RIGHT OF CENTRE: Outline policy in clear terms
Having the capacity to plan is one of the most critical components that constitute investor, business and consumer confidence.
All governments therefore have a responsibility to outline in very clear terms how they will execute stated public policy. This becomes critical in a soft economy, and especially more so when the state of the public finances is precarious, as it allows private investors, businesses and individuals to adequately gauge the level of risk associated with any new investment.
In Barbados, as well as in most other jurisdictions, the public sector budgeting process forms part of the mechanism by which country risk assessments are conducted. Therefore, any and every action taken by Government ought to be carefully scrutinized to determine how the market for private capital will be affected.
Our fiscal year runs from April 1 to March 31 of the following year. Government’s authority to spend is usually debated during the month of March immediately before the start of a new fiscal year known as the Estimates debate.
In this debate, all the line items of Government revenue, expenditure, deficit financing and debt are presented by the Minister of Finance for scrutiny.
The details found therein outline how the Government plans to finance its operations and therefore is an extremely important piece of information that investors review for signs upon which to base their confidence.
The Financial Statement And Budgetary Proposals, popularly known as the Budget, have taken precedence, rather oddly, over the Estimates even though the two are inextricably linked.
It is the considered view of the BES that the Budget exercise should be used to present a real-time update as to whether the Government is on track to meeting its revenue and expenditure targets along with debt services as outlined in the Estimates.
The Budget must also present leading indications of Government’s future public policy which ideally would commence in the following fiscal year at the earliest. Taking the capacity to plan into consideration, then for the Budget to be effective, one must allow at least two quarters of the fiscal year to elapse before any credible assessment can be made as to whether Government will or will not meet its targets.
The Minister of Finance is set to deliver the 2012 Budget on June 26, about 12 weeks after the start of current fiscal year 2012/2013.
We are therefore left to ponder how the market will perceive the Government’s need to engage in this exercise so soon after the start of the fiscal year.
General elections notwithstanding, this Budget is not likely to provide the necessary confidence to private investors, businesses and consumers alike that Government is demonstrating the right measure of control and discipline that is necessary when managing the country’s finances.
In conclusion, the ability to plan with confidence cannot be stressed enough as the way to get a sluggish economy back into high gear.
In order for that to happen, the private sector, households and investors must be assured Government is playing its part.
Taxpayers must demand that these debates be deeply rooted in sound economic principles.
If in so doing, some political advantage can be garnered, then that is fair. An update on the fiscal current account will determine the level of confidence in the economy for the rest of the year.
Ryan Straughn is president of the Barbados Economics Society.