Budget Speech 2011
The following is the Financial Statement and Budgetary Proposals for 2011 delivered by Minister of Finance and Economic Affairs Chris Sinckler in Parliament today.
Mr. Speaker Sir, it is with a chastened outlook yet calmed assurance that I rise to deliver to this Honourable House the Financial Statement and Budgetary Proposal for 2011.
I am chastened Sir, not only by the enormity of the task that confronts me as Minister of Finance and Economic Affairs, as it does the entire Government and people of Barbados, but equally as well by the massive responsibility which has been imposed on us to safely navigate our country through this most challenging period in the country’s history.
Lesser men and women would have shirked from this responsibility in favour of more certain waters and a less contentious atmosphere.
Surely at times Mr. Speaker, my own human frailty has led me, as I am sure it has led many others in this country, in moments of weakness to ask: why me?
But for those of us on whom God Almighty has vested the burden of leadership in trying times, it is expected that we do as the Apostle Paul instructed the early Christians in his letter to the Corinthians and I quote: “Keep alert, stand Firm in your faith, be courageous, be strong”
That is why for my own part, as I walk this treacherous path of uncertain economic times, I do so with a resilience to do what is mine to do. For I know that my strength also comes from the certainty that I am not walking this path alone.
Indeed Sir, I stand here before this Chamber comforted in the knowledge that I have the unreserved support of my political leader and Prime Minister, the Honourable Member for St. Michael South, just as I have the overwhelming backing of my colleagues who, each in their own way, have contributed mightily to the framing of this policy statement to be imparted today.
I am equally assured in my task Mr. Speaker by the rich guidance which I received from the representatives of labour, the private sector and wider civil society across the country as they participated vigorously in the annual pre-budget consultations that set the stage for my presentation.
To be certain, less than two weeks ago at the most recent consultation of the full Social Partnership on the economy of Barbados, I gathered a renewed sense of deep national commitment for the forging of new linkages among ourselves to aid in the restructuring and revitalisation of our economy and society. We know that the challenges are great and the demands greater, but we also know that our commitment to seeing Barbados through this is unshakable and that working together as Team Barbados we will succeed.
But Sir, my ultimate sense of assuredness has come from scores of ordinary Barbadians who on a daily basis offer up prayers of intercession on my behalf and for this country and its government as we lean on each other to confront our most complex challenges.
I am happy this afternoon to know that even though times are tough and things are hard on many in Barbados as is the case with so many from across the region and the world, Barbadians have not lost faith in their government nor their country.
And they have not lost faith Sir, I believe, for principally two reasons. The first is that they understand and appreciate that Barbados does not exist on a planet all by itself where no one and nothing touches the serenity of our existence. Barbadians are educated enough to appreciate the reality that, contrary to the opinion propagated by critics of this Government, this country has been and continues to be severely affected by an economic crisis that is the worst in the post-modern history of the world. A crisis whose dimensions, virulence, duration and impact have defied the best economics brains in the world, if not the few economic experts we have right here in Barbados.
They know that the veritable collapse of many Western European economies, and the ‘hobbled’ nature of the United States (US) and British economic recoveries, means that less people will fly to our beautiful country and those that do will bring less money with them simply because they have less money to spend.
They know that less foreign investment will come to our shores not because of any policy of this Government but simply because investors not only have less to invest but are highly skeptical about investing in these uncertain economic times.
They know and understand that less of our goods and services will sell overseas not because as a country we are not trying to find ways to increase our exports, but simply because high unemployment and less disposable income overseas has hampered consumers from enjoying the luxury of buying Bajan.
Secondly, and on the converse Sir, Barbadians have kept faith with this administration because they know that we have kept faith with them, and that this Government has walked side by side with them in these very challenging times.
They know Mr. Speaker that we have done our best to support them, and in particular the most vulnerable among us, from the worst effects of this terrible global economic downturn.
For example Sir, they know that in 2008 at the start of this recession, this Government took a decision to give public servants a salaries increase so as to assist them to cope with the impact of rising prices. Barbadians know that this Government also took the decision to accelerate the increase in the reverse tax credit for the working classes among us from $750.00 straight to $1300.00 to help them to adjust to the inevitable negative impact the coming downturn from the recession would produce.
Barbadians are well aware that it is this Government that determined that those among us who fell from employment because of the recession should not only be given the opportunity to re-train for successful re-entry into the work force but importantly as well, that we should hold their hands by extending their unemployment benefits a further 24 weeks as they and their families sought to adjust to the loss of income in the household.
Further to this Mr. Speaker, who in Barbados could deny that it was this Government that increased welfare grants to the most vulnerable, removed the payment of the National Housing Corporation (NHC) rents at an average of $300.00 per month for more than 2000 households (and growing); that freed many a parent from the payment of bus fares for their school aged children and instituted summer camps that relieved the financial and other burdens from scores of families over the summer holidays but also created earning opportunities for several small business people who service those camps.
Or who could credibly argue against the fact that through this Government once again Barbadians like you and I can have the hope of owning or renting an affordable house through the National Housing Corporation which has finally been restored to its original mandate of housing people across this country.
This is not a figment of the imagination. It is not a pie in the sky dream expressed only in a brochure. These are real housing solutions Sir that can be touched, where real people live and, as the Honourable Leader of the House would say, where toilets are flushed every day. It is Greens, St. George; it is Four Hill and French Village, St. Peter; Marchfield and Work Hall, St. Phillip and the palatial Covereley, Christ Church.
Indeed Sir, letters are being prepared to be sent out to the next batch of honest, hard working Barbadian families who have been chosen as the new occupants of NHC homes. Soon it will be Stuart Lodge (Tweedside Road) and Country Park Towers (Country Road). In the months to follow it will be Lancaster 1 and 2, Valarie, Grotto, Mason Hall Street, Eckstein Village, Haggatt Hall and yes Sir, Deacons Road too as this Government replaces talk with action in our quest to house every last person in this country.
But above all else Mr. Speaker, Barbadians, in spite of every challenge which we might face in this period of economic slowdown, can declare that its Government, this Democratic Labour Party Government, has fought tooth and nail to ensure that as many of them as possible can hold on to their jobs. Indeed Sir, it is a claim which not many other populations across the world can make about their government with any degree or credibility.
Why? Because few others have taken a firm policy stand that as part of a national strategic response to the recession Government would work with its colleagues in Labour and the Private Sector to keep people employed for as long as we are capable of doing so.
Fewer still can boast that their government not only made that commitment but that they went about systematically and strategically extending instruments of support to their private businesses to help them through the darkest days of the recession.
Are you aware Mr. Speaker how many companies in the region or elsewhere in the world would have been happy to be able to access a direct financial support mechanism such as the Tourism Relief Fund with nearly $25 million in non-reimbursable grant funding? Or perhaps be able to have taxes and social security impositions waived even as they were allowed to enter into a mitigated repayment programme?
Or better yet Sir, to be able to defer payments of such obligations and have them treated as a loan to the company to help ease their cash flows during the worse effects of the recession. I would venture to say that very many would love to have a government like this one.
A government that did not throw them and their employees to the wolves in a gleeful attempt to show bravado in a recession; rather an administration that sought to show empathy with employers and employees alike and hold their hands through the most difficult times.
A government which in spite of the most stringent fiscal circumstances, could still find ways to incentivise local and foreign business investors to encourage them to carry on with their projects to help grow the local economy.
However Mr. Speaker, if you listen and/or read much of the anti-Government commentary, you would believe that this Government has stood idly by twiddling its thumbs doing nothing to help Barbados or Barbadians in these troubling times.
And so, true to form, those commentators are those among us who for their own narrow, naked self interests and personal self-aggrandisement have opted not to play with Team Barbados to hold the country together, but try at every turn to pull it down.
Daily Mr. Speaker, Barbadians are fed a diet of how bad and miserable things are in the country and how just about everything and anything is about to collapse and be no more.
We even recently had the very unfortunate, yet not totally unexpected example of no less a person than the Leader of Her Majesty’s Loyal Opposition, saying that he had in his possession figures that would show that Barbados’ revenues for June 2011 were abysmal while its expenditures were horrendous. This Sir, even before the Accountant General, the single national authority on these things, had even finished collecting information for June. Well, as we found out less than two weeks after he vomited up such scare-mongering comments, the real facts show his intervention to be totally untrue.
Mr. Speaker, I believe that the people of Barbados deserve an unreserved apology from him, but greater men than him have misspoken before and failed to correct themselves when caught. My advice, don’t hold your breath.
Even more sadly Mr. Speaker, I am sure that come tomorrow afternoon and in the succeeding days of this debate, Barbadians are going to be treated to more of the same unsubstantiated commentary designed with one purpose in mind……to undermine faith in the Government and confidence in the country’s economy.
Little wonder Sir, that Barbadians are bombarded almost every weekday in at least one of our Dailies, (which shall remain nameless), by those whom I call the proverbial Four Horsemen of the Apocalypse (if you study carefully Sir you would know to whom I refer) spitting out their respective veils of misery, gloom, and ultimate destruction on this poor little island of Barbados.
Sadly Sir, it is as if these folk derive some unexplained orgasmic pleasure out of seeing or hearing that Barbados has done badly or will do poorly, just so that they could say that they were right.
I would never be so bold as to accuse any national of this country of being unpatriotic because I genuinely believe that everyone of us wishes Barbados and Barbadians well. But at the same time Mr. Speaker one has to wonder what motives really drive much of the unsubstantiated and at times derisive commentary you hear about what is happening in this country.
Mr. Speaker there is no doubt that Barbados has serious challenges. No one in this Government, least of all me, has hidden that from the people of Barbados. We have laid the facts out to the people, said what we intended to do to deal with the problems, even as we set about on a course correction to put the country on a better footing.
But can we really as a people accept as some would have us believe that everything in Barbados has gone bad since January 15th 2008?
Can’t you Mr. Speaker, like the Leader of Opposition, and all the rest of us living in this country, close our eyes and successfully predict that our refuse will be collected this week from in front of our homes free of cost?
Can’t you, the Leader of the Opposition and I, like most other Barbadians still claim that were we to fall ill today that we could avail ourselves of quality medical care at the QEH, free at point of delivery?
Can’t we still boast of having a country in which free education from nursery school straight to the University level still exists in Barbados for the vast majority who qualify and even some of those who don’t? Or that we still continue to enjoy subsidised water rates, bus fares, school meals and text books in primary and secondary schools respectively?
Aren’t our social agencies still working on behalf of the poor and vulnerable and delivering assistance to those who are in need, albeit with some structural efficiency challenges, which the Minister is working hard to improve?
This is not to say Sir that critical commentary and even robust and vehement argumentation in opposition to Government policies do not have their place, but surely all and sundry must know when it is time to put aside the cudgel and seek to work cooperatively in the interests of all Barbados.
We must know where and when to draw the line.
I recall anecdotally Sir, when I was the Leader of the Caribbean NGOs Policy Development Centre (CPDC) leading a massive rally in the heart of Castries to protest Caribbean peoples’ exclusion from, and the potential negative impact of the proposed European Economic Partnership Agreement (EPA) negotiations.
Back then our rhetoric was vehement and analysis biting, as well we felt it ought to be, given the stakes. And under the pressure of the protests the regional trade negotiators sent for the leaders of the movement. We exchanged arguments with accusations left and right and yes some unfortunate things were said. Towards the end of that highly contentious session, Dame Billie Miller, who was the then lead negotiator for the Caribbean turned to me and said, “Young man, you are very intelligent and articulate and have a bright future not just here, but perhaps also in the politics of Barbados. Who knows you might even occupy the very ministerial portfolio which I have the honour to hold right now and I am sure if that happens you will do well.
“But you will also do well to remember that Barbados and region belongs to all of us. We have nowhere else to go. And so it is our duty to protect what we have achieved and grasp the opportunities which we create. Pulling the region down in the full face of the world will not help us do any of that. All sides have to be careful what we say and how we say it, just as we must be mindful of what we do and how we do it.”
She concluded by reminding me of the advice once rendered by the Late Sir James Tudor to people in Barbados then vehemently critical of Barrow administration. Advice Sir, which I now in turn render to the most vehement critics of this administration:
“Be careful not to spit in soup; we all have to drink it”.
Barbados has its challenges but we are no worse off than any other country, and better off than most in the wake of the worse global economic and financial downturn in recent memory.
I am aware that many of this Government’s critics hate for us to reflect on what it happening globally, or even compare our experience with the relative stories of others who are being asked to suffer the indignity which a recession inevitably brings but Barbadians must be able to appreciate how we as a people are coping with similar challenges.
For instance Mr. Speaker, a twist of fate of birth could have landed any of us in Greece this evening, with me delivering an austerity budget as the Greek Minister of Finance.
If that were the case Sir, I would stand before you and this country and announce in part, some of the following measures:
I would impose a 5% solidarity tax on all household income. Lower the tax-free threshold for incomes from 12,000 to 8,000. Impose a 50% rise in property taxes; raise VAT from 19% to 23 %; scrap most tax exemptions; increase corporation taxes; cut public servants salaries by 15%, while laying off all temporary public servants; I would cut spending on health by 30%, public investment by nearly 40% and close 2000 public schools. I would even cut social security benefits and pensions and raise the contribution period for qualification for full pension from 33 years to 40 years.
That is the budget I would deliver here this evening if we were to share the fate of the Greek people on the Barbadian public. The funny thing is Mr. Speaker, there are actually some among us who would not mind if I did, even though they don’t have the intestinal fortitude to say it openly.
But we are not in Greece, or Ireland, or Portugal or Spain, we are in Barbados, and we fashion our responses to the problems we have with a level of responsibility and understanding that as a small, fragile and highly vulnerable economy and society, it will not take a whole lot to unravel and destroy the very social and economic fabric of this country.
In this regard therefore, we must be firm yet fair, ready but responsible, hungry for success but not hasty in our ignorance. When we are wrong, we have to be bold enough to admit it. When we fall, we have to get up again. As a Government we have endeavoured to be patient not pretentious, opened not opportunistic, caring not callous; but ultimately we have held the people of Barbados in our confidence.
It was against that back drop Sir that last November, only a short nine months ago, I came to the nation and in my characteristic forthright manner and I laid out quite expansively the challenges facing Barbados at that time and potentially for the future ahead.
I indicated to the people of Barbados, that behind the negative impact of the most virulent recession this country has ever faced, and Government’s attempt to hold the economic and social fabric of the country together, that we were faced with the prospect of continued negative economic growth and a worsening public finances position.
Indeed Mr. Speaker, I highlighted the fact that even in spite of our previous efforts to increase revenues and contain expenditures that there was every likelihood that due to the prolongation of depressed economic conditions globally, regionally and at home, our deficit reduction efforts would not only fall short of our anticipated target of 7.2% of GDP but would likely rise to above 10% in the fiscal year 2010/2011.
To be sure Sir, my specific words at page 94 of the Financial Statement and Budgetary Proposals for 2010 were as follows:
“In the Medium Term Fiscal Strategy the target established for the fiscal outturn for 2009-2010 would be 7.2 percent. On current projections the fiscal balance is expected to end the year at 10.1 % short of any intervention from government and based on key supplementaries [including] for the University of the West Indies of $60 million and the Ministry of Transport (Transport Board) of $30 million.”
So we knew that while it would not have been possible from that distance into the fiscal year to reach the medium term fiscal policy target of 7.2%, we had to intervene to prevent an even worse and potentially impossible fiscal situation from occurring. To this end, we laid out an 18 month programme to assist in progressive fiscal consolidation through revenue raising measures and further expenditure reduction initiatives which we promised would start in the 2011/12 Estimates of Revenue and Expenditure.
But we did not stop there Mr. Speaker. We outlined initiatives geared specifically towards giving greater impetus to the economic recovery so as to try to better the 0.5% decline which we anticipated for 2010 and accelerate growth into 2011.
We specifically targeted the tourism sector providing additional marketing resources for the Barbados Tourism Authority (BTA) to aggressively go after the British market which up until that time, was continuing to register negative growth. We zeroed in on the international business sector with additional resources for Invest Barbados to increase their efforts at attracting more international business companies and investment alike. We provided additional incentives for agriculture and laid out a programme for increased government investments in housing and roads rehabilitation to help generate and increase activity in the construction sector and provide for some job growth.
Our critics Sir, led by members of the Opposition, castigated our programme as an impending failure that would, as they put it, drive the economy further into recession. According to them, our fiscal measures would not prevent a deficit of 10% based on the number of supplementaries we expected to approve and the lack of revenue that we would get from these measures during the next financial year.
Given that both sides had very clearly drawn positions on what would happen in the economy for the rest of 2010 and into 2011, it would now be of benefit to this House and the rest of the country for me to give a report card on the international, regional and of course most importantly, the domestic economic and financial situation to the latest point for which confirmed data is available.
Following an estimated 0.5% decline in world output in 2009, the prospects for global recovery appeared mixed at the end of 2010. According to the IMF World Economic Outlook (June 2011), global activity expanded by 5.1% at the end of the period under review. This expansion was supported by increased private consumption in major advanced economies along with sustained private demand, accommodative policy stances and resurgent capital inflows in emerging and developing economies.
However, during the first quarter of 2011, the global economy expanded by an annualised rate of 4.3%. An outturn affected by many unanticipated negative factors, such as the devastating effects of the earthquake and tsunami on the Japanese economy, coupled with higher commodity prices, bad weather, and supply chain disruptions in the U.S.’s manufacturing sector.
In advanced economies, including most of Barbados’ major trading partners, with activity moderately less than expected, coupled with high unemployment, growth remained subdued.
On the other hand, in many emerging economies, activity remained buoyant, combined with increasing inflationary pressures primarily driven by strong capital inflows. Global financial conditions showed signs of rebounding as evidenced by rising equity markets and the easing of bank lending conditions. Strong public policies and measures deployed by the IMF helped in this rebound.
Within the Advanced Economies, real GDP increased by 3.0% in 2010 compared with a contraction of 3.4% a year earlier. In the U.S., economic activity rose by only 1.6% compared with a decline of 2.6% at the end of 2009. This positive performance was due to unprecedented macroeconomic policy stimulus, emergency financial stabilisation measures, and a modest cyclical upswing. However by the end of the second quarter of 2011, the US Commerce Department had not only reported slower than expected GDP growth at 1.6% as opposed to the 2.4% previously forecast, but actually revised its earlier first quarter estimate of economic output from 2.1% to 0.4% of GDP.
In the United Kingdom, domestic demand remained relatively subdued, particularly following the recent measures to cut the budget deficit. Economic activity increased by 1.3% compared with a decline of 4.9% in 2009. The Canadian economy, which grew by 3.2% at the end of 2010, was relatively buoyant as monetary and fiscal stimuli and strong international demand for commodities helped to boost the growth rate. The unemployment rate at 8.0%, is well below that in the United States and has been declining steadily since early 2009. According to IMF data, GDP growth in Japan increased by 4.0% compared with a fall-off of 6.3% at the end of 2009. Stimulus measures were primarily responsible for this strengthened outturn.
In the Euro Area, economic activity increased by a small 1.8% compared with a contraction of 4.1% a year earlier. Major contributors to this growth were Germany (3.5%), France (1.4%) and Italy (1.3%). Recovery was modest in both Germany and Italy as a result of weak growth among its trading partners, persistent competitiveness problems, and planned fiscal consolidation which weakened private demand. In France, growth was moderate, as private consumption was weakened by high unemployment and the withdrawal of stimulus measures. Constrained by high debt, fiscal and competitiveness imbalances, growth in Greece, Ireland, Portugal, and Spain was much lower.
Emerging and Developing Economies
Within the emerging and developing economies, real GDP increased by 7.4% in 2010 relative to 2.8% a year earlier. Driven by domestic demand, economic growth in China and India rose by 10.3% and 10.4% respectively. Growth in these economies was bolstered by sustained performances in retail sales and industrial production. In Latin America and the Caribbean, economic activity increased by 6.1% compared with a contraction of 1.7% a year earlier. Major contributors to this growth were Brazil (7.5%) and Mexico (5.5%). This performance reflected solid macroeconomic policy fundamentals, sizable policy support, favorable external financing conditions, and strong commodity revenues.
Economic conditions in the Caribbean region remained depressed during 2010, even as the world economy rebounded from the global economic and financial recession. While the global recovery has largely been driven by growth in developing and emerging economies, the recovery in the more advanced economies (the Region’s main source markets for tourism, investment and remittance flows) has been weak and sometimes uncertain.
As a result of the challenges which the region faced during 2010, most countries reported contractions in real output. The level of economic decline was marginal for – Jamaica, Dominica and Trinidad and Tobago (under 1.0%); moderate in Grenada and Saint Vincent and the Grenadines (1.0% to 3.0%); and between 3.9% and 8.5% for Anguilla, the Cayman Islands, Montserrat, Antigua and Barbuda, Saint Kitts and Nevis and Haiti. The six (6) countries posting growth, ranging from 0.2 % to 3.6% were – Barbados, The Bahamas, Saint Lucia, Turks and Caicos Islands, Belize, British Virgin Islands and Guyana.
The protracted weakness in economic activity was reflected in severe labour market dislocation in terms of employment and wages, and dampening domestic demand. Resurgent international commodity prices exacerbated these effects, pushing up import costs, with negative implications for the balance of payments and domestic prices. Sluggish activity and rising cost pressures also placed acute strain on public finances and worsened already large debt overhangs, necessitating fiscal consolidation measures and limiting the scope for economic stimulus by regional governments.
Reduced economic activity and foreign inflows, together with the ongoing fallout from the CL Financial Group collapse, continued to dampen financial markets. Natural disasters also had an adverse impact on economic conditions, most notably the earthquake that devastated Haiti on January 2010, as well as the destruction wrought by Hurricane Tomás in Saint Lucia and Saint Vincent and the Grenadines at the end of October 2010.
Domestic Economic Review
Annual Review 2010
During 2010, the Barbados economy expanded by a provisional 0.2% compared with a contraction of 4.7% in 2009 (and a predicted decline by the Opposition!) The overall increase in real GDP growth was led mainly by an improved performance in the non-traded sector. This sector grew by 0.4% in 2010, following a 4.2 % decline a year earlier.
This growth was attributed to improved activity in the mining and quarrying sub-sector which rose by 10.5% reflecting higher demand in the construction sector. In relation to the traded sector, activity marginally declined by 0.4% in 2010 compared with a fall-off of 6.1% in 2009. Value added in tourism was estimated to have risen by 2.9% following a fall of 6.6% in 2009. This turnaround reflected the strong efforts of this Government and in particular the Ministry of Tourism through the BTA to claw Barbados back to its lead position in many of our traditional markets and in new jurisdictions.
In the International Business sector the number of new entities licensed during 2010 totaled 442 as compared with 407 at the end of 2009, representing an 8.6% increase in overall new company formation. There were 420 new International Business Companies (IBCs) licensed during the year compared with 379 in 2009. This represented an increase of 10.8%. Societies with Restricted Liability
(SRLs) new licenses totaled eleven (11) at the end of December 2010, which was eight (8) less than what was recorded in 2009.
The annual rate of unemployment for 2010 was 10.7%, 0.7 percentage points higher than the 10.0% recorded at the end of 2009. At the end of 2010, the average rate of inflation was estimated at 5.8% compared with 3.7% at the end of 2009. This reflected the pass-through effect of rising oil and commodity prices.
The First Six Months Review 2011
Mr. Speaker Sir, behind a properly thought-out and targeted programme as enunciated by me in last November’s budget, together with a light recovery in North Atlantic economies, overall economic growth stood at 2.1% at the end of the first half of 2011. This was a healthy improvement to the 0.5 % decline at the end of the second quarter 2010.
Foreign exchange reserves stood at $1.4 billion at the end of June 2011, a reserve cover of approximately 19.8 weeks of imports, above the recommended minimum of 12 weeks. Private capital inflows were significantly higher than in the corresponding period of 2010.
However, rising oil prices during the first half of 2011 remained a major concern, as this contributed significantly to the growth in retained imports. Imports at the end of June 2011, were projected to have increased by an estimated $142.6 million primarily on account of a 37.0% increase in the average price of oil on the international market.
Moreover, the residual effect of the crisis has continued to restrain the growth of some sectors. This scenario has continued to generate low levels of government revenue, a current account deficit of $359.1 million and uncomfortable levels of unemployment across sectors. Nonetheless real gains are starting to show across the economy.
The latest six-month economic outturn within the Barbados economy has largely been driven by improved tourism activity which increased by an estimated $90.7 million or 5.2% above the same period 2010. Observed data suggest that the increase in tourism activity was due mainly to improvements in long-stay arrivals particularly in the UK market which showed a robust turnaround in the winter months to grow by 8% over the first six months of 2011. This is as a direct result of the decision which this Government took in the Budget last year to put additional marketing resources at the disposal of the BTA for the UK market.
Recent information for the month of June 2011 showed long stay tourist arrivals overall to have increased by 3,311 persons or 9.4% when compared with the same period 2010. Arrivals from the U.S market rose by 14.5%, CARICOM by 23.8%, and Canada by 0.6%. The only market that did not show an increase was the U.K market which declined by 4.3% when compared to the same month 2010. Cruise Passenger arrivals for June 2011 increased by 3,672 persons or 20.4% when compared to June 2010.
Manufacturing output fell by an estimated 2.3% for the first half of 2011 when matched against a 7.9% decline for the previous year. The delay in sugar harvest, due to adverse weather conditions, resulted in reduced sugar production earnings and as a result contributed slightly less foreign exchange when compared with the amount received in 2010.
The International Business and Financial Services sector continued to exhibit moderate growth despite the challenges faced. At the end of June 2011, the number of new entities licensed grew to 320 when compared with 267 for the same period in 2010. There were 274 International Business Companies (IBCs) licensed at the end of June 2011 compared with 199 in the similar period of 2010. With regard to Societies with Restricted Liability (SRLs), the new licenses at the end of June 2011 numbered 11 in contrast to 9 recorded at the end of June 2010. These increased registrations notwithstanding, tax revenues from the sector remained low.
In relation to the performance of the non-traded sector, the indirect effects of tourism activity were also reflected in all sub-sector activity which expanded slightly in 2011. Performance in the construction sector remained at the pinnacle, with output increasing by a projected 2.9 % at the end of June 2011.
Value-added in the other major non-traded sector also improved, as the wholesale, retail and the financial and other services sectors increased by 2.3% and 2.1%, respectively, for January to June 2011.
Second quarter output in the transportation, communication and storage sector grew by 1.2% over the same period in 2010, following a previous annual growth of 0.1% for 2010. Similarly, value-added for electricity, gas and water fell by 1.2%.
Unemployment and Inflation
The lingering effects of the global and financial crisis coupled with slow economic growth reflected the level of unemployment, which declined to 10.0% in March 2011, 0.6 of a percentage point below the level for the first quarter of 2010. With the increased cost in consumer goods and services, the average inflation rate for the twelve month period ending May 2011 stood at 6.5%. This was slightly higher than the inflation rate of 6.4% for the period ending April 2011.
On the financial sector side, domestic deposits of commercial banks improved during the first quarter of 2011, while cash levels remained moderately flat, when compared with the same period of 2010. Liquidity in the financial system during the second quarter of 2011 remained relatively high with cash reserves at 12.2% of deposits. At the end of June 2011, interest rates on deposits and loans softened, while the interest rate on treasury bills increased marginally.
Mr. Speaker from the foregoing, it would take even the most negative and blinded critic of this administration not to admit that in the face of a bitter, contentious and highly uncertain international economic environment that Barbados is doing comparatively well against the performance of most similar small vulnerable developing economies with limited resources and little export commodities.
Contrary to the declared failure of this Government’s economic policies as further outlined in last year’s budget debate and subsequently by the Opposition, our economy has begun to show definite signs of economic turnaround. Indeed Sir, this performance which we expect to continue to improve is as good as, or better than, the early recovery years of any previous recession which we have encountered in this country in the last 30 years.
For example, if we assess the performance of recovery and impact on unemployment we would see that in all cases at the end of the first year after the recession it was slow.
In 1983 the year immediately following the recession of 1981-82, the economy grew by 0.5% and unemployment was 15.0% having risen from 10.8% in 1980. In 1993 the year following the 1990-92 recession, the economy grew by 1.2% and unemployment was 24.3% having risen from 16.1% in 1990. In 2002, the year following the slight economic downturn in 2001, the economy grew by 0.7% and unemployment was 10.2%.
So far for this year 2011, following the worse recession the world and this country have ever faced, our economy is growing at an average rate of 2.1% and unemployment is now at 10.0%.
Yet Sir, if you listen to the commentary which has emerged from some of the strangest quarters you would believe that this Government burnt down the barn; that this is the worst they have ever seen a Barbados economy managed; and that this Government does not have a clue what it is even doing.
Some are even going as far as to as to question the integrity of the hard-working officials in the Ministry of Finance and Economic Affairs and the Central Bank of Barbados (the same people who served them when they were in Government), claiming that the information put outon the economy of Barbados is not true and that this economy could not have possibly grown.
That is the extent to which some would go to get back in Bay Street.
It is absolutely amazing Sir. UNBELIEVABLE!
Let me now turn to the fiscal situation.
The fiscal year 2010/2011 was indeed challenging for the central government in an economic climate which saw continued declining revenues even as Government sought to contain its expenditure especially in the area of discretionary spending. The deficit for the year, as reported by the Accountant General, was $751.1 million representing 8.8% of GDP at market prices of $8,528.0 million. The revised deficit for the corresponding period in 2009-2010 was $702.9 million representing 8.5% of GDP at market prices of $8,246.2 million.
Information received from the Accountant General indicates that current revenue for the period April 1st 2010 to March 31st, 2011 was $2,304.4 million, a decrease of $3.6 million or 0.2% from the amount recorded for the corresponding period during 2009-2010.
The decline in economic activity, locally, regionally and internationally continued to affect reported tax revenues with the greatest impact being recorded in the area of Income and Profits which declined by $49.8 million or 6.1% to $765.5 million despite the change in timing of refunds of taxes paid by the Inland Revenue Department and the VAT Division of Customs.
Both corporation and withholding taxes recorded declines, with the greatest impact being felt in the area of corporation taxes which declined by 20.4% or $76.3 million during the reported period. Revenue from income taxes recorded an increase of $30.6 million or 7.9% over the corresponding period in 2009-2010 to end at $416.9 million.
Taxes on property increased by $36.4 million over the corresponding period in 2009-2010 to $150.1 million. Taxes on goods and services increased by $52.1 million or 5.3% to $1,027.9 million. Of note are taxes on insurance companies which increased by $12.7 million due to the fact that payment of these taxes are made every two years and receipts of VAT which totaled $737.7 million, an increase of $33.9 million reflecting the early impact of increase in VAT from 15 to 17.5 %. Excise Duties recorded $147.7 million, a decrease of $0.6 million from the actual outturn for 2009-2010.
Import duties increased by $12.4 million to $190.8 million. This represented an increase of 7.0% from the amount collected in 2009-2010.
Special Receipts decreased by $6.8 million or $10.3% to $59.2 million due to the removal of the environmental levy on imports with effect from December 1, 2010. Non-Tax Revenue also recorded a decline falling by $12.7 million over the corresponding period in 2009-2010, to $94.3 million. This reduction was partly due to the fact that the gain of $22.0 million that was recorded in relation to the re-evaluation of Government’s Special Drawing Rights with the International Monetary Fund in June 2009 was not repeated in 2010. The full impact of this reduction was however not felt due to the receipt of the insurance payout from the Caribbean Catastrophe Risk Insurance Facility (CCRIF) for the damage caused by Tomas during the month of November 2010.
On the expenditure side current expenditure, exclusive of amortisation of $821.0 million, increased by $105.8 million or 3.8% from the 2009-2010 figure to $2,916.6 million. Due to the implementation of various cuts in spending and other cost reduction measures expenditure on goods was reduced and services decreased by $38.9 million or 9.3% to $378.4 million. However, expenditure on current transfers increased by $80.6 million, moving from $1,095.8 million in 2009-2010 to $1,176.3 million for the period April 2010 to March 2011. This was mainly due to increases in Retiring Benefits of $23.3 million or 14.7% and Subsidies of $54.3 million or 11.7%, mainly as a result of supplementaries to the Transport Board, Sanitation Service Authority and the University of the West Indies.
Total debt payments for the period April 2010 to March 2011 amounted to $1,322.7 million an increase of 49.3% over the previous year. Interest payments which were recorded at $501.7 million increased by $65.0 million or 14.9%, while amortisation increased by $372.07 million or 82.9% over the corresponding period in 2009/2010 mainly due to the repayment of the US$100 million bond which matured in June 2010.
Capital expenditure for the period under review was $138.4 million compared to $200.2 million for the corresponding period in 2009-2010. This brought total expenditure for April 2010 to March 2011 to $3,876.6 million compared to $3,459.9 million in the corresponding period of 2009-2010, an increase of 12%.
From the foregoing therefore Mr. Speaker it can clearly be seen that the last financial year was challenging for the country in marshalling the public finances. The intervention which we made last November was not only critical but ultimately timely. Whilst we did not reach our target set at the beginning of the year for a much lower deficit, the measures which were introduced saved us from having an even worse and potentially debilitating performance. In fact Sir, given what eventually transpired relative to the sharp decline in taxes on corporate profits of nearly $72 million over the 2009 figure, had we not introduced the measures we did when we did the deficit could easily have reached 11 % of GDP with disastrous consequences.
I don’t say this to win any points Sir – it is the reality within which we worked. Once as Social Partners we took the decision that we would fight to protect and keep jobs for as long as we could do so, we knew in government that cutting expenditure in as deep a fashion as others would like and as fast as recommended would be difficult. We equally knew that if this economic downturn persisted beyond what was normal as far as recessions in the past were concerned that maintaining levels of revenue would be extremely challenging. That is why we asked for an additional effort from the public of Barbados.
Clearly Mr. Speaker from the evidence of outturn for the first six months of this year and in particular for the first quarter of this financial year, that effort appears to be bearing fruit. Revenues are stabilising and growing over last year and expenditures behind more stringent inputs from the Ministry of Finance are beginning to come down.
Yes Mr. Speaker, the additional effort called for has been burdensome for most and for some painful. I did not shy away from acknowledging that this was likely to happen. I said as much last year when I introduced the measures. But as a Government we surmised after weighing the options that this was the lesser of the most difficult choices we had to make.
Working together as Team Barbados, we are seeing improvements in the economy and in our finances. Yes Mr. Speaker, like the mantra for the popular cough medicine, the plan – the ‘Chris Sinckler Plan’ – it tastes awful but it works.
But the economic cold is not gone yet, and while some symptoms are clearing, the deeply imbedded ones still linger and a discontinuation of the medication after only a relatively short period would be a grave mistake. Indeed Sir, given what is transpiring globally even as we speak, and the with dampened prospects for a continued strong recovery in our major trading partners, it would be foolhardy of us to let our guard down.
We must be firm, focused and forward looking if we are to entrench the gains we have made on this long road to recovery and the resumption of our march towards fostering sustainable socio-economic development for Barbados.
It is with this in mind that I turn my attention to articulating additional measures in support of Government’s overall recovery programme for Barbados.
OUTLOOK FOR 2011
The original forecast of the International Monetary Fund was for world growth to be in the region of 4.4% in 2011. This was predicated on advanced economies expanding by an estimated average of 2.4% in 2011 in real terms, while in emerging and developing economies, the aggregate rate of real growth would be 6.5%. Economic performance, however, will vary widely. This is now becoming patently obvious as several of the major industrialised economies on which Barbados relies so heavily, are now predicting a further slowdown in growth prospects. Indeed, the current upheavals in the financial markets globally, contingent on the recent US downgrade by Standard and Poor’s (S&P), is itself likely to place an even greater restraint on second half growth prospects. This together with continued high oil and commodity prices and internal and external financial imbalances could all combine to not only limit fiscal space for stimulating these economies but usher in a new wave of austerity measures leading to the realisation of the much feared double-dip recession globally.
It means that countries in the region, Barbados included, will have to adopt a judicious mix of defensive and offensive measures aimed at underwriting our economic recovery, while putting ourselves on a more sustainable financial footing. Continuous high debt and deficit levels are simply not going to be affordable going forward and we have to accelerate our efforts to tackle these problems systematically. At the same time we are going to have to continue to strengthen our economic reform programme, while attending to a serious restructuring of all aspects of national economy including both private and public sectors.
Against this background Barbados’ economy is expected to grow between 2.0-2.5% in 2011. This increase is based on the apparent recovery in tourism over the last year. The industry is expected to grow in real terms by in excess of 3.0% in 2011. The early warning economic mechanism, which is now widely used in the Ministry of Finance and Economic Affairs to assess and predict sectoral movements across a set of defined indices, is predicting that economic activity in key sectors like manufacturing and agriculture will pick up though not to pre-crisis levels. While non-traded sectors such as construction, and retail and wholesale trade are likely to see less significant declines if not achieve marginal growth. However, tax revenues from the international business and financial sector are expected to remain depressed. Inflation is expected to continue to accelerate, under pressure of international oil and commodity prices. Foreign exchange reserves should end the year around the same level as at December 2010, provided materialise as expected.
Challenges for 2011-2012 Fiscal Year
The original budgetary programme for fiscal year 2011-2012 was designed to produce a deficit on the cash basis of $582.1 million or 6.8% of nominal Gross Domestic Product (GDP) at market prices, calculated on the International Financial Institutions’ (IFIs’) basis. On the accrual basis, the net operating balance was projected at negative $517.8 million or 6.0% of GDP.
Current revenue was projected at $2,490.2 million with current expenditure of $3,381.8 million and capital expenditure of $134.9 million. Total cash requirements of the Treasury for the year was projected at $1,026.5 million or 12.0% of nominal GDP at market prices estimated at $8,564.0 million. Financing for the financial year was therefore projected at $271.2 million from foreign sources and $755.3 million from domestic sources.
This out-turn was predicated on a number of assumptions, namely:
-A reduction in the level of tax arrears owed to major revenue agencies through enhanced collections.
-The implementation of a stabilisation programme, which will involve reducing discretionary expenditure in order to maintain a positive net operating balance.
-A continuation of the introduction of measures to reduce costs and enhance revenues which will include encouraging state enterprises to implement measures.
-to enhance their revenue generation, keeping discretionary expenditure in line with inflation and reduction of the negative net operating balance of the Post Office.
First Quarter 2011/2012 Performance
Preliminary information received from the Accountant General indicates that current revenue for the period April 1st to June 30th, 2011 was $584.7 million, an increase of $43.9 million or 8.1% from the amount recorded for the corresponding period during 2010.
Taxes on incomes and profits realised $206.5 million, an amount of $3.8 million more than collected for the corresponding period in 2010 while Corporation Taxes continued its decline falling by $1.6 million for the period under review.
Taxes on goods and services increased by 16.4% to an amount of $300.8 million when compared to the same period last year with receipts from VAT being the main contributor to this increased performance. Excise Duties recorded $41.0 million, an increase of $12.7 million or 45% from the actual outturn for 2010.
On the other hand current expenditure, exclusive of amortisation of $70.0 million, decreased by $29.9 million from the 2010 figure to $628.4 million and total expenditure for April to June 2011 was $717.4 million compared to $966.7 million in the corresponding period of 2010.
The first quarter deficit was projected at $62.69 million which represents 0.7% of GDP at market prices of $8,804.0 million compared to an amount of negative 1.7% for the same quarter of the last fiscal year when GDP at market prices was reported at $8,528.0 million.
The level of debt to be financed of $1.026.5 million still remains too high suggesting that there would be a need for new domestic debt issuances of approximately $755.3 million during the year ($605.3 million in new debt and $150 million rolling over).
In the next five years, maturities of the medium term securities will increase from $256.0 million in 2012 to $413.6 million in 2016. Consequently, if the deficit continues to be at the 2011-2012 level, annual issuances of local debt will increase to approximately $1.0 billion in order to satisfy maturing issues and to finance the deficit.
Mr. Speaker Sir, this is an unsustainable position and therefore we at the Ministry of Finance and in fact, all Ministries, departments and statutory corporations alike, must make every effort to bring our performance in line with the medium term fiscal strategy, so that the deficit and by extension the debt are reduced accordingly.
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