COLUMN-Sinckler’s Statement review 1
Last week, Barbadians instead of the much anticipated Budgetary Statement, heard a Ministerial Statement from the Minister of Finance on the current state of the economy and the overall status of the 19-month stabilization programme, and a statement in which it was declared that “Barbados is on growth path again”, alluding to stabilizing of foreign reserves and a declining fiscal deficit, if one is objective in their assessment. The Government in respect of its finances and the wider economic performance has been occupied with a few major areas in recent months:
1. The overall stabilization plan (19 months due to end March, 2015) that addresses reserves, debt levels and the fiscal deficit.
2. Review of Barbados tax framework and policy following the receipt of the CARTAC study.
3. Review of state-owned entities through the Oversight Committee created.
4. Strategies and mechanisms to create real growth in the economy that would lead to new or increased foreign exchange earnings, reduced unemployment and improved Government revenues to support the current expenditure levels and costs of social services.
As previously stated in this space, I support the efforts of this Government to ensure we had a home-grown programme once we were equal to the task of implementation and taking the hard decisions necessary.
Performance of the Fiscal Adjustment Programme.
1. Foreign reserves. In the Budget last August, the Minister of Finance indicated that measures needed to be taken to arrest the decline in our foreign reserves and to return them to at least 14 weeks of import cover. In the recent statement we have been assured that our reserves have been stabilized, initially with the drawdown of US$150 million from the Credit Suisse loan; secondly through increased taxation and dampening of consumer demand; and thirdly we are left in absence of details to assume from tourism and other related activities during the calendar year to date.
However, in the spirit of full disclosure, we would like to hear what the actual earnings of foreign exchange have been by sector and where we expect to end the calendar year and financial year in March in regard of our reserves.
2. Fiscal deficit. In August, 2013, the Minister of Finance stated that the target for the fiscal deficit was to have it below three per cent of GDP by March 31, 2015 and two per cent of GDP by 2020/2021, while at the same time indicating that we were tracking to register an eight per cent fiscal deficit for 2013/2014, based on current analysis at that time. The final deficit for 2013/2014 turned out to be 12.3 per cent.
In December, 2013, in delivering his Ministerial Statement, Mr Sinckler indicated that the ambitious target for the deficit reduction was now to 6.6 per cent of GDP –– effectively a six per cent reduction, and to work to more sustainable levels of three per cent or less. Last week the minister indicated that we were currently tracking towards a deficit in the region of seven per cent of GDP, all conditions being equal.
This sharp reduction has been aided by public sector retrenchments, reduction in salaries and wages, reduction in transfers and subsidies, and increased taxation and revenue measures, all of which if sustained and coupled with increased productivity can facilitate greater reductions in the deficit in future periods.
3. Transfers and subsidies and supplementaries. All of these were to be minimized, and the minister last week stated that we needed to ensure that the supplementaries did not exceed one per cent of GDP.
Last year the amount was 4.2 per cent of GDP. However, the minister failed to provide the current YTD levels during his statement for an item that was deemed so critical to our overall success with the Fiscal Adjustment Programme. The challenge with these items and the overall under-budgeting that has been occurring at Estimates level annually is the extent to which these actions are hindering the performance of critical agencies; and the overall approach to budgeting and funding of state enterprises and social services will be critical, going forward, as stated by the minister –– but there must be clear, clinical and precise action.
4. Revenue and expenditure targets. The target in August 2013 was for increased revenues of $150.9m and reduction of expenditure by $285m. Last week the Minister indicated that expenditures had been cut by $290m and the overall deficit reduction equal to $452m, indicating revenues earned of $162m from the programme to date, and therefore begs the question why the deficit targets were not fully met, the answer to which may lie outside the parameters of the programme and in the Annual estimates and performance against those targets.
5. Municipal Solid Waste Tax. The MSWT has performed well despite the initial disquiet, as taxpayers subsequently met their new obligations; it is welcome news that this will now be reviewed at March, 2015.
Summary. The performance to date, based on statistics, has been commendable. However, to my mind, a few questions still remain:
1. The programme as I had initially suggested will now be extended for an additional 12 months to ensure targets set are fully achieved and even surpassed. However, while the measures will largely be assessed from a statistical viewpoint, the momentum and activity and level of confidence on the ground must also be of concern. Unemployment continues to increase due to business closures or retrenchments in the private sector, and this will affect the return to real growth in the economy.
2. Tourism and cruise ship arrivals have been increasing, but we must place more focus on tourism spend and the visitor experience that leads to higher spend. The corporate revamping of the tourism management structure has been completed and we await the outputs/outcomes. US$50 million was earmarked last August via a policy-based IDB loan to assist with tourism marketing and settlement of debts, the implementation of which at the time of writing was unavailable to me.
3. The Institute of Chartered Accountants and other private sector agencies and regulators suggested the need for fiscal rules and I am pleased to note the minister’s indication that these are coming against the backdrop of the successes achieved to date in correcting our economic situation.
4. The state of continued delays in the payment of income tax and VAT refunds suggests cash flow issues for Government which are partially linked to collection of revenues from taxpayers as well, but does not provide any confidence on the surface to the average Barbadian that the measures instituted that have created pain for many are indeed working to their advantage; and while some progress has been noted here, remains a concern in the context of our overall fiscal recovery.
5. A similar analysis of the performance against the Estimates laid in March, 2014, is also very critical in this overall discussion, even before the end of the financial year. The Estimates’ performance and the performance of the Fiscal Adjustment Programme cannot be completely divorced from each other.
Barbados and its economy are not yet out of the proverbial woods, and real growth remains somewhat elusive. The minister has asserted that we cannot tax our way out of the situation, which I strongly believe, but that strategy was not intended to boost growth but rather to manage reserves. What we therefore require is a happy medium between reserve management, fiscal balance and economic growth.
Herein lies the challenge and the overall basis for the recent downgrade by Standard & Poor’s last week; and while the powers that be continue to discount the relevance of the ratings, we need greater energy in the areas that will bring growth and restore the ratings. Deficits, debt levels, unemployment and inflation are ultimately fixed and managed through investment in an economy and real economic growth and confidence in our systems and policies.
Mr Sinckler’s Ministerial Statement largely reflects the statistical truth of our situation, but this is still some ways off of what the average Barbadian continues to experience daily.
(David Simpson is immediate past president of ICAB and a director of the Barbados Entrepreneurship Foundation, and serves
as co-chairman of its finance pillar.)