Not that optimistic
BES not convinced by Central Bank’s economic projections
President of the Barbados Economics Society (BES) Jeremy Stephen is not convinced that the Government will be able to close its deficit at the rate it expects over the next three months.
And he has questioned the Governor of the Central Bank’s assertion that the economy grew by 0.3 per cent in 2014 and would increase by two per cent this year.
Stephen made the comments in an interview with Barbados TODAY as he reacted to the latest economic performance report delivered on Tuesday by Central Bank Governor Dr DeLisle Worrell.
Worrell reported that Government realized an estimated $181 million (2.1 per cent of GDP) in savings from its Fiscal Consolidation Programme between April and December last year.
He also projected a further savings of $212.8 million, or 2.4 per cent of GDP, in the first quarter of 2015.
Worrell said the ongoing fiscal adjustments, coupled with additional revenue measures, would allow Government to earn a further $90.8 million, or one per cent of GDP, as well as meet its deficit target of $632.5 million or 7.2 per cent of GDP by the end of April.
“The revised fiscal deficit target . . . can be achieved so long as total supplementaries do not raise expenditure by more than $65 million, as announced in the Minister of Finance’s statement in December 2014,” Worrell said.
However, Stephen said the BES did not think the Government would be able to close the fiscal deficit as aggressively as it hoped, given what had been achieved in the space of nine months.
“We don’t necessarily share the optimism of the report,” he said.
“It seemed more of a report where it was a celebration of success and a call to arms but I and the society are not terribly optimistic about the reality of the next three months, especially now that the assumption is that the Government is going
to add some new revenue measures that would aggressively help a much larger number than they could have even gotten
in the first nine months of the year, and in the face of expected supplementaries.”
Stephen argued that the introduction of additional revenue earning measures would put a damper on economic prospects, negatively impacting people’s ability to consume and businesses’ ability to invest by reducing their profits.
Therefore, the BES head said, the two per cent growth for 2015 projected by the Central Bank seemed unrealistic.
Dr Worrell had indicated, in his report, that construction and tourism would drive such growth.
However, Stephen said that while in the short term a recovery in construction was notable, it was not going to sustain the economy since the economy was primarily driven by consumption.
This, he said, was coupled with the fact that tourism spend continued to be less than favourable.
“So we are not in total agreement with the Central Bank that two per cent is possible. In fact, last year we think a 0.3 per cent is rather optimistic and knowing that GDP numbers are highly driven on consumption, we think probably flat growth is more in tune with our casual observation [for last year],” said Stephen.
The good news in the report, he noted, was that merchandise exports increased while imports were down. Congratulating the Government on those efforts, Stephen said greater use of renewable energy and lower international gas prices were probably responsible for the lower imports.