No end to our darkest hour
In the middle of last year, Minister of Finance Chris Sinckler believed the economy had weathered the storm.
“Remaining optimistic, but yet cautious,” he told Parliament in his Budget Speech in early August, “the expectations are that real economic growth in 2012 could lie between 1.0 per cent and 1.5 per cent.”
Indeed, he went on, “Beyond 2012 and into the medium term, growth rates of 2.0 to 3.0 per cent are possible.”
This scenario, of course, came with the usual caveat that it would all depend on tourism, construction and the offshore sector, the standard drivers of foreign exchange inflows to Barbados.
More revenues were expected from the taxes on incomes and profits, the minister continued, with income tax “expected to increase by $32.1 million or 7.8 per cent to $444.6 million . . . due to increased efficiencies of the new automated tax system.”
It must have been on autopilot.
Last week, the Central Bank of Barbados reported that personal income tax revenue had declined by 18 per cent and corporate revenue by 4.2 per cent.
“The decline in personal income taxes was attributed mainly to the expansion of the tax threshold from $24 000 to $35 000 and the reduction in the effective income tax rate from 20 per cent to 17 per cent,” the bank noted, adding that “the weak outturn in corporate tax receipts was as a result of declines in business profitability, from the previous year.”
Let’s go back for a moment to the time when our darkest night seemed to be ending.
Towards the close of his August Budget presentation, Mr SInckler looked back over the challenges the Democratic Labour Party Government had faced.
Despite being given an “extremely difficult hand” to play, he said, “We have kept our economy stable, protected the Barbados dollar from devaluation, contained job losses as best we could, maintained a high level of service in our social services, enhanced the social safety net, and hold the hands of our private businesses through a variety of mechanisms.”
But without being able to achieve growth, how long will the economy of Barbados be able to continue doing all of the above?
Last week, the Central Bank summed up the bleakness of the situation. It said: “Preliminary estimates indicate that during financial year 2012/13, Government revenues declined by 5.5 per cent, largely reflecting a 5.9 per cent fall-off in total tax receipts.”
As a result, Government’s overall fiscal deficit was estimated at 7.3 per cent for fiscal 2012/13, compared to 4.6 per cent in the previous fiscal year.
The dismal outturn has finally exposed Government’s Medium Term Fiscal Strategy for what it always was: an unattainable pipe dream.
In its published Executive Summary of the Medium Term Fiscal Strategy (MTFS), Government stated on Page 3: “The aim of this strategy is to enable the economy to make a transition from the current fiscal situation to one that is more sustainable . . . .
“The fiscal-deficit-to-GDP ratio should decline to 2.1 per cent of GDP by the fiscal period 2013/14 and then to a balanced position by 2014/15. A small fiscal surplus of 0.6 per cent of GDP is expected by 2015/16.”
A small surplus, you say? We would break out the champagne for a small deficit.
The bank, which has long seemed, in my view, to be supporting the Government’s policies, now admits it’s back to the drawing board for the Government.
Here’s how the numbers have turned out.
The fiscal deficit as a percentage of GDP was as follows (year-end March 31): 2006: 2.3 per cent; 2007: 2.8 per cent; 2008: 3.3 per cent; 2009: 5.3 per cent; 2010: 7.9 per cent; 2011: 9.0 per cent; 2012: 4.7 per cent; (source: Central Bank 2012 Press release dated January 16).
Forced to wake up and smell the coffee, the bank noted in its first-quarter Press release that “the fiscal consolidation strategy must be brought back on track, and a new medium term adjustment strategy must be implemented, using the current deficit as a point of departure”.
In other words, the document to which the Government has clung to as its way forward is not worth the paper its was printed on.
I hear the sound of the MTFS Executive Summary being shredded.
Further, intoned the bank: “On current trends, there may be no real increase in the contribution to GDP from the tourism or international business sectors in 2013. The forecasts for the rest of the economy are no better, with overall GDP expected to be virtually flat.”
But the country, despite that terrible prospect, still urgently needs foreign exchange. In fact, said the bank, “in order to sustain foreign reserves at end-2012 levels, net capital inflows of about $523 million will be needed, for both the private sector and Government”.
How we will get that foreign direct investment is now anybody’s guess.
• Pat Hoyos is a publisher and business writer. Email email@example.com