WHAT MATTERS MOST: Govt should lead not mislead
This is the last article in which the focus is to prove that the Government’s fiscal position is not being presented in a frank and fair manner. Given that the fiscal chickens have come home to roost, the time has come for greater transparency, which was not forthcoming even as the Government was forced to take drastic action in contradiction of its promises.
On the same day that the Minister of Finance was delivering his Ministerial Statement on the economy, the International Monetary Fund (IMF) was releasing a Press statement on the conclusion of Article IV Consultation with Barbados. Apart from its betrayal of the people with respect to laying off 3 000 workers as part of a programme to cut public sector jobs by 5 500, the Government continues to play with the real fiscal figures of the country.
Minister Sinckler stated that the fiscal deficit for the period April to October 2013/14 was “$511.1 million [which] represents 6.0 per cent of GDP at market prices of $8 458.1 million”. On the other hand, in its Press statement, the IMF stated that the “deficit is expected to rise to 9.5 per cent of GDP in 2013/14”. When converted to a number, the IMF’s deficit is $803.1 million. The two figures are based on the same methodology; the former for the first seven months and the latter is based on the former and is a conservative forecast for the entire fiscal year.
In essence, the country’s fiscal position is expected to get worse in the last five months of this fiscal year. This worsening position ought to have been the focus of the Ministerial Statement, since the proposed measures are seeking to address the future not the past. Unfortunately, the IMF’s statement indicates the gravity of the situation, while as usual the Government’s statement was more about what it excluded than included. The time for deliberate confusion has passed. The people want truth.
It is sad that having taken five years to admit to the fiscal condition, the Government is still not being frank with Barbadians. In the most recent Press release of the Central Bank of Barbados for September 2013, the fiscal deficit for the period April to September was estimated at $391.1 million. By the end of October, the fiscal deficit had risen to $511.1 which represents a whopping deterioration of $120 million in one month. This is unprecedented behaviour in the fiscal position for all of my 29 years of following the fiscal affairs of Barbados.
In spite of the decline in nominal GDP over the last four years, the foreign reserves remained adequate until the end of the first quarter of this year. Therefore “continued depressed international demand for our goods and services” was matched by continued depressed local demand for our trading partners’ goods and services which caused the foreign reserves to remain adequate.
The problem is that prior to 2013, the foreign reserves were adequate enough to allow domestic demand for local goods and services to spur economic activity. This local spending was suppressed through heavy taxation and no wage increases to accommodate spending by the Government, which did not contribute to growing the economy. Such spending was designed to achieve political not economic objectives.
Furthermore, a way was found to make less overall spending in the economy look as though it was purchasing more goods and services by suggesting that wholesale prices had fallen. This was especially true of the year 2010, but the misguided trend continued for 2011 and 2012. Space does not permit an explanation of this behaviour, but suffice it to say that the observation cannot be refuted based on the evidence that is the nominal GDP figures produced by the Barbados Statistical Services for the last four years.
More important, the failure to adequately measure the real economic activity has had the most profound effect on the Government’s inability to forecast its revenue. As a consequence, it now suits the authorities to blame the poor performance of the revenue for the growing fiscal pains, when the expenditure is still the major problem. If the revenue takes the blame, then the international economic environment becomes the accomplice, which gives rise to a political escape for the Government’s poor performance. Unfortunately, the diagnosis is and was always wrong and so the prescription was always going to be fatal.
The Government must have known that it was misleading the people.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy.