THE WAY IN which the Barbados economy is being managed continues to be a mystery.
The Minister of Finance expected the latest downgrade of our country’s international credit rating. He noted that it was largely driven by the decline in the international reserves. His observation sounds indifferent.
If the international reserves were a stock of water in a kitchen sink and a leak had developed in the drainage system, then one could expect the water level to be reduced. But the stock of international reserves at the Central Bank is connected to other behavioural indicators in the economy such as the performance of tourism, foreign debt payments and, of course, the fiscal deficit, among others.
The Barbados economy is not a bicycle that the minister has borrowed and if it catches a “flat tyre”, he simply returns it to the owner in the village. It is a sophisticated vehicle, whose engine and how it works demand some understanding. It is expected to be treated well, including being serviced at regular intervals, and where necessary, being thoroughly inspected to determine the condition of its parts.
The Economic Review is intended to be the quarterly interval at which the public is made aware of its condition. However, there is information that can be inspected on a daily basis such as the international/foreign reserves at the Central Bank. Then, there is information that is available on a weekly, monthly and quarterly basis.
It is imperative that a clear distinction is made between changing the oil, the oil filter and the gas filter, and having to change some mechanical part of the engine. The distinction comes in understanding when the vehicle needs servicing as opposed to a structural need.
The structure of the Barbados economy did not start in 2008. It happened long before. Three fundamental economic changes occurred in the post-Independence period: (1) the ability of the Government to incur fiscal deficits; (2) the setting up of the Central Bank to help finance the deficit and (3) the replacement of sugar by tourism as the major sector.
Live within means
It is accepted that incurring fiscal deficits had to do with building out the physical infrastructure of the country in the post-colonial era. However, it was recognised by Errol Barrow, and all the other prime ministers up to 2007, that the Government had to live within its means.
This was clearly articulated by Barrow who stated that “. . . the accumulation of surpluses [on the current account] . . . assisted in defraying part of the cost of our capital expenditure during the same decade”. This is referenced frequently in my articles because it is one of the gospels for fiscal management in Barbados. It has been badly betrayed since 2009/10.
In spite of being unable to solve the fiscal crisis for the last seven years, the Freundel Stuart administration continues to play innocent of what it is knowingly doing. In the last quarter of 2016, the private sector shed 2 500 jobs and the broke Government employed 2 400 people. A sustained reduction in the spending power of Barbadians must eventually affect the business/private sector and it did.
There is an obvious connection between the printing of money and the fall in foreign reserves. The evidence was first properly noticed in April 2013. When faced with a more difficult situation at the start of the 1990s without foreign reserves at one stage and very little thereafter, then Prime Minister Erskine Sandiford put the country first.
In 2008/09, the current administration had $1.5 billion in foreign reserves (21 weeks’ cover), but opted for excessive taxation rather than a fiscal stimulus. The rest is history. Unfortunately, as things got worse because of poor policy choices, the economy contracted and the Central Bank became a printing press.
For a Minister of Finance to say that he expected another downgrade, while accommodating more job creation in the public sector that is broke, is testimony to the character of the Stuart administration. It is about time that the private sector personnel wake up to the reality of a Minister of Finance, and by extension a Government, that puts itself first in the worst fiscal crisis in the country’s history.
The just-laid Estimates document does not suggest that the Government intends to tackle the severe fiscal crisis that has become fully exposed. There is clear evidence that it continues to overestimate its revenue and understate the expenditure. In the circumstances, it will be another year without any serious attempt to correct the fiscal problems confronting the country.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party advisor on the economy. Email: clyde_mascoll@hotmail.com