In the wake of the election and in the post-Estimates debate; certain shards of light are emerging from the fog of the present predicament in which we find ourselves.
It is vital to seek and highlight these moments of truth. Once found, they will help us to avoid difficulties in the future, if we understand clearly where we went wrong. We may also learn how and when we must apply the policies that are right for our economy, and our national welfare.
Once again, some public officers have had to be fired, and it has become unarguably clear that the fiscal deficit is a matter which ought to be our constant concern.
During the 1990s and again during this crisis, deficits of the order of eight to nine per cent have been recorded. Such deficits are obviously too high and are unsustainable. As any family knows, an uncontrolled overdraft can ruin any household.
Drastic action has to be taken when it becomes clear that the deficit is out of hand and threatens to cause major economic problems including spillover problems for the balance of payments; and hence for our foreign reserves. That is one clear lesson of the deficit problem. It is a situation which we must avoid as we would avoid the plague.
Our economy can only generate an estimated amount of revenue for the Government and in order to keep the deficit in order, we have to tailor our expenditure so that we aim for lower deficits than those which we have been running in recent times. There are two sides to every deficit, so that if we cannot control our spending; then we have to increase our taxes. That is now painfully obvious.
Central Bank Governor Dr DeLisle Worrell, in a speech made earlier this week at the Peterson Institute in Washington, highlighted another anchor for economies like ours. He regards the generation and holding of a healthy cache of foreign exchange as a “must-have” part of the toolkit of economic planners in these small open economies.
We totally agree with this view and may add that one of the legacies of the Arthur administration was the healthy foreign exchange holdings which formed a key part of his economic policy. Barbadians must urge all our leaders to act with wisdom in this area.
The virtual wipe out of our reserves in the 1990s and the loss of foreign reserves in the past six years and their more rapid decline in the past year, have similar genes, and reinforce the wisdom of this view.
The control of the deficit and the earning of foreign exchange are two necessary ingredients in the baking of a proper economic pie. To ignore these basic realities is to ruin the recipe for success and is to risk allowing bad economics to destroy the society. That just will not do.
