The Barbados draft Medium-term Growth & Development Strategy 2013-2020 – thankfully referred to for short by the Government as the MGDS – unveiled at the recent private/public sector consultation is a mix of folksy economic talk, stern recommendations and pie-in-the-sky promises.
It goes on for 140 pages.
Somewhere around Page 30-something, its real purpose comes to light. There must be draconian cuts to Government’s expenditure.
Now. “During the first year of the strategy the main adjustments will be on the expenditure side where it is estimated that a $295.3 million reduction in spending will have to be made, [including] personnel emoluments, goods and services, and subsidies and transfers. By front-loading the expenditure adjustments, Government, as shown in 2014/15 and onwards, do not have to make any major amendment.” – MGDS, 4.2 Revised Medium Term Fiscal Scenario 2013-2000, Page 38.
In Table 6 on Page 39, the MGDS document offers some figures to show where this “front-loading” of spending cuts will take place.
This fiscal year, which is already at the end of its first quarter, $66.4 million will be cut from Personnel Emoluments; another $87 million will be cut from Goods & Services; and 80.3 million from Subsidies & Transfers. Those cuts will remove $233.7 million from the expenditure side of the budget.
Additional savings will be made by a saving of some $122 million in interest payments, which are projected to fall from $560 million to $437 million this fiscal year.
With these cuts in current spending locked in, the Government will be able to spend a bit more on capital projects, so the estimate is for just over $150 million in this regard as opposed to around $94 million in the last fiscal year.
The recommendations provide Government with an escape clause from the responsibility it bears for the impending doom facing the economy.
The goal here is as simple as it is drastic: we must do whatever it takes to get that deficit down to half the size [the Freundel Stuart administration] allowed it to reach in the last fiscal year, when it hit almost eight per cent.
In his presentation to the consultation, Central Bank Governor Dr DeLisle Worrell put it as mildly as possible, saying: “The fiscal position has deteriorated since FY2011/12, as a shrinking tax base and reduced revenue performance were exacerbated by a slower pace of expenditure adjustment than was originally projected.”
Then, Dr Worrell, why did you spend all this time saying the economy was “stable”?
By taking that $300 million or so out of its spending, Government hopes to reduce its deficit as well as overall demand for foreign exchange as it purchases less in goods and services and consumer demand slows as an indirect result.
With the economy spiralling downward and less foreign exchange coming in from tourism receipts real estate and international business, the Governor said we are facing a loss to the reserves of US$1/2 billion this year.
“Given the current trajectory, foreign exchange reserves are expected to be equivalent to around 13.8 weeks of imports at end-2013.”
Reducing the Government’s fiscal deficit will be the key driver in reducing the growth of the national debt relative to GDP. In this regard, it is of interest to note that the MGDS document never, ever states that our national debt is somewhere around 80 per cent. The debt is always put at over 100 per cent.
The MGDS shows the total debt, presumably including National Insurance Scheme holdings, at $8.9 billion at March 2012, which is half a billion less than the Central Bank’s total. But it then adds undefined contingent liabilities of $1.4 billion to the total, giving us a debt of $10.3 billion and putting it at 120 per cent of GDP.
For the fiscal year just ended, the MGDS put the total debt at $9.5 billion, excluding the contingent liability, which puts it at almost 113 per cent of GDP.
Despite this dual counting up of our total debt picture, it is clear that it is much too high.
By the way, of the 140 or so pages in this new MGDS document, only about a dozen actually contain the economic data showing how precarious our fiscal position is. The rest seems to be some long-winded concoction of recent budget speeches and manifesto promises all rolled up into a big ball.
Which just goes to show that even when all is said and done, politicians and the technocrats who work for them can still fill another hundred pages with promises made long ago and yet to be delivered.
• Pat Hoyos is a publisher and business writer.
