A worrying idea
“Well obviously the economy is critical to everything we do and we need to get the economy back in shape, the deficit down, the debt paid off, so that the economy can grow again and grow properly”. – Iain Duncan Smith, British Cabinet Minister
Earlier this week, the Stuart administration initiated the satisfaction of one of its constitutional obligations by laying in the House of Assembly, the Estimates of Revenue and Expenditure for the fiscal year beginning April 1, 2013. It is with an abundance of reservation at this stage that I share some of my views on the substance of some of the extracts from the Estimates that have been reported in the media. Therefore I will keep today’s commentary circumspect until the debate is concluded in parliament. Hopefully a clearer picture will emerge of how the government intends to restore sustainable growth, foster job creation and facilitate entrepreneurial investment while reducing its high fiscal deficit. What has been reported so far signals more of the same and that is a worrying proposition.
Most of us want to see Barbados thriving and that includes the DLP government. The international environment is inhospitable but opportunities abound in what is becoming an increasingly competitive climate. Two types of economic models will succeed; one built on innovation, productivity growth, entrepreneurship and access to risk finance, the other, a resource rich economy with strong governance structures, a manufacturing base and a creditable diversification strategy. Those economies with mounting debt and intractably high fiscal deficits will continue to find it difficult to break the shackles of ballooning debt servicing which negates scope for present and future public investment. The current prevailing global economic uncertainty largely stems from countries with a sovereign debt crisis or an emerging sovereign debt crisis. Such is the tale of Europe and to a lesser extent the United States.
The long and short of Barbados’ 2013-14 Estimates is that the government has budgeted for higher expenditure and projected higher revenue. The problem is that a deficit in the region of $1.2 billion is expected in circumstances where budgeted transfers and subsidies to institutions like the Transport Board and the University of the West Indies have been understated (unless we are in store for major organisational restructuring). As a result, the actual fiscal outturn is likely to be more deleterious that the Estimates suggest. The magnitude of current expenditure is still a cause for grave concern. I am not sure how much longer Barbados can avoid remedying this issue. The time is now. Barbados, as well as many of its eastern Caribbean neighbours would find it extremely difficult to withstand another major external economic shock, which is not improbable. Think of what would happen if North Korea made good on its recent threats or Iranian nuclear provocations led to war with Israel or the United States.
It is in Barbados’ strategic interest to put its fiscal house in order. That will require smart investments, strategic expenditure cuts and pro- growth short, medium and long-term policies. In a couple years, it will become necessary to contemplate tax reform that reduces the burden, broaden the base and recalibrate consumer choice to achieve certain social and economic objectives, e.g. healthy lifestyles, different import composition etc. At risk of coming across like a stuck record, Barbados is in need of fundamental transformation. The Throne Speech signalled that the new DLP administration is seized of this fact. Thus, there is still reason to remain optimistic and look towards the Estimates debate, successive budget debates and policy implementation for clarity on how Barbados will surmount its most pressing challenges. Business as usual will not do! There’s more to say on this subject in the weeks ahead. I just hope that the government is not waiting for Moses…
“Which European leader today would not relish the wonder-working powers of a Moses? Budget deficit? Unpopular cuts? How about a little miracle, an overnight increase in gold reserves, a new oil field, or the next world-changing communications technology? Surely that’s not too much to ask.” – Jonathan Sacks, Chief Rabbi of the United Hebrew Congregations of the Commonwealth
*Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience. C.R.Forte@gmail.com