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WHAT MATTERS MOST: Government using diversionary tactics

Clyde Mascoll

WHAT MATTERS MOST: Government using diversionary tactics

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Every effort is being made by the Government’s economic team to divert attention away from the dire conditions confronting the Barbados economy. Now that cricket is in the air, the attention has gone to Kensington Oval. These tactics are much appreciated by some who cite them to confirm who is or is not a politician.
Not too long ago, some silly attempt was made to blame the Value Added Tax (VAT) for the country’s woeful fiscal performance. In 2009, when the Government’s current account deficit was already approaching $450 million, a member of the team was suggesting that “the Leader of the Opposition doesn’t have any magic. The minister of finance doesn’t have any magic”.  
Unfortunately, the deficit on the current account now stands at $700 million. More importantly, the entire country has now become the victim of the economic madness with public servants being sent home on a daily basis. Inevitably, the cancer has and will continue to spread to the private sector.
In his ministerial statement for 2013, the minister of finance stated: “In 2011 we began to see some progress: real GDP grew by close to one per cent, tax revenues improved by nearly 10.0 per cent and our deficit, as a percentage of GDP, was almost cut in half.”
If the deficit had declined by half in 2011 and the Government had been truly pursuing a fiscal adjustment strategy, the question is why was the deficit in 2013 more than double what it was in 2011?
It simply does not make sense that the Government succeeded in reducing the deficit in 2011, did nothing wrong since then, but yet the country is now much worse off. In the quotation marks above, the minister said that tax revenues improved by nearly ten per cent that is approximately $275 million.
Since 2011, the Barbados economy has not grown or contracted; it has remained about the same. However, the VAT is a transactional tax and it is obvious that stagnant economic activity will affect the collection of revenue from this source. The notion that VAT should be abandoned and replaced by a sales tax demonstrates a comprehensive level of ignorance. Get the economy growing!
What Barbadians want to hear from the Government’s economic team is whether or not the reason given for the fiscal adjustment is working. The reason was the decline in the Central Bank’s foreign reserves which were adequate and relatively stable, until April last year.
According to the minister of finance in August of 2013: “It was on this platform that relative stability was being maintained in the local economy and which permitted us up until now to adopt a more gradual approach to fiscal adjustment and medium-term economic restructuring. All of that changed significantly from around April this year (just after the General Election) when we began to see a very serious slide in our net international reserves.”
The minister went on to suggest that the Government was unable to say what was causing the leakage of foreign reserves, even though it is known that it “cannot be substantially explained by a leakage of foreign exchange through increased imports or other similar transactions”.
Furthermore, the usual economic indicators have not been behaving fundamentally different in 2013 when compared to 2012. However, “. . . foreign direct investment has been below 2012 levels somewhat, but neither these, nor indeed our outlays for external debt payments, have behaved in a hugely abnormal fashion”.
He concluded: “In this case therefore we have been surmising that the usual flows of foreign exchange are not making it into the system and that this is working as a drain factor on the reserves as more and more demands are placed on the Central Bank to meet daily requirements.”
Since the fiscal adjustment has been put in place with lay-offs being at the centre of the strategy, the foreign reserves have continued to decline.
So much so that the first quarter performance is the worst in the country’s economic history, in spite of the fiscal measures.  
Barbadians do not expect a magic bullet from economists, governors of the Central Bank or even a minister of finance, but they have become accustomed to sound and proper advice. In these dire economic times, the expectation is no less.
The best way to return confidence in the country’s economic management is to keep the people informed with the truth. The diversionary tactics are not needed as we are already past midnight.
Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email [email protected]