Economist suggests a reduction in pay to help economy
It’s a recommendation that will not sit well with trade unions here.
However, a noted Caribbean economist is recommending that the Freundel Stuart administration should reduce public sector wages to help deal with the country’s economic problems.
This, according to Marla Dukharan, would be a better alternative to further reducing the workforce.
Presenting an outlook of the Barbados economy in the April 2017 RBC Caribbean Economic Report, Dukharan pointed to the high public service payroll, as well as grants to state agencies and high interest payments as some of the challenges facing Government, which has yet to find an answer to the struggling economy.
However, she recommended that instead of sending home public servants, the administration should find ways to reduce fiscal spending by no less than $600 million, including cutting wages and leasing loss-making state-owned enterprises to the private sector.
“The largest line items in the Government’s spending profile are grants to public institutions, interest payments, and public sector wages. Reductions in these areas are likely to be the most important in reducing overall spending,” Dukharan said.
“But far from cutting its spending, Government is projecting $4.5 billion in spending for the current financial year, up from $4.3 billion last year, with a whopping $1.8 billion set to go towards repayment of principal and interest on outstanding loans.”
The labour movement will likely be pleased with the recommendation to maintain job levels, but are not expected to be happy with the suggestion to reduce wages of public servants, which are protected by the constitution.
The unions have complained that Government workers have not had an increase since 2009 and a pay rise is long overdue.
However, with Government’s home grown austerity programme seemingly failing to have the desired effects, and with the debt rising while foreign exchange reserves continue to fall, Dukharan insisted that cuts were the surest way out of the economic malaise.
Like former Prime Minister Owen Arthur, she recommended that the island would benefit from the implementation of a fiscal responsibility framework “not unlike what Jamaica and Grenada have implemented under their IMF-supported home-grown programmes”.
However, she said while she did not expect the Stuart administration to enter into a programme with the International Monetary Fund ahead of the general election due next year, “that does not mean that they may not resort to one if needed, as suggested by the Prime Minister.
“I believe therefore, that at some point in the not-too-distant future, there will be an IMF programme in Barbados,” Dukharan said.
But unlike those who fear devaluation of the Barbados dollar should the country turn to the IMF for support, the RBC Group economist this was not necessary since the country would have the ability to pick its poison.
She said it was time for “a significant correction of some sort” to the rate of exchange, which stands at BDS$2 to US$1, pointing out that it was unsustainable under the current circumstances, since the current ratio was closer to BB$$7 to US$1.
“But underpinning all these adjustments needed, there must be an effective strategy to ensure that poverty does not rise, and that the already vulnerable are protected. Otherwise an increase in social dislocation could lead to a rise in violent crime, which could affect the most valuable tourism sector, and undermine any economic progress made,” she cautioned.