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.

Jeremy Stephen
Jeremy Stephen

“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.

One Response to Not that optimistic

  1. Carl Harper January 16, 2015 at 9:16 am

    Any Economics 102 (macroeconomics) student would tell you that if Government realized an estimated $181 million (2.1 per cent of GDP) in savings from its Fiscal Consolidation Program between April and December (nine months) last year, it is impossible to get further savings of $212.8 million, or 2.4 per cent of GDP, in the first three months of 2015. In other words, the Government is projecting to achieve more in three months than it got in nine months. The economy would virtually grind to a halt. 

    Minister of Tourism Richard Sealy also painted a rosy picture in November, that an estimated 700,000 cruise passengers would pass through the Bridgetown Port for the 2014 calendar year. Up until September 393,315 visitors passed through. This means that arrivals would have had to perform better in the last three months of the year than in the first nine months. 

    This week’s Central Bank report shows 571,870 cruise passengers descended on Barbados in 2014. Sealy is way off by more than 128,000 arrivals (18 per cent). What is wrong with the mathematics and projections of these DLP politicians and operatives! It’s called fuzzy math and “sincklernomics.”

    Readers would recall that the original “manageable” deficit target was 6.6 per cent of GDP, but was revised at the last minute to 7.2 per cent in last month’s Ministerial Statement when it looked unachievable. There is nothing magical about a 6.6 or 7.2 per cent to GDP deficit target, except they are both high and are frowned upon by rating agencies. In 2007/2008 Barbados ran a deficit of 3.3 per cent of GDP. 

    Shifting the “goal posts” to 7.2 per cent of GDP to achieve revised objectives and saying that all Government has to do is cap supplimentaries at $65 million to achieve it, is just not being forthright with the Barbadian people. It is like moving the goal posts each time to ensure Lionel Messi gets the ball between the bars with each shot so his team can win the championship. 

    How is this possible to be forecasting better when your numbers have gotten worse or not met expectations? If “success” matters so much to this government, maybe the Minister of Finance can just revise the deficit target to 10 per cent of GDP and “call it wally,” or set a new range of 6.6 to 12.5 per cent of GDP and high-five and fist-bump all around.

    It is just fascinating to watch the Central Bank governor falling in line with the requirements of the political directorate to make it all appear glowing. Though a 0.3 per cent growth is considered flat among economists, one has to question that even in the worse of times with revenue falling, tourism receipts down, and debt and unemployment rising, “growth” has not fallen below 0.0 per cent since 2012.

    Thankfully we have keen oversight from local professionals and organizations that refuse to be misled, and external agencies without a political axe to grind.


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