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WHAT MATTERS MOST: No end to fiscal policy woes

Clyde Mascoll

WHAT MATTERS MOST: No end to fiscal policy woes

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The Auditor’s General Report for 2013 is a tale of woes. It confirms the country’s fiscal crisis. Never in this country’s history has a Government treated our financial affairs so callously, ignoring established conventions in the process of compromising previously respected institutions of governance.    
Though the report may be dated, it is an independent assessment of the fiscal circumstances that cannot be linked to a particular prejudice or a polluted purpose. For those who may be perceived with such prejudice and purpose, only time can bear witness to the purity of their pronouncements.
The people cry out for more timely persuasion from the untainted commentators.
From as early as 2010, the Government pretended to be putting in place a fiscal strategy to address the obvious financial circumstances. The Auditor General is able to report several years after the fact that “over the past two years the deficit increased significantly from $382 million in 2011-2012 to $826 million in 2012-2013”.
Sadly, he reports that “the figure does not include $137 million which was not recorded as advance[s] to state enterprises but which were in effect transfers. The inclusion of these amounts would lead to a greater deficit being recorded”.
In addition, it was observed by the Auditor General that “there are liabilities in excess of $180 million such as debt to the University of the West Indies and private sector companies which were not reported. In the absence of such information to policymakers and other stakeholders, decision-making can be impaired”.
The United Nations’ language really means that the deficit was further understated by the amount stated above.
These findings are symptomatic of what Barbados has gone through over the last six years, as a Government was allowed to strip the country of its model of fiscal prudence, give or take some indiscretion around election time over the years.
It was always possible for the Government to reverse the fiscal problems without undermining the country’s capacity to deliver on its social contract with the people. The irony is that the Government, which has sought to elevate the society above the economy, is the first to truly break the contract. It is a travesty of justice that the people entrusted its future with a Government whose rhetoric never matched the reality.
The greatest evidence of its failure is in the fact that the national debt grew by more in six years under the current administration that it did in the 14 years of the previous administration. Furthermore, there is nothing to show for this abuse by way of infrastructural development, growth in the economy or employment creation.
There are several ways to measure the growth in the national debt. Perhaps the Auditor General does it best with the use of the net debt, “which equals all of Government’s liabilities less its financial assets (financial assets are assets which can be used to pay off liabilities). It is an important indicator of the Government’s financial condition as it represents the future revenue requirements needed to pay for existing liabilities”.
He states further that “net debt of $7.5 billion is reported in the consolidated financial statements of the Government and this represents an increase of $2.7 billion over the $4.8 billion reported in financial year 2008-2009”.
It is inconceivable that the Owen Arthur administration could have been criticised for the accumulation of debt during its tenure. Then the administration that follows immediately increased the debt by much more in less than half the time, without anything but misery to show for it.
Now that the Auditor General has added his truly independent voice to the incompetence of the Government on fiscal matters, it is time for the external voices to be taken seriously. Unfortunately, the voice of the Auditor General comes with a long delay.
Unfortunately, things have deteriorated since the 2013 report was written. More importantly, the Government and its advisers appear not to have learnt anything from the past.
The most important lesson is that fiscal policy is the cornerstone of a fixed exchange rate regime. This was made clear by the current deputy governor of the Central Bank, in his seminal piece of 1995,
where he stated that “a fixed exchange rate is sustainable but it requires disciplined financial policies if it is to remain a credible anchor for the economy”.
Since 2008, fiscal policy became extremely lax. Barbados’ economic woes are now fully admitted, after the people have suffered irreparably. But the policymakers continue to err.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy.