WHEN THE ESTIMATES are tabled in the House this week we will finally see how well the country did under the government-imposed 19-month austerity plan, called the Fiscal Consolidation Programme 2013-15.
We have been told that the country’s foreign exchange reserves are now on a stable path but, according to an early report in the Nation last week, the Estimates are forecasting a fiscal deficit of six per cent for the coming year, much higher than the three per cent deficit Minister of Finance Chris Sinckler said he was hoping to achieve:
“ . . . (I)t is the aim of Government, over a 19-month period, to cut the deficit to a target that falls below 3.0 per cent of GDP by 2014/2015, and thereafter continue to keep the deficit on a sustainable path. The actions to do this will be carried out from both the expenditure and revenue side.” – August 2013 Financial Statement, Page 48.
The ratings agencies have agreed that Barbados could achieve 1.5 to 2 per cent GDP growth in 2015 due to the many projects that are supposed to be starting, mainly using foreign exchange. But almost all the reports I have seen have noted that, even with that level of FDI, success along the current trajectory will not be enough to get Barbados growing again at the three or more per cent per year which we need to sustain our economy.
For the coming year, according to the Nation report, the Government is expecting revenue of about $2.5 billion and expenditure of a massive $4.25 billion, with a fiscal deficit of six per cent, as noted above.
That six per cent would be without counting in debt repayment and interest, and since it suggests pre-financing expenditure of around $2.7 billion, could it be that we will take on BDS$1.5 billion of debt in the coming year?
When you consider that we will be borrowing at least $1 billion to roll over our debt anyway, the only question is where that second billion is going to come from. The answer may be easy: US$250 million for the new sugar cane factory project, a similar amount from the Chinese to build Sam Lord’s, another US$70 million for the Barbados Water Authority, and close to BDS$400 million in bonds to be issued for NLICO.
I have no idea if these are the actual things that will balloon our debt by so much this coming year; I am just saying they are out there and at some point have to be added to the pile.
The two biggest factors affecting all Estimates and Budget considerations are, of course, the huge fall in oil prices since last summer, and the growing strength of the US (and therefore the Barbados) dollar in global trading. Oil prices are around half of what they were last June and the dollar is 20 per cent stronger.
The lower price for oil gives Government some breathing space, as it doesn’t have to keep so much foreign exchange available for its purchase, and also lowers its own day-to-day fuel bill. The reduction in oil prices has led (belatedly) to a reduction in electricity bills for both homes and businesses, and this is now helping to keep inflation down.
As for the rise in value of the US dollar over the past several months, it means everything we import from countries which float against the dollar will generally be cheaper, but our exports, notably tourism services, will be more expensive. These countries include Britain, the other EU countries, and Canada.
These two factors, the rising dollar and the falling price of oil, must be included in any budgetary proposals the minister of finance brings to Parliament, which he has promised to do shortly after the Estimates debate.
Patrick Hoyos is a journalist and publisher specialising in business.
