by Tony Best

Bajans may soon pay more for gas, electricity and water if the Government takes the advice of two key economists.

Charlie Skeete, a former Barbados Ambassador in Washington, and Richard Francis, an analyst at Standard & Poor's on Wall Street in New York, contend that with global oil prices at about US$104 a barrel, up from US$65, government subsidies that have kept petrol and electricity prices at relatively low levels were no longer sustainable.

They also believe water rates, too, may have to go up if the new Thompson Administration was going to manage the country's fiscal position.

While Skeete and Francis readily acknowledged that economic wisdom didn't always match political realities, they said a mix of the nation's balance of payments gap, the wide fiscal deficit and the high debt, could force the Government to raise gas prices at the pump and to allow the cost of electricity to rise in line with international oil prices, even though such moves may inflict pain on consumers.

"Gas prices are in need of an increase," Skeete, a retired senior economic adviser at the Inter-American Development Bank, told the Sunday Sun.

"It's a dilemma. There is no question of the inflationary effects of increasing electricity rates and water rates for that matter. Water rates need to be increased and increasing electricity, there is no question about that.

"The alternative of diverting fiscal resources to keep those prices down at a time when the government has identified a fairly ambitious and laudatory programme of improving health services, waste disposal services, of tackling some of their infrastructure problem to keep the economy going, something has to give."

Fiscal position inherited

Skeete, a University of the West Indies trained economist and a top civil servant before going to Washington in the 1970s, said that to correct the tough and unsatisfactory fiscal position the new Government inherited on January 15, required tough choices, some of which would inflict pain on consumers.

"To the extent that electricity prices are influenced by the cost of imported petroleum and to the extent that the true cost of gasoline has been subsidized and has not been passed on to the final consumer, all of these things have effects on the fiscal balance," he said.

"The government will have the choice of continuing to run fiscal deficits of the kind that it inherited or of passing on some of the costs to the consumer. That's the proverbial cliché between a rock and a hard place. I don't, for one minute, under-estimate the political fall-out from an attempt to rationalise these things."

Francis agreed with Skeete saying the Government should take a hard look at the current policy of subsiding gasoline prices at the pump, the cost of electricity and even water.

"It would be correct to say that I agree," he said.

"Obviously, there is a political component to this," Francis warned.

"If we are talking pure economic matters, Barbados has had a fairly large current account deficit, which has come down somewhat. But given the high price of oil it is not going to come down as much as had been expected.

"That means that in order to finance that you need a fair amount of foreign direct investment, which has certainly been the case in the last few years, a substantial amount of foreign direct investment flowed into Barbados."

But the current international economic picture could threaten the pace of foreign investment to Barbados, he warned.