THE HOYOS FILE: Will the estimates be enough to save the economy?
The just-released Barbados Estimates 2014-15 suggest that the cost-cutting efforts presently under way by the Government are now being seriously undercut by sharply rising interest and amortisation costs.
Having failed to implement the spending cuts announced over and over in the Medium Term Fiscal Strategy (MTFS), the follow-up MTFS Revised strategy, and then the Medium Term Growth Strategy (MGDS), as well as the last Budget speech by Minister of Finance Chris Sinckler, could it now be too late?
All created scenarios of reduced spending and increased revenues, which never came to fruition. The MGDS was supposed to have been the final one, the one that would have to be followed to the letter if we were to have any hope of reviving the economy without resorting to an International Monetary Fund structural adjustment programme.
After a special national consultation held to launch this ultimate and draconian programme of austerity measures, Mr Sinckler followed up with a Budget speech that incorporated the plan as our last, best hope of economic resurgence.
??The draft MGDS, 4.2 Revised Medium Term Fiscal Scenario 2013-2000, says, at page 38 that the “scenario” outlined “highlights the policy of Government to reduce the fiscal deficit to 4.4 per cent of GDP, down from 7.9 per cent at the end of 2012/13” as the first step in a plan to balance the budget by 2020.
But instead of ending fiscal 2013/14 with a deficit of less than five per cent, we are doing so with one that is close to 12 per cent, according to the Estimates (p.2).
How is that possible? you might wonder. The key, according to the MGDS, was front-loading: “During the first year of the strategy the main adjustments will be on the expenditure side, where it is estimated that a $295.3 million reduction in spending will have to be made. To achieve this, the bulk of the cuts will have to come from non-interest recurrent expenditure to the tune of an estimated $233.7 million . . . . By front-loading the expenditure adjustments, government as shown in 2014/15 and onwards do not have to make any major amendment.”
Instead, according to the Estimates (page 3), far from reducing spending by roughly $300 million, for the fiscal year now ending the Government increased it by $200 million, from $3.8 billion in 2012/13 to $4 billion in 2013/14.
A half-billion dollar gap.
The plan was to cut Personal Emoluments by $66 million; they increased by $5 million. The plan was to cut $87 million from Goods & Services; spending there increased by $4 million. The plan was to cut $80 million from Transfers and Subsidies; they only fell by $15 million. (MGDS, Table 6, page 39, and Estimates 2014-15, Pages. 5 and 8).
We all remember how Admiral Dolittle rushed in on his naval steed, shouting to his ministers and permanent secretaries: “Do a little as possible.” And thus it came to be, according to the Government’s own revised estimates of its spending.
But there was more. The MGDS also envisioned that Government would save $122 million in interest payments, which were projected to fall from $565 million to $437 million for the fiscal year now ending. But the revised estimate for this head puts the interest payments for 2013/14 at $610 million.
The MGDS also envisaged that VAT would have been reintroduced on items which had been exempted over the years, raising Government revenue by around $50 million per year. However, value added tax receipts for 2013/14 increased by only $5 million over the previous year, instead of the $55 million projected by last year’s Estimates.
Reviewing our economy last year, after giving us another downgrade, Standard & Poor’s noted that “Barbados’ recovery from the crisis is also slower than its peers, in our view, and its medium-term growth potential will likely be lower unless it addresses structural difficulties”.
I don’t know whether the next Budget speech will try to significantly reduce the expenditure or increase the revenue shown in this coming year’s estimates, but the overall reduction in spending this year is only put at around $90 million, despite the planned reduction in Personal Emoluments of some $30 million and spending $75 million less on Transfers and Subsidies.
No reduction is anticipated in procurement, as Goods & Services will use up nearly $12 million more than in the current year.
Interest payments, far from falling, are rising, along with the actual debt, thus eroding whatever genuine gains the Government may be making on the operational side of things.
Our total debt service (interest plus amortisation) will be $1 462 million in the coming fiscal year, up from $1 110 million a mere two years ago.
That is the real trajectory we are on.