A shrinking window
On the eve of the 2013 Budget presentation the contours of the forthcoming measures are taking shape. Now that the urgency and imperatives are seemingly understood, or at least appreciated, a credible framework has been emerging.
The national consultation on the economy which was followed by a series of stakeholder consultations have all given rise to a cocktail of optimism and anxiety. Prime ministerial commitment to significant deficit reduction, as well as the tone and musings of the Minister of Finance and Economic Affairs have spurred optimism about the prospect of imminent solutions to the ongoing morass.
The budding anxiety stems from a reasonable expectation that the scale of the fiscal adjustment that is required is likely to result in some short-term socio-economic adversity.
The draft Barbados Growth and Development Strategy 2013 to 2020, a recent private sector prescription for the ailing economy, the Opposition’s policy platform and a plethora of recommendations from various economists and business people have formed the parameters of the action that the country so desperately needs.
It is important that Barbadians understand that tough choices are required to prevent further erosion of the standard of living while laying a strong foundation for the restoration of growth, prosperity and human development.
In fact, many of the choices that will be revealed in the up-coming Budget would have been long overdue. The politics of pandering and expediency that sometimes enveloped the last BLP and DLP administrations would have jettisoned the resolve to undertake the necessary transformation of the delivery and administration of public services.
Whether it is true or not, it appears as if the Government’s hands have been forced by the gravity of recent domestic economic deterioration. That is unfortunate! Regrettably the Stuart Administration has not been proactive.
“Wait and see” seem to have been the governing philosophy. Putting off the inevitable has hitherto been the modus operandi. At the 11th hour, the fiscal deficit is almost as large as it was in 2010, the foreign reserves have slid precipitously, the economy is again in recession and the debt matrix has deteriorated.
According to the draft BGDS, “the existing debt repayment profile is somewhat skewed to the front end and has an overall (principal and interest) trend of significant and increasing maturities due in the medium term”.
It goes on to point out that “approximately 47 per cent of central government’s debt will mature in the next five years, and there are a number of years, where the amounts due are particularly weighty (in excess of $350 million), which limits the opportunity to issue additional debt which would mature in these years”.
This is no trivial matter. Failure to significantly reduce the fiscal deficit within the next 12 to 18 months could be catastrophic.
Government’s recent debt sustainability analysis, done with the assistance of CARTAC concluded that Barbados’ debt remains unsustainably high and vulnerable to external shocks. No surprise here.
Moreover, Government’s fiscal space to invest in productive capital formation that spurs economic growth is being increasingly compromised by the bourgeoning debt levels. We already know that the lack of private sector confidence in domestic long-term debt has forced government to rely on unprecedented levels of short-term debt. This has resulted in high rollover (refinancing) risks.
These negative developments have alerted the authorities of the reality that failure to take corrective measures within the next six to 12 months will see the fiscal crisis followed by a Balance of Payments crisis that threatens the parity of the Barbados dollar and ultimately, prompts a rendezvous with the IMF.
They also explain why the Government has decided to seek to borrow on the international capital market this year. It is necessary for two reasons: (a) to mitigate the aforementioned risks associated with the debt profile and (b) to shore up the foreign reserves in order to stave off Balance of Payments risks.
For some time now, many of us knew what needs to be done. There is broad consensus on the challenges confronting Barbados. The root causes have been examined and many solutions have been advanced. The sticking point seemed to have been a lack of political will or perhaps naivety. For too long we have rested on our laurels but alas, the government is about to act! Barbadians are indeed a crisis people after all.
The Freundel Stuart Administration has acknowledged the key drivers of its fiscal deficit that must be remedied in order to achieve sustained deficit reduction. Some of the drivers listed in the BGDS include “the runaway tertiary education cost”, “the growing health care cost”, “the growing size of the public service and related statutory corporations”, lagging productivity, the cost of energy and antiquated systems of public administration.
The Ministry of Finance and Economic Affairs has already signalled that we could expect: (i) changes to how tertiary education and healthcare is funded and regulated, (ii) mergers of statutory corporations, (iii) caps on transfers to entities like the Transport Board, QEH and BADMC and so forth.
The quality of the 2013 Budget will therefore rest on the extent to which the stated policies address those key drivers of public expenditure. The success of the strategy that is unveiled next week will depend on the efficacy and timeliness of implementation.
I am confident that we can chart a brighter future if we are prepared to work together in the national interest. The window of opportunity is shrinking. The time for action is now!
I look forward to the day when national leadership is once again proactive in the management of State, and public policy is guided by strong philosophical moorings, a clear and bold vision, and a stellar civil service.
* Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience. C.R.Forte@gmail.com