A case of economic incompetence
This week, I am responding to the latest Central Bank report for the first six months of 2016 whilst keeping previous reports in mind. As I have mentioned before, economies are dynamic systems with complex interrelations that change over time.
Hence, every economic report is linked to previous ones and should provide some clarity as to what the short term future may hold. Naturally, there are sometimes circumstances beyond one’s immediate control that could alter performance dramatically. However, with sound economic planning and forward looking, one can seek to mitigate significant downturn risk.
The latest Central Bank report is basically a continuation of previous reports characterized by the following: 1) increasing fiscal deficits; 2) increasing debt levels; 3) continued printing of money by the Central Bank to finance Government expenditure; 4) deterioration in the foreign exchange market as evidenced by the fall in net international reserves.
The net effect of this latest report is that ordinary Barbadians who run their households and businesses, can take little comfort from its contents that progress has been made after enduring 31 months of the Freundel Stuart administration’s Home Grown Fiscal Stabilization and Economic Revitalization Programme.
Interestingly, the “success” of the “fiscal consolidation” programme was well trumpeted by the Minister of Finance and other members of the Government side during parliamentary debate on the Estimates of Revenue and Expenditure for 2016/2017.
The reader may recall that on April 1, 2016, the ratings agency Moody’s had downgraded Barbados to Caa1 on the basis of their estimate of the fiscal deficit at 5.5 per cent of Gross Domestic Product (GDP) for fiscal year 2015/2016. During the Estimates debate the previous month, the Minister of Finance had reported that the fiscal deficit for 2015/2016 was 6.3 per cent of GDP.
This latest Central Bank report now indicates that the “true” fiscal deficit for 2015/2016 was, in fact, approximately 7.4 per cent of GDP, almost two per cent worse than that initially estimated by Moody’s. In addition, the report also says that the Government has increased its deficit for the first quarter of this fiscal year 2016/2017.
It doesn’t take the brains of an archbishop for one to recognize that the economic management of our monetary and fiscal affairs are woefully inadequate and has been so for some time now. So, quite rightfully, Barbadians are asking themselves some very serious questions.
Why did the Democratic Labour Party (DLP) send home 3,000 persons if they were going to continue its reckless spending programmes? What did we, the taxpayers of Barbados, get in return for the imposition of absurd levels of taxation over the past three years? What was the point of both the Minister of Finance and Governor of the Central Bank emphasizing the need to protect the Barbados dollar from devaluation as the primary reason for the fiscal consolidation programme when for the first six months of 2016, the Central Bank has printed $300 million and lent to Government?
Why is the Governor of the Central Bank now saying that foreign exchange outflows will be tightened by measures to be announced in the forthcoming budget, when the Prime Minister, Minister of Finance and other members of the Government during the Estimates debate in March and the no confidence motion in May continued to hail the “success” of the fiscal consolidation programme?
To compound the issue, I have to ask, why would the Governor deliberately use Moody’s estimate of the fiscal deficit (5.5 per cent) for 2015/2016 on which to base Barbados’ economic outlook and not our own estimate (7.4 per cent)? This is simply remarkable and calls into question the credibility of the whole exercise.
What I think is even more bizarre is that people have called me and other members of the Barbados Labour Party seeking clarity on what the Governor’s announcement of additional measures related to foreign exchange outflows means for the country. The level of uncertainty generated by that statement has already taken root in the psyche of business executives in Barbados and indeed across the region.
As a professional economist, I was very tempted to provide answers to their questions, as I am accustomed to doing but, regrettably, I had to inform them of three important things:
1) it is not my responsibility or indeed the responsibility of the BLP to provide clarity on the policies being pursued by the Central Bank Governor and the DLP administration;
2) that no one can reasonably say that I or the BLP has or is contributing to the economic uncertainty by spreading any rumour or propaganda; and
3) had there been a press conference where the Governor fielded questions from the media, there would have been ample opportunity for him to explain what foreign exchange measures will be outlined when the next Budget is read.
I am not suggesting that the answers given would of necessity eased market fears but, at least, members of the public would have had the opportunity to hear more definitive policy statements on which they can plan their affairs. Instead, we are left in a position where we have to speculate what these measures might be, in addition to guessing at how long it will take for the next budget to be read. The one thing economic agents despise is uncertainty.
Moody’s in April 2016 outlined some of the factors that could lead to a ratings downgrade. “The rating may come under additional downward pressure if the Government’s ability to service its debt worsens, or it faces challenges in rolling over maturing short-term debt. Renewed pressure on foreign exchange reserves and sustainability of the peg may also trigger a downgrade.”
Barbados deserves better. Whilst I have not yet scratched the surface, what I have outlined for you today is nothing less than economic incompetence.
(Ryan Straughn, endorsed BLP candidate for Christ Church East Central, is a UWI Cave Hill and Central Bank of Barbados-trained economist. Email: email@example.com)