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Economy in limbo

Patrick Hoyos

Economy in limbo

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With the Estimates for 2012-2013 duly published and debated, today, April 1, 2012, marks the start of the fiscal year for which they are intended to provide the template.
The Budget Speech, which became a moveable feast in Owen Arthur’s administration, has remained so under the Thompson-Stuart succession, so we don’t know when Minister of Finance Chris Sinckler will make the presentation for this year.
However, with value added tax (VAT) estimated to bring in a further $67 million this fiscal year on top of its $90 million increase last year, thanks to a 2.5 per cent increase and, no doubt, some retroactive payments during the amnesty period that ended last December 31, I wonder how that will be achieved with the said 2.5 per cent increase supposed to disappear on May 31, eight weeks from now.
I therefore propose, effective December 1, 2010, to increase the value added tax rate from 15 per cent to 17.5 per cent. This increase in the VAT is intended as a temporary measure for the next 18 months. ­– Chris Sinckler, November 22, 2010, Budget Speech.
Does that mean we will have a budget before then? Inquiring minds want to know.
So far, Sinckler’s austerity policies as Minister of Finance haven’t worked. Looking back over his August 2011 Budget Speech, it seems to me that the Government saw this very clearly even then, but instead of easing the tax burden on the citizens and providing other incentives that would stimulate the economy, the minister of finance chose to double down, adopting his new “NIS-pay-these-bills-for-me” plan.
After rightly lambasting the former administration for not bringing Hotels & Resorts Ltd and other expenses to book, Mr Sinckler was, ironically, able to make the economy do the limbo under the lower Medium-Term Fiscal Strategy (MTFS) wire by taking over $100 million worth of subsidies off the books and putting it on our NIS [National Insurance Scheme] loan account.
If we continue on that slippery slope, the NIS will soon not just be the Government’s most accommodating banker, it will be the Government itself. In the Central Bank’s wisdom, which as you know is for the ages, it is already thus.
Seven months before, with the deficit running at close to nine per cent for the previous year (to March 2010) and digging another hole just as deep in the year in which he took the reins of the finance ministry, Mr Sinckler had imposed draconian measures for fiscal year 2011-2012.
Despite those measures, he had to admit in August 2011 that “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 per cent of nominal gross domestic product [GDP] at market prices”, but was not enough to put the economy on the right track.
At Page 36 of the 89 pages of his 21 000-word speech was this chilling indictment of the path to economic ruin being followed by his own administration: “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.”
This admission – despite raising the VAT, removing the allowances and raising the excise tax by 50 per cent.
How to fix it? Mr Sinckler had a plan. Buried among six other general better-management policies was the “. . . designing of a borrowing package from the NIB [National Insurance Board] to three statutory entities (University of the West Indies, Transport Board, Barbados Tourism Authority and Needhams Holdings Ltd) to allow for financing of $110 million during the course of this financial year for specific aspects of their programme”.
This alone saved face for the Government, but it has not saved the day for the country.
If that $110 million borrowed from the NIS to help Government pay some operational costs for the year had remained in the Government’s current expenses, the deficit would have been $100 million higher and the result as a percentage of GDP would be 6.7 per cent. That is, almost exactly the percentage the whole August 2011 Budget exercise was intended to reduce. You know, the one that is unsustainable.
Mr Sinckler said: “This strategy is expected to result in the following financial performance for 2011-2012: A revised deficit of $461.9 million or 5.2 per cent of GDP at market prices of $8 804.0 million, based on performance for the first quarter of the year. This is slightly better than that of the MTFS of 5.6 per cent.”
The revised Estimates for the fiscal year just ended show a deficit of $456.9 million or 5.4 per cent of GDP put at $8 461.8 million. (Source: Barbados Estimates 2012-2013, Review Section, Page 2).
Meanwhile, for the current year now cranking up, the Estimates are showing a deficit of about $50 million below the revised estimate for the year just ended, coming in at 4.4 per cent. This seems to be on track with the MTFS, but is it realistic? I ask that because the calculations are based on a GDP of $9.2 billion for the fiscal year which starts today. Not sure whether  the “NIS-pay-these-bills-for-me” plan is included.
For the past three years, our economy has been stuck at around $8.5 billion, and we have seen how Mr Sinckler himself over-estimated its ability to pull ahead in the fiscal year just ended. How can it suddenly jump by $700 million, unless oil prices and inflation go through the roof, and as a consequence the whole economy goes through the eddoes?
If GDP remains stagnant at around $8.5 billion again this year, the fiscal deficit estimated for the current year at $412 million would be 4.87 per cent of GDP. And if the deficit goes higher than shown, that deficit could easily cross five per cent again.
Ironic, isn’t it, that rising prices (inflation) can make our deficit look better while inflicting even more pain on the population?
And with only austerity measures in place, Mr Sinckler is denying the natural pent-up desire of citizens to help develop their own economy, waiting instead for tourism to rebound significantly.
The Government has placed the future of the Barbados economy in limbo and has no idea how to get it out.
• Pat Hoyos is a publisher and business writer.