EDITORIAL – Remedial action a must
The state of the economy has been a major discussion topic during the past week, following the half-yearly review by Central Bank Governor Dr DeLisle Worrell. The discussion has provoked some controversy with both the Leader of the Opposition and Former BLP Minister of State in the Ministry of FinanceClyde Mascoll both hitting the airwaves with their views and also with their criticisms of the policies which have led to the results disclosed in the Governor’s review.We expect these divergent views especially when they are rooted in different approaches to tackling the challenging problems of our open economy buffeted as it is by the whirlwind of the international economy; but we did not expect that there would be any difference on the methodology on the calculation or presentation of the state of the foreign reserves. Alas, what ought to have been common ground on the application of technocratic techniques has turned out to be a bed of controversy with the Central Bank saying that there has been a $68 million decline in reserves, while Mr Mascoll argues that the decline is of the order of $260 million.The facts are, however, that whether the bank’s method is correct or whether Mr Mascoll is right in arguing that this new different approach ignores almost four decades of practice, the stark reality is that at a time when the reserves have traditionally increased, they are in decline. In fact to use the language of the review: “although visitor numbers were up, Barbados’ tourism performance was not enough to provide the usual first half boost in foreign reserves during 2010”.Now this is all the more striking considering that the World 20/20 Cricket Tournament took place in May and would have had a beneficial impact upon the number of long-stay visitors, thereby averting what would otherwise have been a contraction in those numbers. In fact, the review is very candid on the prospects for the immediate future. It tells us that “the remainder of the year is clouded in uncertainty, about the strength of the recovery in Barbados’ main tourism markets, about the prospects for tourism globally and regionally, about future energy prices in the wake of the oil spill in the Gulf of Mexico, and with regard to the volatility in international financial markets.”It is against this “gloomy outlook” that calls for the Government to take corrective action seems appropriate, but there is so little room for official manoeuvre that careful calibration is necessary before such action is taken. Whatever else is done, the Government must face the reality that there is a real problem with its revenue and spending and that it spent $182 million more than it earned in revenue in the first six months of this year! Ours is not the task to solve the problems, but we feel bound to point out that in a mixed economy such as ours, the Government has a responsibility to pursue such policies as will enable the private sector to feel some confidence in investing to create jobs and earning foreign exchange at the very least. Further, the nature of our tax base which relies significantly on the value added tax, which is best described as “an activity tax”, makes it imperative that economic activity should be encouraged, rather than curtailed or discouraged. But it now seems that recent budgetary policy in the past two years reduced economic activity and taxes collected.The current situation urgently needs action, for while the resurgence of our economy depends on international recovery, there is a clear and present need to bring some order to Government’s day-to-day finances in the domestic economy. Whether we need a Budget or whether other options may be used, is a matter for the policymakersBut some remedial action is required now!