PROBLEMS IN OUR SMALL OPEN economy continue to dominate news headlines in a manner not seen since the early 1990s.
Once again the challenge is to ensure the preservation of our foreign reserves at a level consistent with internationally accepted safety net provisions, and to contain the fiscal deficit within sustainable limits.
We are confident our problems are capable of solution and there can be no doubt that with political will, combined with carefully crafted policies, that these matters can be dealt with. This country’s history is replete with examples, (including the 1990s), of our skill and determination in overcoming what seemed at first sight to be intractable problems.
But while there is no need to panic, there are some matters to which attention must be paid now. The public interest is harmed the longer that remedial action is delayed. Indeed, the latest downgrade by Standard & Poor’s makes this very point, which has been frequently echoed on call-in radio programmes and in the press.
Standard & Poor’s says that the downgrade reflects that agency’s view that the “Government’s willingness to take timely proactive to strengthen its financial profile continues to erode”.
It specifically mentions high deficits, reliance on Central Bank financing and a decline in external funding as contributing to our national financial problems. Moreover, it considers the policy of ongoing dependence on Central Bank financing, (commonly known as the printing of money), to be at odds with the Government’s goal of defending the exchange rate.
As we now know, our Central Bank has also spoken along similar lines and the recent dismissal of the governor of the bank does not change that truth.
It is therefore not surprising that the Government has said that the “downgrade was expected and was largely driven by decline in the foreign reserves, which was due to delays in public inflows linked to various projects.”
It is always easy to be wise after events, but a major part of the art of governance is to anticipate problems and plan for them. It is clear that there are established warning systems employed by the Central Bank and the Ministry of Finance to enable Government to foresee potential economic problems.
Hence, the pertinent question which has to be faced as part of the strategy to escape from this economic quagmire is to find out what went wrong. Did the warning systems fail, or were the wrong policies being pursued?
Recent events show that there is a more than a good case for arguing that the policy options adopted in the past have failed, and if this is accepted, then a change or modification of policy is required.
In small open economies with limited wriggle room, we cannot place too high a premium on getting the policy options right and then having them implemented in a timely manner.
In our view, slow business facilitation where it exists in the public sector cannot continue to be the order of the day, especially when foreign direct investment is at risk, because such tardiness will become a major hindrance to timely restoration of our foreign reserves to required levels.
Time is of the essence. Some austerity and pain will come with the kind of policies that should be pursued to get the economy growing, cut high deficits, and improve foreign reserves. Correct policies and political will are the keys to our recovery.
