The way of the IMF, or not
Barbados faces tough decisions about its economic future
Minister of Finance Chris Sinckler has broken his silence on the recent debate over whether Barbados should go the route of a formal International Monetary Fund (IMF) structural adjustment programme.
On the last occasion that a Democratic Labour Party-led administration decided to take such a bold step back in the early 1990s the result was a series of onerous measures that were met with widespread public protests and ultimately its removal from office.
In an exclusive interview with Barbados TODAY, Sinckler makes clear the Government’s current position on the matter.
He also reveals plans for a major overhaul of domestic tax system, as well as shares some useful insight into his upcoming budget.
The detailed interview comes on the heels of last week’s IMF staff visit to the island.
Today we bring you Part 1 of his very detailed interview with Editor-In-Chief Kaymar Jordan.
First of all, an IMF staff team, led by Nicole Laframboise, would have visited Barbados last week. That visit came amid a huge cloud of consternation over whether they were here to discuss with you and other Government officials another formal arrangement that could lead to a currency devaluation. Mr Sinckler tell us straight up, is Barbados headed into a new structural adjustment programme with the IMF, following our 1990s experience?
Sinckler: I have heard the discussion, and I think the discussions are always good to have because you want persons to express their view on how they see things, but at this stage there is no decision by the Government to go through a formal IMF programme.
However, we have been working with the Fund’s staff that have been assigned to Barbados and others, [including] CARTAC the regional technical body, [on] a review of the statutory entities, on the [fiscal] adjustment programme and looking at different scenarios, and that has gone very, very well.
The visit last week was not an official Article 1V consultation, it was a routine visit, which we invited them [to] and worked with them on. They were last here in April/May and they came back last week, so to the extent that that is the case, we will continue to work with them on areas that we believe they can lend valuable assistance but no, [there’s] no decision on any formal programme in the terms of an adjustment programme with the Fund.
So what was the IMF’s conclusion at the end of this “routine visit”? Are they happy with how your fiscal consolidation effort is going?
Sinckler: Well, they recognize that the situation is tough and that we continue to make credible efforts to bring the deficit under control. There have been some successes. Of course there have been areas where responses have been slower than we would have liked. This is not anything new, we have said this publicly. A full report will be given in a number of weeks by the Government and we continue to look at the different scenarios on how we can continue apace.
We have set a deficit target from the Estimates last year of 6.6 per cent. That is what we are looking at, and we believe, based on the current information we have, that with some additional effort, staying on track, and ensuring that we continue to do the things, which we said we were going to do, that we should be able to reach that target.
Of course remember that we are cutting from a slightly higher position because we had the unfortunate situation of having to bring to books a number of items at the end of the last financial year that would have pushed the deficit up to as high as it went, 12 per cent plus. Therefore, we have to ensure that we don’t have that type of situation again, which we don’t expect this year for sure, and that the measures which we put in place last August remain in tact, are rigidly applied and the stuff that we did in March of this year with the Estimates remains on track. So in terms of the Fund, they have recognized that we are continuing to work on that, and they were particularly happy to see foreign exchange, which is one of the major and critical parts of the programme, has stabilized, even outside the borrowings that we did; that there seems to be appreciable confidence returning to the market and that is evidenced by increased inflows of foreign direct investment, which was one of the things that had taperedoff and caused a challenge last year. So in that regard, it is looking reasonably ok.
What about the public sector retrenchment exercise, is that on track or will more people have to be sent home?
Sinckler: At this stage no, . . . . Not in the way it was done last time. That part of the retrenchment programme is now over, I think we have pretty much reached our targets reasonably. In relation to what we see going forward, we had iterated as well an attrition programme [for] when people retired or had to leave their posts for whatever reason, that those positions would not be filled unless they were absolutely critical to the functioning of Government and that will continue apace.
Our anticipation is that [attrition] can produce about 200-300 spaces a year from which savings can be found. And over a period of time, you could imagine how many jobs we could save, as many as 500, that is the average the IMF had originally been working with, . . . but we have kind of brought it down a little tighter because we know that there are some jobs in the system that we will have to fill because of the nature of it, so we say about 400, and so that together with the reforms that we are going to be doing, that exercise will become more public in the coming weeks.
Going forward, we will see what is happening with the gymnasium [the Garfield Sobers Sports Complex], the Sports Council, KOMI [Kensington Oval Management Inc.]. There is some other stuff that will be happening otherwise as we look at those entities so it is likely that in between there, you will have one or two positions that will be made redundant in the restructuring, but it would not be a mass thing like 3,000 or 5,000 or 10,000. No, no, no, not of that vintage again!
So when did the attrition programme formally get going.?
Sinckler: It started since the beginning of this year.
And who has been affected so far?
Sinckler: I would not be able to say specifically. That is something that would come out of the Ministry of the Civil Service and the Personnel Administration Division, but we know that, in any given year, there is a list of retirements . . . and you would be able to see during the course of the year how many you are dealing with. Whether it is 100, 200, 300, and in a public service of many thousands, you can imagine that the [figure] would be appreciable.
With that being said, what is your final number now in terms of retrenchments because initially we were hearing of 3,000 plus workers to be sent home from the public service, now you are now talking about 500 by way of attrition, and from other reports we have received some persons have also been brought back to fill posts in the system.
Sinckler: Well exactly as you have explained it. It is a kind of rolling thing because we know that in excess of 2,500 would have gone in that first batch [of retrenchments], but there are some jobs that you would have had to bring back people in them, so I wouldn’t want to say 3,200 or 3,100 and then it turns out to be 2,900, but just to say that the basic target has been achieved.
Earlier you said you had completed with CARTAC the review of statutory corporations. What has come out of that exercise?
Sinckler: Well, basically that we need to do a lot of work. Many of these entities have decades of issues, in terms of operations, management and productivity . . . [and] people have been discussing, for example with the QEH, cost recovery services. There have been suggestions about a health levy, giving people tax credits – charging them and then giving them tax credit . . . so the discourse, even outside of what Government has been doing, has been about the type of service, quality of service, affordability, the cost. All of those issues have been discussed and you would expect that those would be raised in any responsible report from the Government.
But have any policy decisions been taken in light of the report?
Sinckler: We are looking at all of those issues. I have put an oversight committee in place, headed by Dr Justin Robinson and including [accountant] David Simpson and [economist] Jeremy Stephen and [businessman] Chris De Caires. They have been working with the statutory agencies to look at their finance and operations and have been doing an excellent job to help them reach a stage where we can make them more efficient, cost effective and less burdensome on the public purse. I am very happy with that work.
So at this stage there are no further cuts planned at the statutory corporations in terms of personnel?
Sinckler: Well, as you know, some of them have gone through cuts already – NCC, Transport Board, NHC and so on – and those are some of the bigger ones who receive transfers from the Government. The QEH has also done some cost recovery. They have retrenched a few persons as well. Where there have been instances of overstaffing, they have looked at those issues. They have looked at overtime and so on. So as the agencies go through the process of adjustment and looking at containing costs and reducing costs, they will make those specific decisions in the best interest of the institution to ensure that they remain orderly, can deliver the service they are created to deliver and don’t compromise the fiscal adjustment effort that we are trying to achieve.
Has the dreaded ‘p’ word – privatization – come up?
Sinckler: (chuckle) What is dreaded about it?
Well, it seemed as if it was a bad word for your party in last general election.
Sinckler: You are sure about that? It might have been a very good word (chuckles).
Look, when you are dealing with this type of thing, and you are looking to make fundamental changes to an economy, there are number of things you have to take into account.
One, these things take time. It is not an overnight exercise; you build up a lot of practices that are not the best, it is going to take time to undo them.
The second thing is that when you are looking at correcting issues, nothing can be taken off the table, but you have to look to see whether each option makes sense, and how can you best execute it with the least possible disruption and collateral damage. That is how I would think you would want to approach it in a responsible way and therefore we look at the entire Government system and we try to see if there are companies that Government owns that lends themselves to outright privatization and it makes sense, then you do it.
If they don’t because of the nature of the service they are providing, the business or sector that they are in, then you have to consider those issues. So it is not as easy as just saying, ‘oh, let’s go on a sightseeing visit one morning and pick this organization or that organization’.
You also have to look at what is the debt profile of the institution. Whether the company is operating on its own, or receiving a transfer from Government, because if you are looking to reduce your deficit, and you have a company that lends itself to privatization, it may be heavily indebted so you may not get very much for it, and it may not be a company receiving a transfer from Government, so you get no savings on the other end [and] it would just be a company that you got rid of.
But you are still talking a lot in terms of the hypothetical. Give us the list of companies that you are presently considering for sale.
Sinckler: For example, I saw a recent article in [another] newspaper which said that the Government had finally determined that it is going to sell the Barbados National Terminal Company. Well, we determined that many, many, many eons ago. We are now at the stage of putting things in place to have that actually take place, and if there are any other entities of that nature that lend themselves to that kind of thing, Cabinet will reflect on it and come up with a responsible decision.
What is the selling price for BNTC?
Sinckler: I can’t say. I can tell you that the valuation of the asset has been in excess of $70 million, but of course you have to take into consideration future value in terms of what the company could possibly achieve and so forth, based on offers that are made.
In the meantime, have you set a date for the national budget?
Sinckler: No, I have not set a date yet, but I think people could well imagine that it will be in the coming weeks. We are going through a process here, where we want to be very clear, clinical and specific about what we want to do. We are not going to rush and have a budget until we are very certain of what needs to be done to continue our [fiscal consolidation] programme, to get our economy going, and to restore growth.
But what can we can expect, more taxes or will Barbadians be allowed to breathe a sigh of relief?
Sinckler: To some extent the economy has reached a saturation point with taxation and what we have to do is to make what taxes we already have better. If there is a way for us to restore our revenue base so that we get in more revenue because the taxes reach a wider cross section of the public, then that presents a fairly reasonable case for bringing the rates down.
It is when there is a continuing erosion of the base that it puts pressure on Government to increase the rates, and nobody likes increased rates so that’s what tax reform is all about. So we are looking at the entire system.
It has to be addressed in a balanced way. The tax committee, which I put in place, headed by the retired Permanent Secretary in the Ministry of Finance William Layne, has done an excellent job. They have submitted their report and Cabinet is to ruminate, [and], once Cabinet agrees, we are going to make the tax reform study by the IMF public, and share it with partners, including the Opposition and receive their comments. And once we get all of those, we see what is the best mix of recommendations from everybody [and] we will seek to go with those.
So if all goes according to plan, we could soon see a decrease in the current rate of VAT for instance?
Sinckler: I don’t want to prejudge what is going to happen, but I am just telling you what the process involves. You have to look at all of the issues – how it impacts on people, the economy, where your revenue is going to be, the bases, all of that.
It is something that has been long in coming. When I first became minister of finance it was one of the first things I had asked the IMF . . . and everybody knows that Barbados is overdue for a major re-examination of the tax policy for a number of years, so we are here now.
We have the benefit of the expert view of the Fiscal Affairs Department of the Fund, we have the benefit of the view of a committee I put in place, comprising public and private sector tax experts, and we will hear the views of the wider public on these matters.
So we can safely say that the reports of the IMF and your committee will inform the upcoming budget?
Sinckler: They will form part of it, yes.
But has your committee fully accepted the recommendations of the IMF on tax reform?
Sinckler: Well, the committee has looked and the committee has commented. Some things they have agreed and some things they have not, and some new issues they have introduced. We are taking all of it as a compendium, and looking to see what are the best policies.
Based on what you have said and what we already know of the IMF tax document, it is reasonable to expect that we will see a reduction in waivers.
Sinckler: Yes, we have to put a discipline on waivers, no two ways about that. There are a lot of them, they are spread out over many, many sectors and we have to ensure that where they are given that they achieve the maximum effect that we expect.
If you look at concessions for example, Barbados currently does about $700 million worth of concessions and waivers
Who is getting the bulk of those, Sandals?
Sinckler: Not nearly, those are divided on a number of things from duty free vehicles for taxi people and diplomats to bigger ones for tourism and investment projects, right down to the social clubs. So they are substantial in terms of what you forego in revenue. So this whole thing has to be relooked and we are doing that.
But just this week anther agreement was signed awarding concessions to hoteliers. Aren’t you retarding the very form that you seek?
Sinckler: Given the nature of what we are giving and who we are giving it to, it is not going to be earth shattering because, as you know, it is for hotels and for restaurants that operate within hotel properties and it is in relation to things which they would not have gotten under the existing TDA [Tourism Development Act] to help upgrade the quality of the product. It is not going to be ridiculous in terms of the figure, and we believe we will get back substantial benefit, not only in terms of the level of investment, but also from the additional tourism business as you make the entities a bit more competitive in the marketplace.
So what is your target in terms of bringing the current amount in concessions?
Sinckler: We really would like to bring them down below $500 million. You have to give concessions if you want to remain relevant, if you want to maintain social order [and] remain economically viable and relevant in a hostile, competitive environment, but you want to ensure that you put discipline on them.
Tomorrow we will bring you Part 2 of the interview with the Minister of Finance.