Government has provided some insight into how they plan to restore macroeconomic stability and attain sustainable growth in the coming years.
The Barbados Economic Recovery and Transformation Programme affectionately being called BERT, gave some information and details on the plans to get the country back on track, and a public service that is “fit for purpose”.
To dissect BERT, one could analyse it from four key areas; revenue, expenditure, debt financing and the country’s growth strategy.
Revenue measures
Government has proposed a number of ways by which they plan to collect tax revenues of 1.3 per cent of GDP approximately $129 million during the 18-month adjustment period. However, based on the power point presentation presented by Government’s economic advisory team the targets for total revenue adjustment for FY2018/2019 and FY2019/2020 total $548.6 million, or 5.49 per cent of GDP, an excess of $419.6 million dollars.
So why is Government aiming to collect such an excess of tax dollars within a short time period which could have a dampening effect on the economy? I suspect it may be to cover any shortcomings in its attempt to reduce expenditure, but I stand corrected.
In addition to this, if one looks at the breakdown of the revenue measures, income tax represents more than 50 per cent of the total tax revenue adjustment in FY2018/FY2019 and 37 per cent in FY2019/2020 which will have a direct impact on disposable income, particularly persons who fall into the new personal income tax bracket.
Other measures which should also be monitored are the impact of the fuel tax and the garbage and sewage contribution which increase the cost of transport and water, two key inputs into almost all economic activity. These increases might have a substantial impact on the price of goods and services in the short to medium term.
Therefore, given Government’s overshoot on revenue adjustment, it has to be careful not to be counterproductive in its efforts as it may deflate the economy. Or maybe Government is trying to reduce aggregate demand, which reduces the demand for foreign currency? But that’s just a theory.
Expenditure Measures
The total expenditure adjustment for FY2018/2019 and FY2019/2020 aims at a reduction in total expenditure equivalent to 7.1 per cent of GDP or $708 million. Of this, interest payments which will be settled through debt restructuring is $498 million. Total reductions to public institutions during the 18-month adjustment period is $150 million of which $115 milllion is earmarked to be reduced from state-owned enterprises (SOEs) by enfranchisement, efficiency gains, cost recoveries and reductions in subsidies.
Enfranchisement was touted to be an option where persons such as Transport Board drivers and sanitation workers could buy the capital (trucks and buses) from Government to provide these services privately. However, I assume many of those workers may not have the financial capital to undertake such an investment.
This could possibly lead to those who already have wealth taking control of the transport and sanitation services further centralizing the means to, and ownership of, capital in Barbados. Scenarios such as this could create further income inequality within a society where many already feel disenfranchised.
Government also provided the results of the national survey conducted where suggestions included the sale of operations such as the Caves of Barbados (Harrison’s Cave), merging entities such as the Urban Development Commission, National Housing Corporation and Rural Development Commission.
What is of concern is the lack of affirmation and detail on how expenditure reductions will be achieved given that Government’s primary challenge is its ballooning expenditure and consequently, its debt.
Debt Financing
So far very little has been given on how debt will be serviced but if one paid close attention to last’s week presentation, two main areas were mentioned. One, CDB and IDB financing totalling $300 million, will have their own stipulations. What was also unclear was the form of this financing which could have different impacts on the economy.
Development financing through CDB and IDB could be in the form of project funding or stabilization mechanisms. Preferably, funding should be used for projects to stimulate economic growth and promote sustainability, as funding for stabilization which props up the Government purse usually goes back to increased expenditure.
The second option mentioned was financing from the global capital markets at low interest rates, given the country’s credit rating investor confidence may still not be at a level that allows Barbados access to this type of low-cost financing in the short term. I’ve deliberately left out IMF financing as no confirmation was made by the economic team regarding if financing would be accessed or what type of financing would be provided once IMF has approved BERT.
What was glaringly absent from the presentation was, no mention was made of creative financing tools such accessing funding from the Green Climate Fund, debt for climate swap or blended finance to support new sectors such as the Blue Economy all of which target green growth.
Why isn’t Barbados actively seeking out these types of mechanisms?
Growth strategy
Within the 26-slide presentation, only one slide was dedicated towards growth measures. Government is proposing five pillars of growth; (i) invest in a high-skilled knowledge-based economy, (ii) better mobilization of private domestic savings for investment, (iii) Government to become an enabler of growth, (vi) continued support of the economy’s mainstay of tourism and international business and, (v) diversifying new areas such as renewable energy, high-tech and software development.
How do these pillars fit into Government’s long-term vision for Barbados, and have we the people been asked what we want for our future?
At the moment the pillars seem to be vague statements which do not necessarily provide a strong foundation for a growth plan or even at least the cohesive beginnings of one. Due to no further details being presented leads one to assume that Government has not put much emphasis to date on a strategic growth plan which should be in development, in my humble opinion, alongside the macroeconomic recovery plan.
The reasoning behind this is when people are displaced without strong interventions for growth, following quickly after or during debt stabilization, this may spill over into prolonged social negative impacts which are much harder to address the longer they persist.
The breakdown of BERT therefore highlights some key points. Government will be making a concerted effort at collecting higher revenues in the coming months, there is still uncertainty on how Government plans to execute expenditure cuts given a plan is as good as its implementation, limited creativity and innovation has been included in future debt financing and a bare bones proposal of a growth strategy has been presented to the people of Barbados.
All of this is said with the caveat, it is early days yet, and Government has just passed its 100 days in office benchmark faced with numerous challenges. Due to the size of cabinet and numerous advisors, it is hoped that technical expertise is not delivered in silos, but shared to create a systemic understanding of the Barbadian economy and its future.
Anything less, could prove costly in the long run.
Crystal Drakes is an economist and Opposition Senator.
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