IT’S MY BUSINESS: That sinking feeling
Two important things happened in the Barbados economy last week.
Minister of Finance Chris Sinckler announced he would soon be giving a speech to tie up those little loose ends in the Budget regarding how things like, you know, the garbage tax and the VAT on tourism-related enterprises would be actually charged, and second, Standard & Poor’s downgraded our sovereign debt yet again.
Given the latter, the former seemed a bit like, well, re-arranging the deck chairs on you-know-what.
Is, you might ask, the Barbados ship of state sinking like the old Titanic?
Not quite yet, said S&P.
But the prognosis is not good. S&P says it is worried about the large fiscal deficits being incurred by the Government, which are causing its net debt burden to continue to rise, from 60 per cent of GDP two years ago to 70 per cent this year.
Remember, “net debt” means after you factor in our NIS assets (treating the “social security” surplus as if it were owned by the Government) and other government assets, like the money in the Sinking Fund.
These “twin deficits”, the rise in overall national debt as a result of persistently operating the government at a loss (the ongoing “current deficits”), are in the main what drove S&P to downgrade us somewhere deeper into junk bond territory, after first placing us there last year for the first time.
We now spend 13 cents out of every dollar raised in taxes just to pay interest on our debt, and about a third of every dollar of revenue to pay the interest plus the loan payments themselves.
And yet we have a Government that won’t do what it needs to, although you have to give Minister of Finance Chris Sinckler some credit for trying, as he did with his Budget speech and subsequent actions in August.
As we all know, the sleeping giant suddenly sprang to life and cut him off at the pass.
Let us all proceed as before, said he, before climbing back up to Mount Olympus.
S&P notes that Barbados has fallen back into recession this year after a weak recovery in the two years before.
How could this be? The Government cannot say it is because the world is in recession, as a recently published chart from the IMF shows that almost every country in this hemisphere, including our regional neighbours, is projecting some sort of growth for the current financial year, except for Barbados.
But there is some hope, as GDP is expected to rise slightly next year and the following year as a result of construction in tourism.
Now you see why, for the Government, getting Almond rebuilt is so important. Anything to spur construction, no matter the long-term cost.
But another downgrade would come unless we are able to turn things around, said the influential ratings agency, including getting some foreign investment in the country. Plus, it was willing to return our outlook to stable if the government adopted measures “that significantly reduce fiscal deficits, leading to declining debt and interest burdens, which would lower external pressures as well”.
I wonder how much of this, if any, Mr Sinckler or the prime minister is willing to respond to.
I mean, does it make much sense to be told whether the VAT will be cut in half for waterports operators or restaurants when our economy is not reducing its overall spending?
Will somebody remind the minister that the issue is not only reducing taxation to make our tourism product cheaper in the hope of attracting more foreign exchange spending here, but reducing the cost of government, period?
Nobody says this will be easy, but we have to do it. Not with a cutlass but with a surgeon’s knife.
Some people will have to go home from the Government as they have been doing from the private sector.
We need to give fair severance payments and gratuities and offer re-training and counselling in order to help some people restart their income generation. We need to go into hardest hit areas and ensure the kids can get help with whatever they need to go to school every day.
But we must cut the Government payroll, sell off in whole or in part some state enterprises, reform our foreign exchange earning sectors with more Butch-like incentives, and in all things, take steps to cut our expenses.
It is a national emergency. We do not want to go to the IMF and take their economic prescriptions, so we have to do it ourselves.
• Patrick Hoyos is a publisher and business writer.