THE BARBADOS ECONOMY remains in a state of depression.
And one leading international rating agency yesterday sounded a strong warning that an increase in taxes might be the only reasonable answer to some of the revenue challenges currently facing the David Thompson administration.
“It is hard to contemplate a meaningful fiscal consolidation without new revenue measures,” said Standard & Poors in a statement announcing a downgrade of the country’s overall credit rating.
It pointed to two significant factors which it said were compounding the overall national economic picture. The first being rising debt, and the second, the prospect of wage pressures that will likely increase following an expected economic rebound next year.
The National Union of Public Workers (NUPW)?has already asked the Government for an eight per cent increase in wages spread out over a two year period.
But ahead of the much anticipated budget presentation by Finance Minister Chris Sinckler, S&P said the problems facing the country were “most pronounced” in the area of Government revenue, “with underperformance affecting all categories of direct taxes.”
Hardest hit was corporate taxation which registered a sharp drop of more than 30 per cent compared with the first nine months of last year.
S&P is further cautioning that Barbados’ debt burden stands to escalate during the next two years.
It also complained about the Government’s delay in dealing with the nation’s economic woes as it dropped Barbados’ foreign currency rating down a notch to BBB-minus from BBB. At the same time, the local currency rating fell from A-2 to A-3.
“The downgrade reflects the continuing weakening of the Government’s fiscal profile,” S&P stated in an explanation for its action.
The Wall Street firm said despite the Thompson Administration’s efforts to reduce the fiscal deficits and achieve a balanced budget by 2014, as projected in the medium-term fiscal strategy, the approach has turned out to be far more difficult than expected.
It also said there was an increasing risk that the country’s debt could surpass the currently projected peak of 61 per cent of the Gross Domestic Product in 2012.
S&P’s statement comes less than 48 hours after the Barbados Central Bank issued its third-quarter report in which it estimated an economic contraction of less than one per cent this year, followed by a two per cent rebound next year.
But the global rating firm warned that even if those targets were met, the result would lead only to a “gradual fiscal turn-around.”