Statement from Andrew F. Brathwaite, president of the Institute of Chartered Accountants of Barbados on tomorrow’s Budget.
An extremely challenging set of circumstances faces the Minister of Finance as he prepares to make the 2011 Budgetary Proposals on?Tuesday.
The environment is characterized by extreme uncertainty in several of the major industrialized countries, and in particular our major source markets, the United States (US) and Britain. In addition, there are not many indicators that point to economic recovery in the near future.
While the level of Barbados’ foreign reserves continues to remain “above international norms”, the Central Bank in its most recent quarterly report has cautioned that contrary to expectations, there was no surplus of foreign exchange funds during the first half of the year.
In fact, the Central Bank has taken the step of publicly advising Government to reduce expenditure in order to dampen total spending, and imports, in order to maintain foreign exchange levels.
It is likely though that the Government is already doing as much as it intends to do to reduce expenditure as it has already indicated its intention to maintain public sector employment and to avoid a rapid reduction in its expenditure on goods and services as this might destabilize the economy.
This combination of factors makes it unlikely that Government will comply with pleas from the private sector and the general public to reduce the overall level of taxation and in particular to reverse some of the measures introduced in the 2010 Budget. Any reduced taxation in some areas will have to be offset by increased taxation in others.
In the short term, Government will have to focus on fast-tracking private sector projects that will involve sizeable investments of foreign currency into the local economy and generate significant employment. Government will also have to try to accelerate drawdowns on any ongoing development projects (such as with the Inter-American Development Bank) as this will also bring in foreign currency.
The progress of these projects must be closely monitored by Cabinet and perhaps assigned to individual permanent secretaries to ensure they do not become mired in red tape and lose momentum.
Measures to stimulate the economy have so far not been particularly successful, and growth prospects have dimmed as a result of the ongoing economic uncertainty in the US and Britain. The Budget should therefore include provisions to help intensify our efforts to penetrate new tourism markets (Brazil, for example) and increase the chances that the promotional arrangement with Rihanna, along with our other efforts, will quickly bear fruit.
In the international business arena, while we continue to enhance our reputation as a jurisdiction of quality and substance, we need to make the leap from signing double taxation agreements and tax information exchange agreements, to actually using these agreements to attract foreign direct investment and generate employment.
Government will need to identify the specific treaty partners with the most potential, and engage consultants to help develop strategies and specific products that will enable us to quickly penetrate these new markets. A similar approach is necessary with respect to the Economic Partnership Agreement although solid growth opportunities in Europe may be difficult to identify at the moment.
The price of fuel continues to be a major concern for Barbadians, in terms of its impact on electricity rates and gasoline prices. However, it is also a major concern for the Central Bank as the importation of fuel is a significant foreign currency drain.
While Government may want to provide relief to businesses and consumers, it may not be prudent to do this by subsidizing the cost of fuel or reducing applicable taxes. It might be preferable for Government to instead provide more incentives to promote the use of renewable energy by households and businesses, and intensify efforts by Government entities to implement renewable energy solutions.
Government might also consider some targeted relief for businesses in the foreign exchange earning sectors only, but perhaps also linked to investment in renewable energy and energy efficiency.
Given recent concerns about escalating crime, Government might use the opportunity of the Budget presentation to introduce some of the measures proposed in the 2004 Report Of The National Commission On Law and Order, that might form the basis of a multi-sectoral national strategy for crime reduction and, ultimately, for justice, peace and security in Barbados.
My sense is that while there is a general awareness of the poor economic climate, many Barbadians seem not to expect it will affect them personally and appear highly irritated that they may be forced to reduce their standard of living or cut back on accustomed luxuries or on items previously thought to be necessities.
The approach to this crisis must therefore be carefully crafted by the Social Partners, comprising Government, the private sector and the labour unions. These parties must then explain the problems facing the country, caution that times will be “tough” for an indeterminate period, and persuade the nation that the approach adopted is reasonable in the circumstances.
The confidence of the nation will only be won, though, if the plan and the appeal for support is a bipartisan one and the Opposition party must be an integral part of the process.
Having said that, Government has consistently indicated its intention to support the most vulnerable in society in the face of moderately high unemployment, wage restraint and increasing prices.
Every reasonable effort must be made to provide targeted assistance to low income pensioners and households, and to those who are most in need of support.
