Interest in the 2013 Financial Statement And Budgetary Proposals was heightened by the recent disclosures that a major fiscal adjustment of 4.4 per cent of gross domestic product (GDP), approximating to $400 million, would be required to address the country’s serious economic challenges.
There have been differing schools of thought as to whether this adjustment should be sharp and swift or slow and gradual.
Minister of Finance Chris Sinckler, in presenting the Budget, acknowledged that the country’s macroeconomic programme was dangerously off track.
On the current trajectory the fiscal deficit as a percentage of GDP, if left alone, would likely end the current fiscal year between eight and nine per cent, up from 2.7 per cent in 2006.
Interest payments on Government debt have increased over the same period from 14.8 per cent of revenue to 36.8 per cent for the latest quarter ended June 30. Foreign exchange cover has fallen to 16 weeks and, without intervention, is projected to fall further to around the international minimum standard of 12.5 weeks.
The minister noted that it would be reasonable to deduce that much of the over $300 million loss in reserves could be attributed to a decline in the level of overall confidence in our economy by foreign and domestic investors alike.
The Estimates 2013-2014 set out revenue projections of $2.63 billion and set budgeted expenditure at $3.87 billion, giving rise to a projected deficit of $1.24 billion, or 5.6 per cent of GDP.
Summary
This year’s Budget was divided into two sections: (i) Barbados Growth and Development Strategy (BGDS); and (ii) Fiscal Adjustment Measures (FAM).
The aim of the BGDS is to create sustainable economic growth and development though enhanced productivity, efficiency, competitiveness and service excellence.
This strategy replaces the Medium Term Fiscal Strategy.
The Government has targeted the productive sectors of the economy such as tourism, international business.
The proposed strategies include expenditures as follows: increased investment in the Barbados Tourism Authority to boost tourist arrivals; additional funding for Invest Barbados to promote international business; major infrastructure projects including roads, schools, and Barbados Water Authority mains replacement; investments in the physical plant of the tourism sector through developments Almond Beach Resort and the Silver Sands Hotel; and the construction of a sugar factory.
The FAMs are designed to reduce the fiscal deficit to below three per cent over a 19-month period commencing September 2013.
Collectively, they are expected to result in $150.9 million in increased revenues and $285 million in cost savings.
The total fiscal adjustment of $435.9 million is expected to result in a deficit of less than 3.0 of GDP by 2014-2015.
Major fiscal revenue adjustments include an additional land tax charge of 0.7 per cent of the site value of land ($49. 3 million); a temporary “consolidation” tax on gross income of persons earning at least $50 000 per annum ($42.1 million) and temporary tax on the assets of commercial banks ($38.0 million).
Expenditure reduction measures include a reduction in the public sector wage bill through reduction in estimates for temporary posts ($30 million); reduction in transfers and subsidies to certain statutory corporations (Transport Board, National Conservation Commission, Queen Elizabeth Hospital, Sanitation Service Authority and the University of the West Indies; along with a 12 per cent cut in other transfers, translating to a reduction of $60 million.
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