Should Barbados follow other countries and adopt special fiscal rules?
One of the new and unexpected aspects of the ministerial statement delivered by Minister of Finance Chris Sinckler in the House of Assembly last week is his announcement that Government will be introducing “a comprehensive framework and a set of rules for the management of public finances in Barbados.
Observers of the way Jamaica has executed its fiscal programmes with the approval and supervision of the International Monetary Fund have pointed to that country’s adoption of such rules as an important aspect of its ability to improve its fiscal performance in recent times.
Sinckler said Barbados’ proposed framework would include “a set of fiscal rules” and a Fiscal Council to strengthen and complement the medium term budgetary framework already in place”.
The major objectives of this effort include ensuring that Barbados “retains adequate fiscal space to be able to provide needed protections to the most vulnerable in our society without compromising the public finances”, “ensure a sustainable level of public debt that can be comfortably serviced, and does not constrain other beneficial public expenditures”, “ensure that during periods of relatively high revenues, public expenditures are contained to provide fiscal space for the proverbial rainy days”.
This is in addition to making sure that Barbados “retains adequate fiscal space to undertake targeted and strategic interventions to facilitate national development”, and “promote transparency in the management of the nation’s public finances”.
Sinckler said details on the policy would be given in the Budgetary Statement to be delivered in April.
In adopting fiscal rules and establishing a Fiscal Council, Barbados would be heading in a direction other countries, including some of the leading economies in Europe and Asia, have gone.
In many cases, this shift in policy was necessitated by the global recession and financial crisis that gripped the world five years ago.
The effects of this financial fallout is still being felt by many countries, including those which have emerged, or are emerging from recession.
As a small open island economy with limited natural resources, and one which is so heavily dependent on foreign exchange earnings, principally from tourism and international business and financial services, the need for fiscal discipline is important.
Immediate past president of the Institute of Chartered Accountants of Barbados David Simpson, is one of those who think that having fiscal rules would be good for Barbados.
Speaking in anticipation of Sinckler delivering his Budget this month, the chartered accountant said Government could start with “simple rules” relating to the size of the fiscal deficit in any financial year, the level of national debt as a percentage of GDP in any given year, and stricter rules governing transfers, subsidies and supplementaries.
“Governments may be concerned about their ability to respond to unexpected shocks and crises.
“However, this can no longer be an excuse for not improving our public sector governancce. The legislation governing such rules should adequately consider the steps required for a temporary suspension of the rules to facilitate response to a crisis, but any such move should require Cabinet approval, parliamentary approval and the advice and approval of the independent agency suggested at a minimum,” he said.
