by Shawn Cumberbatch
The economist spoke to Barbados TODAY on the heels of a Central Bank of Barbados review showing the economy “contracted” by 0.4 per cent between January and March and the fiscal deficit grew despite a repeatedly trumpeted plan introduced to reduce it.
“The truth is the economy is likely to be back in recession next quarter because the first quarter is the strongest quarter. Generally speaking you would have relatively strong growth in the first quarter and then maybe the rest of the year may not pan out and therefore the growth actually pegs back,” Straughn said.
“So when you start in negative territory there is nowhere else to go but down from here and so unless there is big turnaround in something, which I am yet to see, then it is difficult to see the economy growing at all for the rest of the year. I think the recession will return and in those kind of circumstances then it means obviously less activity in the economy.
“At least before we were growing but growing fairly sluggishly, but when you start declining then things can start to unravel very quickly because businesses are already suffering, they have used a lot of their reserves already and at this point I don’t know that there are a lot of reserves left to weather the storm. So I am very concerned to be honest,” he added.
The BES head said while Government had articulated and was implementing a policy seeking to dampen domestic spending while protecting the reserves, this was counterproductive because it forcing businesses to close because of reduced purchases of their products and services by consumers.
This, he added, was made worse by Government’s spending and in light of the current challenge, which was leading to a change in fiscal policy as enunciated by Central Bank Governor Dr. DeLisle Worrell, Straughn said Government now had few options.
He also found it regrettable that the Central Bank was trying to do “damage control” and sympathised with Worrell, suggesting the governor could not tell the public whether or not the Freundel Stuart Administration was accepting his best advice.
“At no time has the Government actually sat down and reduced expenditure and that is essentially where the problem lies. So whether it’s divestment, some privatisation, whatever term they wish to use, whether it’s actually laying off some workers, whatever it is, they need to do something and they should have done it ever since, … sooner rather than later,” Straughn stated. ”
The adjustments which the governor would not say obviously would have to be cutting expenditure or raising revenue… At every juncture the Government has decided it is going to take a particular course and all the Central Bank is doing at the moment is basically trying to see how best can you minimise the damage and the longer you stay on that path the less options the Central Bank has to help the Government, to help minimise the costs.”
“When a Central Bank is in damage control I think it is time really to relook the strategy for sure, but obviously it requires acknowledgement on the part of the government that the strategy was wrong in the first place and that they didn’t know what they were doing.
“And I suppose that second part may be secondary in the context but the fundamental part is that it is a lack of competence in terms of managing the fiscal affairs that has actually added to the problems that we are having now.
“We have got to fix the problem and the Government does not seem to understand that because things aren’t falling apart in a hurry that we are getting there quickly. Every quarter I keep running out of things to say because you sound like a stuck record all of the time,” he added.
The economist said with the deficit having “exploded” in the last fiscal year ending last month, it was clear the Medium Term Fiscal Strategy was the wrong policy to pursue.