The 2008/2009 global economic and financial crisis should have done one good thing for all of the highly vulnerable countries in the Caribbean: make them realise the growing importance of structural reforms to, if nothing else, shift and increase production to the extent that our economies no longer are dependent on a single or few areas of activities for sustained growth and development.
How much more do we need to lament the fact that tourism, with or without support from, say, offshore activities or international business, cannot take our economies to the “promised land”.
Diversifying our economic landscapes, both within and across sectors or industries, is an inescapable dimension of the realities we face as small countries struggling daily for survival in a world in which technological advances are putting growing pressure on us to maintain reasonable annual rates of real economic growth; lower public borrowings and by extension national debt; create employment opportunities for our women and youth; and manage our fiscal deficits, especially on the current account.
Despite the lucid acknowledgment of the need for adjustments to our production structures and systems, the truth is that the magnitude of the tasks ahead for Caribbean countries suggests that before we even begin to think about reconfiguring our economies, the fiscal challenges we face have to be resolved first. Logic would dictate that if our countries are unable to generate surpluses on the current sides of our fiscal accounts, then, how would it be possible to do anything meaningful, economically, much less undertake serious structural reforms? To correct our fiscal issues, the exercise of fiscal discretion is paramount.
In the absence of monetary policy, the only other option for Caribbean countries to stimulate real economic activity is fiscal policy. This means that our governments must continuously rely on revenue generating activities as well as public expenditure manipulation in order to grow our economies, at least in the short run. Structural reform is inevitable in order to position our economies for sustained real economic growth in the medium to long term.
Revenue generation is usually a very simple task for governments because in essence they just have to increase taxes on goods and services when deemed necessary. Even though there is some element of political risks involved with tax hikes, once the process is managed effectively and the incidence of the taxes studied properly, governments can accomplish their socioeconomic goals without much political fallout.
Expenditure reduction, though, is often a much more difficult objective to fulfil. That is because such spending more than likely would reflect collective choices that emerge from the political process. It is possible to evaluate the economic consequences of these choices and to make judgements about the extent to which the apparent objectives which underlie them are being achieved, in the context of cost-effectiveness.
By exercising fiscal discretion, governments, then, can figure out the optimal combination of revenue-raising and expenditure-cutting measures to generate macroeconomic stability, both internally and externally.
It is only after such macroeconomic stability is generated on a sustained basis that we can begin in earnest to address all of the structural problems facing our economies with the hope that real benefits can redound to our people in the years ahead. Otherwise, as the saying goes, we will forever continue to “spin top in mud” as far as economic policies and structural reforms are concerned.
Email: [email protected]