small in the last eight years. Tax measures sucked out the spending power of Barbadians to the detriment of the economy. The Government’s prolonged wage freeze policy hurt household spending at the expense of growth in the economy. Its interest rate policy denied savers a fair return on their deposits.
The poor policy choices have resulted in eight years of no growth in the Barbados economy. In fact, Barbadians are spending less in 2016 than they did in 2008. This is not because of the international economic environment. This is the consequence of misguided economic policies.
Growth in the economy plays its part in allowing the Government to maintain a certain size public service. In 2008, Barbados had a $9 billion economy and collected about $2.6 billion in Government revenue. Notwithstanding the myriad number of taxation measures since then, the economy is smaller and Government revenue has not increased by one dollar.
Highly achievable
In the nine years prior to 2008, the Barbados economy grew at an average annual rate of just under six per cent in nominal terms. If it had grown by a mere three per cent annually over the last nine years, which was highly achievable with sensible policies, the size of the Barbados economy would be about $11.4 billion.
Instead of experiencing declining revenue, Government would have enjoyed more of it. In fact, in 2016 the revenue would have been in the region of $3.2 billion rather than $2.6 billion, resulting from economic growth alone.
In the alternative scenario with targeted growth, the Government would not have had to deplete the student population at the University of the West Indies. It would not have had to freeze the salaries of Government workers in the way that has been done.
The collection of garbage would not have been under threat because of the lack of money to purchase trucks. The water supply of Barbados, which was known to be scarce for well over a decade and a half, would not have been compromised because of the failure to continue the programme of building more desalination plants.
In short, Barbados is more than a society; it is an economy. It is one thing to have champagne taste and mauby pockets. It is quite another thing to understand that the provision of social goods and services requires a growing economy for the provision to be sustainable.
Having sucked the oxygen of the Barbados economy to keep the Government alive, it should surprise no one that the economy has lost weight. Since the size of the Government depends on the health of the economy, it equally should not surprise anyone that the problem is that the economy is too small. The answer all along was obvious but not for those who are too blind to see.
Even with respect to monetary policy, the focus has been to keep the Government alive not the households and businesses. The excess deposits of the commercial banks are also being used to buy government securities. Interest rates on deposits were reduced to lower the cost of borrowing by the Government.
Switching to bonds
As the deposit rates were lowered, the Government issued bonds at such an attractive rate that depositors are switching to bonds. One wonders about the generosity of the pricing policy used to determine the rate on the bonds. The fact that Barbadians are buying the bonds is not surprising. Offer little on bank deposits and the bonds become magical. The Government is now competing with the banks that it regulates.
Unfortunately, keeping the Government alive has been done to the detriment of the short and long term health of the Barbados economy and Barbadian people. This is the new way of governing; put the Government first and the country last.
The hope is that Barbadians will forget the agony of the recent past and remember only the pageantry for the 50th anniversary of Independence. Without doubt, our pride has taken a lash. We have been denied plenty and we are in need. Our timid leaders have sowed the seed from which our pride has sunk.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party advisor on the economy. Email: clyde_mascoll@hotmail.com
