ALBERT BRANDFORD: Gaps between governor and governors
IN RECENT WEEKS, gaps have emerged between Governor of the Central Bank, Dr DeLisle Worrell, and Minister of Finance Chris Sinckler on which direction the Barbados economy is going.
The Governor is now suggesting that the bank will concentrate on monetary policy. This comes against the backdrop of his call for no more printing of money.
In the December, 2016 Press release, Worrell notes: “The fact that Government spends more on the current account than it receives in taxes and other current receipts is the reason for the increase in Central Bank lending to Government.”
The lending to which he refers is the printing of money.
This observation is followed by: “There is general agreement that any additional financing by Central Bank should be avoided.”
In layman’s language, the printing of money should be avoided in the future.
He then advocates the privatisation of assets by suggesting: “The sale of assets owned by the public sector would also assist in eliminating the deficit.”
In line with the eye-opening suggestions by Worrell, the Minister of Finance told the House of Assembly in a moment of candour about three weeks ago: “Government does not have to accept every piece of advice that comes out of the Central Bank, but we hear it and respect it for what it is because they are professionals.”
In last week’s SUNDAY SUN, the Governor wrote: “Note that the [monetary] policy only works if the Government’s current account is in balance, and the Treasury does not have to address an accumulation of arrears of payment. Satisfying both these conditions is essential for the successful conduct of monetary policy.”
For a layman like me, that is requiring Government to bring the current account balance to zero. This account is the difference between what Government collects in revenue and what it spends on recurring expenditure. The latter includes spending on wages and salaries, interest payments, transfers and subsidies and goods and services.
(This information is available at Table 4 – Summary of Government Operations – of the Press release.)
Page 4 of the Press release states: “Government’s current account deficit for April to December, 2016, is estimated at $510 million, a deterioration of $31 million on the previous year.” This implies the magnitude of the adjustment that is required to bring the balance to zero, which is the recommendation of the Governor, if monetary policy is to be successful.
No wonder, there is a growing gap between the Governor and the minister on monetary and fiscal policy.
There is more in the mortar than the pestle because the same Table 4 shows that the current account balance was in the hundreds of millions for the last six years, reaching a peak of $789.7 million in fiscal year, 2013/2014.
So, what has changed to create the gap between the Governor and the Minister in more recent times?
The fiscal adjustment needed to make monetary policy successful is an obvious worry to Worrell. Further, the adjustment has been promised for quite a few years without success.
According to Clause 48 of the Central Bank Act, whenever the total amount of credit being extended by the bank to the Government threatens monetary stability, “the bank shall submit a report to the minister drawing attention to the situation, analysing the causes which have led thereto, and recommending measures which it deems necessary to forestall or otherwise remedy the situation”.
The recent writings and public utterances of the Governor seem to suggest that he is concerned about his inability to effect successful monetary policy. The excessive credit being extended to Government seems to be worrying him and appears to be threatening monetary stability. In accordance with the Act, the Governor has recourse.
It would be appropriate for the public to know if he has exercised his written option.
In last week’s SUNDAY SUN Editorial, the leader writer observed: “The Governor is reassuring when he tells us that the dollar is safe now and that we are a long way from devaluation but equally candidly, he makes it clear that if we continue on the current path that ‘we will get there’.”
This comment by Worrell preceded the Front Page story in the same SUNDAY SUN, reporting that the Central Bank’s board of directors was fed up with Worrell.
The coincidence of the Board’s concerns about Worrell’s handling of the management of the Bank’s human resources, being put in the public domain and his growing differences with the Minister on policy is striking – given the season.
Albert Brandford is an independent political correspondent. Email: [email protected]