Change tack on austerity
ON NATIONAL MATTERS in Barbados there are usually three sides to a story – the Government’s view, the Opposition’s perspective, and the truth. Sadly, we get most of the first two and not enough of the latter.
The major reason for this state of affairs is the difficulty in finding “independent” experts.
Apart from a handful of individuals, most people who speak publicly on a matter do so primarily to either push or defend their particular interest. Rarely do professionals address an issue in the public interest as they often fear reprisals and being targeted by one, or both, of the parties involved in the debate.
A case in point is the ongoing debate on the economy and what would be the best way to generate growth.
Governor of the Central Bank Dr DeLisle Worrell and Minister of Finance Chris Sinckler are adamant that we need to stay the austerity course we’re on to protect our foreign reserves and not to put our currency in any danger of devaluation. They contend that a Government stimulus cannot create sustainable growth in the economy, and there is no quick fix to our sluggish economic performance.
The Opposition Barbados Labour Party (BLP) and, more recently, the Barbados Chamber of Commerce & Industry (BCCI) have called for some form of stimulus to increase consumer demand. They say it would produce more spending and greater confidence, and reduce the likelihood of more business failures and job losses.
The BLP argues, too, that the cost of a stimulus package to the healthy foreign reserves would not put the economy and, by extension, the Barbados dollar at risk. Rather, it would increase Government’s ability to collect more revenue from stronger economic activity, rather than from higher tax rates.
The constant back and forth between the two positions has left the public wondering which prescription is best for our ailing economy, given the persistent financial turmoil engulfing the world’s richest nations, whom we feed off of.
Since, as is the case with most people, macroeconomics is not my forté, I view this issue based on the facts everyone agrees on and the trends worldwide. The facts are the Central Bank’s statistics.
We know, as reported by the Governor recently, that economic growth was flat (0.0 per cent) last year, and this follows growth rates of 0.3 and 0.8 per cent in 2010 and 2011, respectively. The forecast for this year is no more than 0.7 per cent.
Again, we know that long-stay tourism arrivals decreased by 6.2 per cent and manufacturing and agriculture continued their decline. The fiscal deficit for the April to December period was estimated at 6.4 per cent of gross domestic product, compared with 5.2 per cent in the same period of 2011.
We know, too, that money from personal taxes dropped by ten per cent and VAT receipts fell two per cent.
Internationally, we know this month that the International Monetary Fund’s (IMF) top economist Olivier Blanchard and another Fund economist, Daniel Leigh, co-authored a paper which, essentially, noted that austerity could have hurt more than helped struggling economies.
“Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation [austerity],” Blanchard and Leigh wrote.
Though that paper represented their views and not the IMF’s, it was widely felt in finance circles that this viewpoint will become significant in the bank’s outlook. And for many this proved true last week when Blanchard suggested that Britain should tone down its austerity plans to help its struggling economy.
Now, based on the bank’s statistics, we can see that Government’s austerity plan seems not to be achieving its goals. VAT was raised but less money was collected. Personal taxes are down too, ostensibly a reflection of fewer people working. At the same time internationally, those who once pushed austerity are now saying this policy may not be right for the prevailing circumstances.
I can only conclude that Government should look again at its austerity programme and see how to adapt it to put more money into people’s pockets. This would generate commercial activity and save struggling businesses and, by extension, jobs.
Government needs to heed that old saying “While the grass growing the cow starving” – meaning that while one hopes or dreams about certain positive outcomes, bad things are happening.
With the policies not bringing any relief for Bajans, who are feeling more and more that they are between a rock and a hard place, there is clearly a need to change course. So, wheel and come again!
• Sanka Price is an editor at The NATION. Email him at [email protected]