In a strange way, Barbados is now facing some very serious issues, which are not limited to economics, but which bring our Independence into question.
The truth is, our country is even more dependent on borrowed foreign resources. The irony is that in the immediate future, this dependence is going to be even greater because the Government’s poor financial condition undermines the country’s confidence.
Barbados’ self-imposed fiscal crisis has so compromised our economy that the decision to invest National Insurance funds in Four-Seasons will be made on the country’s access to the foreign dollars from the Inter-American Development Bank.
All of the investment advice will be ignored as it will be argued by some technocrats that the country needs the foreign exchange, and this view will prevail.
It is inconceivable but true that after four years in office the current administration has not been able to build a road. This is simply because it has had to focus on borrowing to pay civil servants and therefore has had the worse capital works programme of any administration.
The Government has been unable to be a facilitator of economic activity and has in fact extracted financial resources from households and businesses in a way that worsened their condition.
This new-found approach to governance has caused international institutions to whisper that “the Barbados economy is now the worst managed in the region”.
Since Independence in 1966, Barbados developed a reputation as a small-island economy that performs above its limited resources. This reputation was built on an accepted burden that taxation is tolerable once there is something to show for it.
This something was access by the taxpayers to a fairly wide range of social goods and services, more recently referred to as social entitlements.
Barbadians have come to accept a high level of taxation, and all governments prior to 2008 have understood that expenditure has to be managed within predetermined limits. This ideology was first espoused by His Excellency Errol Walton Barrow in 1973 when he outlined the justification for running surpluses on the Government’s current account.
This was not an accidental comment at the time; it was the economic foundation for practising democratic socialism.
In the period after the economic crisis of the early 1990s, Owen Arthur best exemplified the tenets of fiscal prudence. Huge surpluses were realized on the current account, which allowed a programme of capital works that contributed to economic growth, not stagnation.
It was possible for him to expand spending within the constraints of Government revenue; failure to do so would have been a betrayal of fiscal prudence.
The post-Independence era gave birth to two new economic phenomena; fiscal deficits and national debt. It is fair to say that the presence of the former brings about the latter.
The essence of fiscal prudence comes down to managing this double-edged sword – and quite frankly the current administration abandoned such prudence as early as 2008.
As happens in a household, there is good borrowing and there is bad borrowing on the part of Government.
A rule of thumb is that good borrowing ought to enhance the borrowers’ earning capacity. Bad borrowing is undertaken for consumption purposes.
Whatever the use to which the borrowing is put, there is a limit to borrowing, whether it is a household, a business or a government. Unfortunately, the first two entities seem to understand their limits much better than the Government.
The failure to respect limits is very much responsible for what European economies, in particular, are now experiencing. If the limits are not respected by governments then time will impose tighter limits.
In this vein, Barbados flirted with the limits some twenty years ago, recovered and simply reverted to a position that is now more difficult to reconcile. The difficulty lies in the fact that this time around the issues are at the root of the country’s Independence. This link may seem far-fetched, but it is not.
In small economies and societies like Barbados, the role of Government is bigger than in big economies and societies. This is a danger in the sense that such governments tend to justify their overindulgence under the guise of putting the people first.
But the irony is that when governments overindulge, they simply cannot be the facilitator.
