FOR WHAT IT’S WORTH: Govt was warned
Government has finally come clean with Barbadians!
At the recent national consultation, Government and the Central Bank, for the first time, admitted that Barbados’ debt situation needed controlling. The Central Bank Governor alerted us that we urgently need a deficit reduction of $400 million. The Prime Minister called for “all hands on deck” to help rectify the situation and noted that to save our currency from devaluation we need to take urgent action.
It’s good that Government and the Central Bank have finally admitted that the debt and deficit need controlling, but the important question is whether Government has the will and conviction to deal with the matter itself, or will it await the arrival of the International Monetary Fund (IMF)?to take away the cheque book and do the job for it?
I trust that in dealing with the situation, politics will not be put before the national interest, as is the case in the sugar industry where, for years, two factories have been operated at great cost where one would suffice.
In recent years, when Geoffrey Cave and I were members of the Senate, we consistently and persistently brought Government’s attention to the dangerous situation that Barbados was moving into. In fact, one of Senator Cave’s speeches made the headlines in THE NATION’S Editorial Cave’s Caution Is Of Merit on June 5, 2012.
He complimented Government for reducing the deficit from 8.8 per cent of gross deomestic product to 4.5 per cent, but continued: “The truth is that Barbados is in a difficult situation, and the most important thing for this country is to make sure that we do not again have a write-down of finances (meaning that we don’t get a further downgrade). So it is important, though difficult, to continue the [value added tax] regime. It is important that the revenue keeps coming in order to ensure that the deficit continues to fall.”
He further suggested that what was yet to come would be more difficult than what we had seen in the last few years.
In a letter to THE NATION in March, 2012, headlined Lessons From St Kitts, the then Senator Cave noted: “Recent events should remind us that countries which borrow excessively can and will go bankrupt, affecting the standard of living of everyday citizens for decades afterward . . . . The causes may be different between various countries at different times, but the common cause is some level of sustained fiscal irresponsibility by the government of the country.
“There is no such thing as a free lunch, and excessive borrowing by countries for ‘non-productive’ projects inevitably comes home to roost. Wasting capital by borrowing today against future taxation has a limit and once the burden becomes too great to bear, the country then often has limited options – all of which are highly unpleasant. These typically include massive currency devaluation, painful structural adjustment (layoffs and salary cuts) and/or debt default.”
He further noted that in ten years Barbados’ debt rating had moved from “A” to one notch above junk and that Barbados was now the third highest indebted country in the Caribbean, behind St Kitts and Jamaica – both of which are now in the hands of the IMF and have recently “restructured their debt”.
Government deficits and inflation have both grown steadily in Barbados. Higher deficits necessitate increased borrowing. But we should ask ourselves each time a new bond is issued in our collective names: “What will the money be used for?”
I have certainly questioned wastage and the continued borrowing from the National Insurance Scheme to pay public officers.
I agree with Mr Cave that this is not a recipe for lasting economic prosperity and that, if we are not careful, we risk saddling the next generation with a huge share of their future earnings going to interest payments on debt accumulated in our time.
Mr Cave warned that Barbados had serious structural issues with our outdated “tax and spend” policies and that several of our key industries were grossly uncompetitive partially because of high tax and duty structures on almost every product and service. It has been voiced by others many times that taxing inputs rather than outputs seriously affects the viability of many businesses.
These warnings were given over a year ago but it seems our leaders were in denial. Let’s hope the true picture hasn’t been revealed too late for a solution to be found!
• Dr Frances Chandler is a former Independent senator.