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THE HOYOS FILE: In search of the longer horizon


Patrick Hoyos

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Government continues to pursue a strategy designed to reduce the fiscal deficit. . . . (However,) it is prudent to adopt a somewhat longer horizon for the achievement of an overall fiscal balance, and the fiscal targets published in the Medium-Term Fiscal Strategy (MTFS) are being modified accordingly. – Central Bank Press Release, Page 3.
Thus spake th eCentral Bank of Barbados last week, attempting to mask with studied calm what has been apparent for some time: the Medium-Term Fiscal Strategy document was not worth the paper it was printed on, or the kilobytes it took up on your computer hard drive.
Perhaps its purpose was to buy time with the ratings agencies by showing we were coming to grips with our growing fiscal deficit. If that was the reason it was produced, well, maybe it did succeed. But in terms of the projections it contained, it has failed in almost every prediction.
The goal of the MTFS was to set down what diplomats nowadays like to call a road map, this one showing how we were going to balance the budget in five years.
Government is already blaming it all on the recession and oil prices, but it was never going to work. It was even impossible to read it without laughing out loud.
For example, it noted that various medium-term strategies provided a framework for Government “to reduce its overall fiscal deficit and aim at obtaining a balanced budget by the period 2014 to 2015 and a small surplus by 2015 to 2016”.
Excuse me, we are talking about Government here. Have you ever heard of a Barbados Government, or maybe any government, achieving that?
So now we are hearing that the financial policy wizards will aim for a “longer horizon”.
Let’s look at the reasons why: except for 2008, revenues have been below what the plan called for, while on the expenses side, we have spent more.
So instead of having our annual deficit gradually falling and actually becoming a credit by fiscal 2014 to 2015, we have seen our annual deficits growing – way past the $½ billion mark.
In addition to that, huge increases in published estimates of gross domestic product have not pushed down the ratio of deficit to GDP far enough, and it has stayed above plan.
You don’t balance your budget by taking in less and spending more, even if you move the goalposts around for the way you work out GDP, presumably without telling anybody why.
The total national debt, according to the Central Bank, has risen from around $6.6 billion at the end of 2008 to 2009 to its current level of $8.85 billion  – about $2 billion in three short years.
Now, in economic circles, it doesn’t seem that anybody cares about that as long as its ratio to GDP looks good.
In March of this year, in its first-quarter report, the Central Bank published the following debt-to-GDP ratios: fiscal 2008 to 2009, 83.5 per cent; 2009 to 2010, 96.5 per cent; and 2010 to 2011, 101.9 per cent.
These ratios therefore put the GDP at approximately $8 billion, $7.8 billion and $8.2 billion for those respective years. Following on, these estimates put the fiscal balance-to-GDP ratio at -5.76 per cent, -8.87 per cent and -9 per cent, respectively. Note those percentages are in the negative, as they are deficits.
So much for falling deficits turning into credits.
To make things even more confusing, at some point after March the Bank lowered the debt-to-GDP ratios noted above to 76.6 per cent, 85.6 per cent and 98.5 per cent, respectively.
The only “explanation” I could find was in a footnote which stated that “GDP ratios reflect revisions to the CBB estimates of domestic GDP”. – Central Bank Press Release, Page 10.
Since the debt is the same, the lower ratios mean the GDP estimates would have gone up and, in fact, it would seem to put them at around $8.7 billion for both 2008 to 2009 and 2009 to 2010, and around $8.5 billion for 2010 to 2011. Is this economy that big? Who knew?
But for whatever reason those GDP estimates were raised, it still didn’t help the economy achieve the goals for the MTFS, so we are now in longer horizon mode.
With the economy weak and the general Government policy being to mop up almost all import-generating, foreign-exchange-consuming disposable income, it may be a long time before we can stop this slide into the abyss.
By then it might be too late for us, as we will have to continue the cycle of borrowing to pay our debts rather than expand our real horizons, the ones we can at present only imagine.

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