WHAT MATTERS MOST: Govt made debt woe worse
In January of this year, I attended a meeting at which the political leader said the following: “It is one thing to become the government but we must be able to govern. In this regard, we have to level with the people about the need to restructure some public sector entities.”
This bold admission would later lead to the issue of privatization becoming the political divide, and not the contents in the manifestos, in the last general election.
The ruling Democratic Labour Party framed the issue simply in terms of job losses and was able to state categorically that not one job would be lost in the public sector if the party was returned to power. The strategy worked.
But why would an opposition party have identified the need for such restructuring? The answer is that it was evident that Barbados was suffering from an unprecedented fiscal crisis, a debt problem and a growth trap. In the post-election period, the method of financing the fiscal crisis through the printing of money eventually created the foreign reserves problem, the most damaging one of all.
This reserves problem is worth putting in context. It was proposed for three years prior to 2013 that it made sense in the presence of the then adequate reserves for some increased spending to take place among households to help spur much needed economic growth. The critics opposed the recommendation on the grounds that it would affect the foreign reserves.
These same critics however encouraged the Government to spend and spend and then suggested the printing of money to finance the spending, which is known to be the greatest threat to a Caribbean economy’s foreign reserves. The evidence since April of this year proves the point. What deceit!
Notwithstanding the signals, further deterioration of the fiscal position in October proved an embarrassment to the policymakers and triggered the return of the International Monetary Fund (IMF) team for Article IV Consultations this month. The team was not allowed to come for the 2012 consultation prior to the general election in February this year.
In the face of repeated downgrading of the country’s credit rating and its failure to raise a bond on the international market, the presence of the IMF became an essential part of any adjustment going forward. Even if the Government refused to go to the IMF, the international borrowing community demanded its presence to be able to evaluate the country’s true economic condition.
While the IMF may not be able to claim ownership of any programme for Barbados, it will still be in control. Again the public was being hoodwinked. In fact, the Ministerial Statement delivered on the same day of the IMF Press Statement was not a mere coincidence; it was a requirement. Never in our history has fiscal imprudence so clearly reflected the ignorance and arrogance of the Government.
It must not be forgotten that the Minister of Finance finally admitted earlier this year that he was borrowing $14 million per month to pay 7 000 casual workers which represented an average monthly income of $2 000. In the recent Ministerial Statement, he said sending home 3 000 workers would save the Government some $143 million in a year which represented an average monthly income of almost $4 800. The numbers are obviously inconsistent, or more frankly, the numbers going home are much higher.
The Government has taken special pride in confusing the public by first confusing itself through the Minister of Finance. The initial uncertainty with budgetary policies was treated as lack of familiarity, but consistency of error is now a real feature of the Government’s incompetence.
No one can argue that Barbados’ debt issues started in 2008, but the evidence shows that the current Government increased the national debt by more in the last five years than the previous administration did in 14 years. More importantly, the previous government borrowed for investment purposes while the current one borrowed for consumption purposes.
Again no one can argue with the objective of employing Barbadians, but the only way to justify increasing employment levels in the public sector is through growth in the economy. The Barbados economy is now smaller in 2013 than it was in 2006, both in real and nominal terms. Unfortunately, the Government’s growth strategy has been to extract income through excessive taxation and wage freeze from households and businesses to accommodate Government spending. An unsustainable strategy if ever there was one.
Merry Christmas to all!
• Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy.