A genuine, solid measure to reduce the deficit!
That’s how a major Wall Street credit rating firm, Standard & Poor’s, has described Government’s plan to lay off thousands of public workers, a move which has triggered the ire of the National Union of Public Workers, the Barbados Workers’ Union and other labour organizations.
“The Government is still projecting a five per cent deficit which is still pretty high, and I think in order to maintain creditworthiness, this (layoffs) is a good first step,” Richard Francis, S&P lead economist and analyst for Barbados, told the Daily Nation in New York.
“In order to stabilize the country’s debt burden, you are going to need a further reduction in the deficit. It doesn’t have to be this fiscal year but you need a credible strategy to reduce the deficit over the next three to five years.”
Francis, who headed an S&P team to Barbados late last year and met with Government officials, opposition parliamentarians, union representatives and senior private sector executives, said that while the layoffs would cause some pain in the short run, they would go some way in restoring fiscal discipline to Barbados’ economic situation.
“That’s what Barbados needs to stabilize the debt burden and that’s one of the key indicators that we are looking at terms of the creditworthiness of Barbados,” he explained.
“We have a double ‘B’ minus rating with a negative outlook.
While it’s not the lowest of the low, Barbados is not at investment grade anymore – the current rating is three notches below investment. Barbados has seen a steady deterioration over the last few years and that trend is picking up.
“With a negative outlook on the rating, there is a one-in-three chance that there could be a further downgrade.
“But there is hope that Barbados could go back to a stable (outlook) if it is creditably able to reduce the deficit and if you start seeing the economy staring to rebound.
“Making economic progress and reducing the deficit in combination with a pickup in the economy, that is what it would take to go back to stable,” Francis added.
That explains why S&P is closely monitoring what Barbados does about its planned layoffs. Francis issued a veiled warning that if the Government unduly postponed letting the workers go and didn’t move fast enough to rationalize the state enterprises, then Barbados would lose credibility in the international financial markets.
“It’s not in Barbados’ best interest to delay the layoffs,” said Francis.
“Clearly the Government has been taking measures this past year but unfortunately the measures have proven ineffective in reducing the deficit.
“When I was recently in Barbados, there was a growing acceptance that tougher measures were needed to be taken and I am sure the public sector unions are not going to be happy about this.
“It’s not surprising that the unions would put pressure on the Government to rescind the layoff; what else would a union do? But we will wait and see. The proof of the pudding is in the eating . . . .”