Barbados’ recovery from the crisis is also slower than its peers, in our view, and its medium-term growth potential will likely be lower unless it addresses structural difficulties. – Standard & Poor’s, Ratings Direct: Barbados, p. 12 (read it at www. standardandpoor.com/ ratingsdirect)
Watching this administration over the years has been like watching an episode of Hoarders, which, in case you have never seen it (it’s on the A&E channel if you have satellite TV) “documents the struggles of people who cannot part with their belongings and the roads they take to recovery . . .”, according to the show’s PR.
I haven’t been able to watch much because I find it so depressing, and feel bad for the people affected. I feel the same about watching Hoarders.
Our public governance is strewn with agencies, statutory corporations, investments in private companies, and Government departments chock-full of stuff we had long ago forgotten we had.
Many of these items are long past their original useful purpose, if they ever had one, and many more are steeped in civil service bureaucracy that makes them self-perpetuating simply for their own sake. Or because they form part of the power base of some ministry or union.
So getting rid of them is harder than we might think.
Knowing this helps you understand what is being referred to in economics-speak when you read reviews like those of Standard & Poor’s and come across sentences like the one quoted above.
Reduce spending
“Structural difficulties”? Whatever could be causing them? As we have noted before, the Government itself has identified the need to reduce its spending on a “front-loaded” basis, by close to $300 million per year. This year.
That would reduce the fiscal deficit by a couple of percentage points each year, and according to the draft Medium Term Growth And Development Strategy document (the MGDS) is the basis for economic recovery.
S&P notes in the same review that “Fiscal adjustment and stabilization of the debt trajectory are important to maintain the ratings at the current levels” (Page 12).
So I am waiting to hear how Minister of Finance Chris Sinckler deals with his own Government’s expense-cutting plan outlined in the MGDS, released barely six weeks ago.
I quote the draft MGDS, 4.2 Revised Medium Term Fiscal Scenario 2013-2000 at Page 38:
“The Medium Term Fiscal Adjustment scenario . . . highlights the policy of Government to reduce the fiscal deficit to 4.4 percent of GDP [gross domestic product], down from 7.9 per cent at the end of 2012/13.” The goal, it says, is to balance the budget by 2019/20, specifically stating as follows:
“During the first year of the strategy, the main adjustments will be on the expenditure side where it is estimated that a $295.3 million reduction in spending will have to be made. To achieve this, the bulk of the cuts will have to come from non-interest recurrent expenditure to the tune of an estimated $233.7 million . . . . By front-loading the expenditure adjustments, Government as shown in 2014/15 and onwards does not have to make any major amendment.”
In Table 6 on page 39, the MGDS document offers some figures to show where this “front-loading” of spending cuts will take place, starting this fiscal year already in progress: $66.4 million will be cut from Personnel Emoluments; another $87 million will be cut from Goods & Services; and 80.3 million from Subsidies & Transfers.
The MGDS also expects that Government will save $122 million in interest payments, which are projected to fall from $560 million to $437 million this fiscal year. I don’t really understand how, but maybe it means that we would be paying off some debt, and not re-borrowing as quickly.
The MGDS also states that in order to achieve its target of fiscal balance and a modest but steady growth of GDP, about a quarter of the revenue currently lost by the Government from consumer goods that have been VAT-exempted over the years will have to be reinstalled, raising Government revenue by around $50 million per year (assuming consumers do not make their own “adjustments” by purchasing fewer of said items).
The Standard & Poor’s review suggests (to me) that unless Government does something now about its fiscal deficits, it will face continuing downgrades of its debt, which is already classified as junk, and which, like Dante’s Inferno, seems to have deeper and deeper circles.
We are still, unfortunately, on the economic elevator going down. So I await the Budget with interest to see how closely Mr Sinckler will follow the outline his Government has already published, and whether this will signal to the international community that the elevator is on the way back up.
• Pat Hoyos is a publisher and business writer. Email pathoyos@gmail.com
