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THE HOYOS FILE: Trying to stop the slippage


PATRICK HOYOS

THE HOYOS FILE: Trying to stop the slippage

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THERE ARE TWO sides of the Dolittle administration that have been clearly in view for a long time, but which have perhaps become clearer to the naked eye because they make each other easier to see, like light and shadow.

On the one hand, there’s Dolittle Festive, and on the other Dolittle Desperate. Dolittle Festive is all about taking a whole year to celebrate our 50th year of Independence, and milking it like a cow for every drop of positive spin it can get.

Dolittle Desperate is all about making an all out effort to get the Government’s deficit down to a level that would signal to the world that our precipitous slide into the economic abyss has slowed.

The second has become more and more obvious with every Budget speech raising taxes the citizens cannot afford to pay even as their incentives (aka, deductions from their income taxes) have been eliminated steadily.

Nowhere is it more evident than in the Central Bank of Barbados’ quarterly reports on the economy. Reading these reviews, which comprise a miraculous combination of facts, philosophy and political spin, is like watching a car driving with its wheels loose – you never know when they are going to come flying off, but it is fascinating to watch anyway.

First, the good news: tourism has rebounded, providing a lifeline to our sinking economy.

Oil prices remain low and this has also kept the hounds from the door a bit longer by reducing the pressure on our foreign reserves and keeping inflation low.

As a result, according to the Central Bank of Barbados’ press release dated September 2016, which was released October 26, Barbados will enjoy economic growth of 1.4 per cent for 2016, and growth for the next five years is expected to be in the region of two per cent per year. In other words, the Central Bank is not having to revise downwards its recent estimates of GDP growth, as it has had to do in previous years. 

Said the bank: “An 11 per cent increase in airline capacity is expected from the US and Canada for the coming tourist season (and) a pickup in construction activity is also anticipated, much of it tourism-related.” Phew, thank you, tourism sector. 

Thanks to tourism’s rebound setting a threshold level below which we hopefully will not fall, the focus is now turning to reducing Government expenses and – dare we utter the word – privatisation. Remember, in order to get out of our economic limbo we have to do fiscal limbo – get under the five per cent, and better yet, four per cent, bar.

So here is the plan, according to the Central Bank: The combined effect of the August Budget’s fiscal measures, and the approximately $80 million in revenue from the sale of the Barbados National Oil Terminal Ltd (BNTCL), are expected to reduce the Government’s deficit to the end of the fiscal year to slightly above four per cent of GDP. 

Ha!, said some naysaying accountant wagging his finger at me the other day, don’t you know you can’t use the money from selling an asset to prop up your current account? Well, I replied, you can if you are the Government, and if your wholly-owned company (Barbados National Oil Company) sells of a subsidiary (BNTCL) and then pays you a windfall dividend. At least, that is how my untrained brain understands it’s going to happen when it does. 

Now even if all of this goes according to plan, how will the Government be able to sustain this limbo dancing in the years to come? Continue to sell off state assets? Ahem, let’s not go there yet, let’s get re-elected first, I hear somebody saying. 

So here is the official line according to the Central Bank: “A continuation of the process of fiscal consolidation should reduce the deficit below the rate of GDP growth in 2017. In subsequent years the ratio should decline, as Government updates the medium term fiscal adjustment strategy.” 

Another fiscal adjustment “strategy”? Now, if that doesn’t build confidence in the future, I don’t know what will.

But despite that suspicion of mine that there is a lot more privatisation to come if the Dolittlers are serious about keeping the deficit under four per cent (and hence reducing the need to borrow and print money), the looming crisis we face is once more clearly evident in the Central Bank report.

Said the bank (again): “Maintaining the value of our currency hinges on crafting fiscal policies that aid in dampening the demand for foreign currency. Government’s fiscal consolidation has assisted in the maintenance of a level of reserves that are above the 12-week benchmark.”

This is where it gets real murky, because in order to get that deficit to stay down in future, the Government will no doubt have to stop borrowing and printing money at the current level. 

In the bank’s half-year report, we learned that the Government had to find over a quarter of a billion dollars in financing for current expenses. The bank in the end had to print $102 million to shore up the books. From July to September, says this new report, the Government needed over $300 million, and in the end “the resulting money creation by the Central Bank financing Government was $114 million”.

Let us remember that, according to the IMF, as of March 31 this year –  the end of FY2015/16 – central Government debt including securities held by the National Insurance Scheme (NIS) reached the equivalent of 141.6 per cent of GDP, from 132.3 per cent the previous year.

So as the festivities for our 50th reach their climax in November, the Government’s desperation behind the financial scenes becomes more obvious. 

Eventually, the patient will have to be awoken from her tranquil slumber and told that, unfortunately, radical surgery is needed.

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