The immediate focus of Government is to address the deficit on the fiscal current account. In short, there must be significant reduction in the current expenditure while also focusing on generating growth in the economy from which tax revenue will be collected.
These reductions can be achieved through privatization of some state-owned entities.
In last year’s Budget, Government announced the planned partial privatization of the airport, seaport and the oil company. This should be pursued post-haste to allow the Government to raise capital, which should be used to repay the “current account deficit” debt incurred over the last few years.
Though the economy is sluggish the current revenue is still at historical highs and every emphasis should be made to generate broader economic growth.
Economic and revenue growth will hinge predominantly on significant private sector expansion and the generation of employment opportunities. This will involve some form of economic stimulus which I suggest the Government can facilitate in the following manner.
Another priority of the new administration should be its alternative energy programme which should go full steam ahead. It will require some extra spending in the short term but the administration should make sure that almost every Government building is retrofitted with alternative energy systems (wind and solar) once energy audits are completed.
Government is the single largest consumer of energy and aggressive pursuit of this programme would immediately spur economic activity at the installation phase.
When the buildings are not in use the energy generated should be put into the grid at a concessionary rate to reduce the cost of doing business and alleviate the cost of living in the country. Another positive is that the Government would also reduce its own energy costs and the savings then could be used for more productive purposes.
This along with other expenditure cuts would create sufficient fiscal space for Government to focus on improving the business climate and to facilitate the creation of employment opportunities.
We must dismiss the notion of maintaining public sector employment over that of the private sector. Simply put, private sector activity generates the taxation from which public servants are paid.
Running large current account deficits places a greater burden on an already reduced private sector as it is already paying higher levels of taxation and will likely face higher taxation in the future because of Government’s increasing debt levels.
In addition, the level of interest payments now exceeds 20 per cent of revenue and so failure to address the deficit and debt problem will put further strain on the provision of social services, education, health, and so on.
It’s unfortunate that some public servants will inevitably have to consider their options but the end will justify the means as we seek to consolidate the public sector so that it can better serve the country in the 21st century.
• Ryan Straughn is an economist and president of the Barbados Economics Society.