ON THE RIGHT: Fiscal adjustment alone won’t do it
That is happening is that we have been trying to put a fiscal adjustment strategy in place since 2009 and it was suppose to increase growth in the Barbados economy, it was suppose to reduce the fiscal deficit, we were suppose to cut national debt and we were suppose to stabilise our reserves.
We have fiscal problems but you can do something about that. The problem is that we have been trying since 2009 to make adjustments to our fiscal position and our fiscal position has worsened, it is the worse it has ever been. Even before the Government conceives of a capital works programme it has a billion dollar deficit on the current account and this is where this thing started.
A fiscal adjustment programme cannot simply be a set of targets without any relationship between those targets or correlations. We are in a very serious predicament in Barbados and people need to understand it, but also need to believe that there is hope and we can get out of it.
When all is said and done, to get us out of this predicament there is only one variable that the Government can control and that is debt. There is no other exogenous variable in the Barbados economy that the Government can play around with.
There is a major fiscal crisis to resolve, we have a billion dollar deficit on our current account so it is even going to be difficult, if you want growth, to reduce your fiscal deficit, but you have to switch from increasing current expenditure, and therefore that has to go down, but in the meantime there must be a capital works programme if Government is to get growth.
So there has to be a balancing act between reducing current expenditure; and increasing capital works in order to get the economic growth that you need to get us out of the rut.
Either your increase the base, which is GDP, or you increase the rate of taxing, but if you continue to increase the rate of taxation you are going to choke off your revenue because the economy is going to contract and when the economy contracts therefore you are in trouble. How do you achieve that? It can be done. The way to go forward therefore is to target how much debt you are going to repair each year for the next five years or so and to use that as a constraint on the amount of new debt that you can incur. It has to be done in a way that facilitates both growth and control of your fiscal position.
Understand that there is a way, but a fiscal adjustment programme cannot run independent of understanding the macroeconomic relations in the economy and that is true for any Caribbean country, and therefore somebody needs a mandate to do what is right for Barbados.
• Dr Clyde Mascoll is an economics lecturer at the University of the West Indies, Cave Hill Campus, and is a former Minister of State in the Ministry of Finance.