The IMF Executive Board published its 2010 Article IV Consultation with Barbados and as you would expect all the local media channels are abuzz with its findings. The truth is BU attempted to read the 43 page document and gave up in fairly quick time after being nauseated by the feeling of déjà vu. We decided to get a local perspective by reading the Barbados Economic Society blog titled BES Survey of Economists’ Expectations – Q3 2010 and that did not help to improve our outlook for the economic forecast for Barbados. A surprisingly high number of local economists anticipate some growth even if it is marginal.
The reality has finally taken root that Barbadians just do not get it!
A layman analysis by BU supports the view that the government judging by its recent budget is relying on revenue measures to attack the burgeoning deficit. We have therefore seen the most significant increases in the VAT rate to 17.5% and a 50% increase on the excise tax on gasoline. All the experts seem to be suggesting based on the numbers that the inevitable will have to happen if the government insist on its current policy. Bear in mind the government has promised in a very uncertain economic environment to balance the budget by 2015/2015 fiscal year.
BU suspect this is a pie in the sky projection.
Back to why we have been feeling nauseated. We have blogged on it before and it merits repeating. The economic model which fuelled much of Barbados’ success before the world economy went belly-up was unsustainable. We relied mainly on tourism and foreign direct investment. Obviously a successful tourist product is 100% dependent on favourable economic conditions in the external markets. Secondly foreign direct investment was real estate driven on our 166 square mile little rock. Central Bank reports confirm significant growth in bank lending for mortgages and building related loans in the period leading up to the global crash. Can there be any reasonable analysis posited to support buoyant sustained economic activity based on foreigners pumping money into real estate and construction in Barbados?
BU say no!
Barbados public debt is expected to rise to well over 100% of gross domestic product in the current fiscal year. A very disturbing forecast indeed. Minister Sinckler delivered the politically correct statement during the budget that the government will be protecting jobs which he used to explain the government’s astronomical rise in debt. Our ‘army of occupation’ appears to have risen from twenty one thousand plus in 1994 to over thirty thousand in 2009 without any commensurate increase in national productivity. The government finds itself in a corner with few options open to it if revenues continue to suffer. Next on the table will be to aggressively reform the public sector which the United Kingdom has already started and to levy user fees on education and health services. There goes our socialist policies and the mendacity which it has incubated.
The political dynamic at play for the DLP government raises the spectre of 1991 all over again. No way will they want a ‘2peat’.
It is time our government confronts the problem facing it. It is noble to want to keep Barbadians employed but to do so by unsustainable means compares equally to when the Arthur administration racked up debt because a ratio indicator suggested Barbados had the capacity to repay loans. Despite our touted high literacy, we never learned from the simple philosophy of the ant and now we will have to pay a very expensive price. Even in the face of a global economy in the soup, Barbadians who have never had to confront lean years are demonstrating they do not have the mental or intellectual capacity to brainstorm their way out of the mess we find ourselves.
It was ironic to listen to an academic in the news last week opining that Barbados will have to diversify its productive sectors if it expects to create capacity in the economy to fuel growth.
It is time we get our best and brightest from at home and abroad and let us strategize and mobilize to position Barbados for future success. On the current path we are headed …
Let us thank God for the National Insurance Fund!
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