How deep the cuts?
NEXT TUESDAY, August 13, when Minister of Finance Chris Sinckler presents his 2013 Budget, he will do so having had the benefit of a comprehensive, but not exhaustive, set of recommendations in the Barbados Growth And Development Strategy 2013-2020 document.
This incomplete discussion paper was the basis of a recent national consultation and Government would also have benefited from suggestions by major stakeholders, including the private sector and the unions.
In the face of the continuing difficulties with the economy, particularly Government spending, low growth and declining tax revenues, it has now been accepted that the main focus would be on reducing expenditure with a $400 million cut being bandied about.
The question to be decided would be whether these unavoidable cuts would be a short, sharp infliction or phased over the medium to long term.
This strategy document, prepared by the Ministry of Finance in collaboration with the Central Bank, select ministries and departments, suggests a much lower target of $295.3 million during the first year of the seven-year strategy.
“To achieve this,” it said, “the bulk of the cuts will have to come from non-interest recurrent expenditure to the tune of an estimated $233.7 million . . . which includes personnel emoluments, goods and services, and subsidies and transfers.
“By front loading the expenditure adjustments, Government, as shown in 2014/2015 and onwards, [would] not have to make any major amendment.”
The analysis determined that given the main risk to macroeconomic stability was in a continued growing deficit currently estimated at over 8.0 per cent of Gross Domestic Product (GDP), a significant reversal from the 4.6 per cent seen in 2011/2012, “the aim will be to front load the 2013/2014 adjustment and bring the deficit down to between 5.0 and 4.0 per cent of GDP and onward, to have a balanced budget by the end of the planning cycle 2019/2020.
“To achieve these fiscal targets, there have to be significant corrections on the expenditure side given the current weaknesses in revenue performance and the not so positive outlook for growth in the short-term,” the document said.
“In this regard, cuts will have to be made to current expenditures, primarily wages and salaries, goods and services, and transfers and subsidies. It is estimated that to bring down the deficit to about 4.7 per cent of GDP . . . current spending will have to be cut by over $290 million.
“Given our debt service obligations, this adjustment will have to be found in the other categories as mentioned above.”
The document said that to achieve the adjustment, serious policy consideration has to be given to several structural issues:
• The runaway tertiary education cost, particularly the University of the West Indies (UWI), for which the Government is paying over $100 million per year;
• The growing health care cost due mainly to lifestyle-related diseases;
• The growing size of the public service and related statutory corporations, which are receiving large transfers.
• The need for greater productivity in the public service and re-organization;
• The fundamental need for new ideas and efforts to be injected into the economic sectors such as tourism, manufacturing and agriculture;
• The adoption of renewable energy and its essential use to help reduce the cost to both the public and private sectors.
Government’s policy will be to regularly review the efficiency of its expenditure programmes and seek where possible to remove excess spending due to inefficient and uncoordinated/unshared procedures, reduce cost overruns and improve service delivery.
“More specifically,” the document said, “ministries will have to review and reprioritize their programmes to help reduce costs by removing programmes that are no longer needed or not seen as priority, by improving procedures to remove inefficiencies, and by sharing more resources, and more procedures between programmes.
“Further, state-owned agencies will have to improve their levels of efficiency and rely less on Government subventions.”
1. Contain personal emolument costs by allowing total growth to be the equivalent of the sum that would be paid as increments. This will depend largely on containing the growth in public sector employment;
2. Increase the efficiency in the procurement of goods and services through better sourcing and more astute, aggressive and efficient procurement;
3. Reduce the operational costs of ministries and statutory bodies by 30 to 50 per cent through the aggressive use of renewable energy for electricity generation, and through the infusion of appropriate technology;
4. Merge Government departments and entities carrying out similar functions or serving the same interests;
5. Keep caps on the transfers to the statutory boards, corporations and Government-owned companies;
6. Facilitate greater use of Public-Private Sector Partnership (PPPs) arrangements in financing capital projects, where Government will make savings in expenditure or earn revenues to cover the lease payments on such arrangements;
7. Readjustment of the annual Estimates;
8. Place greater emphasis on the foreign exchange earning sectors such as tourism and international business, with the objective of raising the growth level; and
9. Reduce spending to the UWI and QEH through the use of special mechanisms that will help these agencies to be more self-sufficient in terms of their financing. Such mechanisms can be in the form of a special education and health fund to be financed by Government and the private sector.
On the management of Government debt, which at March 2012 stood at $8 893.2 million, or 103.1 per cent of GDP ($6 466.2 million, local and $2 427 million, foreign), among the proposed strategies are refinancing at lower interest rates; fixing interest rates on external loans; evaluating innovative instruments, including index, serial and floating rate bonds as well as exercising callable options.
• Albert Brandford is an independent political correspondent. Email firstname.lastname@example.org