Hybridity and discipline

Last Wednesday, the Institute of Chartered Accountants of Barbados (ICAB) hosted a public forum on the topic Home Grown or IMF designed: What should Barbados’ economic recovery plan look like? The main speaker at the event, held at the Savannah Hotel, was the economist Marla Dukharan.

Without a doubt, Miss Dukharan was impressive and the presentation was clearly articulated with visuals that magnified the dangers facing Barbados. The panel consisted of Charles Herbert – Chairman of the Barbados Private Sector Association (BPSA), yours truly, and the moderator was the evergreen Barbadian journalist, David Ellis. The forum was well-attended and the audience asked tough questions while giving pertinent and judicious opinions on Barbados’ challenges.

This week’s column identifies some of the key findings that emerged from the forum. The intent is to substantiate this author’s view that two of the most important elements that would save face for the Government of Barbados are: (1) exemplary fiscal and overall discipline from Government; and (2) institutional strengthening given that a culture of procrastination together with lack of credibility in Government’s words have become prolonged and disconcerting.

Barbados finds itself within a year of constitutionally defined general elections, and this political feature taunts the administration. Minister Sinckler’s repeated failures to close the fiscal gap by attending to Government expenditures must be keenly watched, especially considering the jump in 2012/13 on the eve of an election. The fiscal gap broadened to 11 per cent or over 958 million dollars. Sight of the general elections makes murkier the already gloomy outlook for Barbados. Dukharan stated words to that effect without invoking the word ‘austerity’. She asserted that the trappings of austerity will rain down on Barbados “regardless of which party is in power, [and] regardless of if it is the IMF or a homegrown programme.”

Government’s problems are multiple and necessitate urgency. Government must admit the need to redress the runaway fiscal deficit, years of sustaining no or low economic growth, alarmingly falling foreign reserves, and the extremely national high debt (local and external). The fact that proffered solutions by the beleaguered Barbados Cabinet over the last eight years have not worked, is a major issue that grows alongside the under-performing national economy. The Minister of Finance is surely guilty of ignoring repeated advice that Barbados is on the wrong trajectory regarding its approach to macroeconomic management. Foreign reserves currently sit perilously below nine weeks of cover.

By pushing the national debt through the ceiling, the Government has created chaos.  Additionally, constantly increasing or introducing new tax measures has negatively affected individuals and businesses. The law of diminishing returns has taken root, so the NSRL is unlikely to reap the Finance Minister’s projections. Consumers are reeling at the growing inflation and mounting prices, while investors have backed away. Bad policy choices were exacerbated by the sustained printing of money by the Central Bank. Government’s turn to the National Insurance Fund to prop up fiscal indiscipline surely did not help the cause.

These facts are borne out in IMF Consultation Reports and other statements. For example, the August 2016 Article IV Consultation Report states: “At end-FY2015/16, central government debt excluding (including) securities held by the National Insurance Scheme (NIS) reached the equivalent of 105.5 (141.6) percent of GDP, from 98.0 (132.3) per cent in FY2014/15. The large funding requirements, totalling about 45 per cent of GDP, have been mostly met by the Central Bank of Barbados (CBB), the NIS, and growing arrears.”

Also, this June, the IMF stated that “the large government financing requirements were a challenge … [and] as a result, the Government had to increasingly resort to funding from the Central Bank.”

Certainly, the actions of the Government continue to make a mockery of the sacrifices made by the Barbadian people.  Providing little evidence, and having to rely more on statements coming out of the IMF, there has been little satisfaction for Barbadian households, businesses, and workers.  Dukharan contended that Barbados is on the verge of a major fall that can further compound our best efforts, if the Government refuses to apply discipline in its fiscal affairs.

Surely, the Government must demonstrate responsibility and bolster our institutions. The Social Partnership immediately comes to mind; building institutional capacity may help to rope in the Cabinet’s commitments to the national interest; and help Barbados to buck the foreboding clouds. Furthermore, Dukharan suggested that the threshold used to defend the fixed exchange rate will come under greater pressure the longer that the current Government lags in seeking help. Need will be timely information and accurate data on the health of the nation’s economy. This means bolstering economic growth, less capital expenditure, attracting local and foreign investments and especially those that will earn much needed foreign exchange.

This platform demands doing things differently. The Government must collaborate more effectively with the trade unions and the Social Partnership. Government must not punish labour with job cuts although, in the public sector, wages and salaries are unsustainable at current levels. Rather, the Government must become innovative by strengthening our collaborative institutions. The objective is towards reshaping job roles and skill sets in the public sector, thus ensuring reforms that reduce potential for wastage of human capital. Stakeholders must be able to rely on the Government for timely information and accurate data. These things take political will, and must be done by driving the public sector towards enhanced productivity levels which are attainable with discipline to tighten the fiscal gap.

Dukharan argued that “Barbados can press the reset button now and fix the problems.” However, my contention is that political will and cooperation are vital instead of unwelcome austerity and job cuts. Expressing confidence in the Barbadian people, Dukharan suggested that: “If Grenada can do it, Barbados can do it. It took Jamaica and Grenada about three years each to get back on a stable path. You have to stop the patient from bleeding and then do the reforms to get the patient healthy again.”

Former Prime Minister Owen Arthur, previously recommended that Barbados 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.” Of course, Mr Arthur has encouraged Barbados to approach the IMF or other international financial institutions sooner rather than later.

Some Barbadians do not believe that Barbados should be drawing lessons from Jamaica given its historical blemishes in IMF programmes, nor do they believe that Grenada is a compatible match. The fact is, Grenada was forced to implement debt restructurings consequential to ‘weak fiscal and debt situations’ and since then approached the IMF for additional refinancing. In March 2014, Grenada and the IMF reached agreement ‘on the programme parameters and the importance of restoring fiscal sustainability while creating supportive conditions for high-quality growth’.

Since then, Grenada has improved its situation with a local home-grown ‘Monitoring Committee’. This was established with representatives from unions, churches, the private sector, and civil society and was put in charge of holding the government accountable for its programme and policy commitments. Most important though, is the national buy-in that takes place with vital stakeholders being able to monitor the government’s progress. The IMF concluded that: “The debt restructurings provided a significant reduction in debt service and put the public debt dynamic onto . . . a sustainable trajectory . . . [and] significantly reduced the refinancing risk of the government debt portfolio.” Surely, there are lessons for Barbados.

Despite Jamaica’s decades-old problems, a statement emerging from the IMF in June this year indicates that overall, Jamaica has evidenced a ‘primary surplus above seven per cent of GDP for a fourth consecutive year, with: firmly declining debt; modest inflation; international reserves are above the programme target; and the unemployment rate is declining. Dukharan suggested that the dollar is even appreciating. Are these not positive offerings for Barbados?

Source: (Dr George C. Brathwaite is a political consultant.   Email: brathwaitegc@gmail.com)

Leave a Reply

Your email address will not be published. Required fields are marked *