LAST WEEK’S ARTICLE noted that it is important to take a step back to put Barbados’ present economic situation in context.
Since Independence, there have been five economic recessions (greater than one per cent decline in real annual GDP) in Barbados: 1974-75; 1981-83; 1990-93; 2001 and 2009. A fair evaluation of Barbados’ post-Independence performance cannot escape an analysis of the policies of the governments.
Notwithstanding the role played by international developments, it is imperative for the government of the day to have a proper policy response to an economic downturn. The current Government has opted for a home-grown fiscal strategy that focuses on taxing Barbadians, no matter what.
The evidence shows that the strategy of excessive taxation has not worked. Furthermore, several different attempts at taxing failed even before they were implemented. This is because the minister of finance, and by extension the Government, have demonstrated a lack of understanding of taxation policy. In fact, it has become increasingly embarrassing for the country that the minister does not only seem, but is actually, out of his depth on economic and financial matters. Enough time has elapsed to make the statement.
The most obvious differences in the current Barbados economy and that of the past are: (1) the size and duration of the Government’s current account deficit and (2) the failure to restore the size of the Barbados economy to what it was in 2009.
The importance of a government’s ability to cover its spending on current expenditure – wages and salaries, goods and services, interest payments, and transfers and subsidies – was identified by the country’s economic managers immediately after self-government in the 1960s. The notion of cover means meeting the current expenditure out of government revenue.
Such an ability may be likened to a household being able to pay for food, utility bills and recurring monthly expenses out of the income earned by the household. In the absence of doing so, some borrowing will be needed and/or dipping into the household’s savings. To do such on an ongoing basis would be unsustainable.
Another important reason for having more government revenue than needed to spend on current expenditure was that the surplus could be used to help finance capital projects. This is, of course, similar to the household using its savings to do repairs or expand the house. Using these simple principles, the Government and people of Barbados embarked on a path of sustainable development in the post-Independence period.
Given the strides made in the 1970s and beyond, with the occasional setback, the respective governments adhered to the basic principles of public sector and household management. This adherence allowed Barbados to reach a level of development that surpassed its lack of physical resources/endowments.
There is no doubt that a country’s economic development is enhanced by the conceptualisation and implementation of effective public policies. The latter are known to put less pressure on households and businesses as they are designed to create growth and wealth. When the policies are inappropriate, they create the opposite effects. Furthermore, they contribute to social decay.
The evidence supports that the Barbados Labour Party (BLP) governments have done much better than the Democratic Labour Party (DLP) governments in managing the economic expectations of Barbadians. The evidence is in the above two per cent annual economic growth rate during BLP reign, when compared to economic decline during DLP reign in the post-Independence period.
While some may wish to argue that the international economic business cycles may have played some part in the relative performances of the two parties, the management of the Government’s fiscal affairs cannot be so accused. The abandonment of the principles of fiscal management, embraced by all governments prior to 2008, is the single most important reason for the country’s poor economic performance.
It is now being fully recognised that the pursuit of a surplus on the current account of government is as indispensable to the economic management of Barbados as not borrowing to buy food is for a household. The current Government abandoned this principle to the detriment of Barbadians over the last eight years.
Finally, the institution that Barbadians have come to rely on for economic direction has faltered under the weight of pig-headedness, which bears no relation to its halcyon days. Experience ought to be an advantage. But, instead of past economic recessions providing lessons, drastically new approaches have been tried. They have failed.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party advisor on the economy. Email: [email protected]
