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Moody’s downgrade just a confirmation

Economist says further taxation is not the way to correct fiscal deficit

Economist Dr Justin Robinson says the recent triple-notch downgrade by Moody’s Investor Services merely confirms that the island’s financing is in bad shape.

Economist Dr Justin Robinson

Economist Dr Justin Robinson

And he is suggesting that further taxation is not the way to correct the situation, saying it could make the situation worse.

“I think most people in Barbados think that we really have topped out in terms of taxes, but there isn’t a lot of scope for raising taxes. Maybe, taxes are at the point that you may raise them and actually collect less,” said Robinson, the dean of the Faculty of Social Sciences of the University of West
Indies, Cave Hill, and chairman of the National Insurance Scheme.

He further suggests that while Government’s retrenchment programme was necessary, the country’s fiscal position would not improve in the short term.

“What the downgrade shows is that public finances are in a weak state and the process of correcting them is obviously a long-term one and is really just starting. In a sense, Moody’s didn’t tell us anything we didn’t know before. Moody’s didn’t generate any new information,” he said.

“Personally, I thought Moody’s may have jumped the gun a bit, but it’s not clear to me what would have got worse between when they did their last review and this one. But at the same time I definitely wouldn’t quarrel with the fact that public financing is in a weak state and the low credit rating reflects that. We have to fix the public finances and it is not an overnight fix, it is going to take some time.”

The lecturer made the comments following a press conference held this morning to mark the successes of a JOBS Project and launch the new Masters In Entrepreneurship And Innovation Programme at UWI.

He also said he does not see a connection between the recent downgrades and Barbados’ currency, as the country’s ability to maintain the fixed exchange rate is driven by the level of foreign exchange reserves. Those reserves, he said, are more than adequate to protect the fixed exchange rate.

“At this point the exchange rate is not at the back of my mind as a problem. Ask me that as this same time last year and I may have given you a different answer, but I think the success of the last year is that the reserves have been restored and they are pretty solid. The concern I have, and I think is reflected in the downgrade, is that public finances are weak and the Government has challenges raising the finances that it needs,” he said.

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