Introduction:
In a popular political culture, it is unusual to find any individual or organisation that is evidence-led, impartial, analytical and obsessively objective. The brutal truth is that there is enormous observable evidence that people are getting worse off, that they are finding it more difficult to make ends meet. Yet, to the surprise of most informed observers, politicians, policymakers and the central bank, there is no serious debate over the crisis the nation’s economy is in. The brutal truth is that Barbados imports more than it exports – or earns -, therefore the current account deficit. To overcome that, the nation needs to earn more than it spends; it is simple housekeeping. However, it is good policy to build up short-term debt if the investment would provide growth and jobs in the medium to long-term. When, however, this imprudent spending only adds to the nation’s debt, without any noticeable advantages, this becomes reckless.
The Global Landscape:
Despite the consensus among Barbadian academics and politicians, Barbados has underperformed global economic performance since the end of the Second World War, which has generally ranged between two and three per cent, with the exception of 2009, when it fell for the first time since 1946. Since the 2007/8 crisis, world growth has been driven by China and the Far East, in contrast to the UK economy, based on the eurozone. Further, world growth, along with Chinese demands, have contributed to the high prices in commodities, food, energy, raw materials, which are combining to impose even tougher demands on meagre disposable incomes. According to one major report, in the long-term, the global economy will expand by 3.6 per cent, swelling global GDP to US$90trillion by 2020, in seven years’ time, 40 per cent larger than it is today. This shift will in large be a continuation of the rise of the emerging markets, the report says.
“Whereas the advanced economies currently generate two-thirds of global GDP, developing and emerging economies will contribute an outsized share of the growth in the future. “By 2020, the advanced economies’ proportion of world GDP will drop to 58 per cent, a sizeable change over a relatively short period.” Recognising this reality is what good economic forecasting and strategising is all about and neither in the minister of finance’s speech to parliament on the Estimates nor the central bank projections, seems to pay any regard to these changing forces.
Emerging market equities now account for about 13 per cent of the global equity market, but this is expected to grow substantially over the coming years, providing both growth and dividend income. Further, based on both productivity and demographics, emerging markets are well positioned to provide greater growth than developed markets. Emerging market currencies are also appreciating, which offers another positive against developed markets.
During the laying of the Estimates in parliament we were told that government revenue would drop by Bds$1.2bn over the next financial year, but government would have a surplus of Bds$2.6bn. But where is this excess coming from? Is it due to austerity measures, overpayment, or was it found in a box hidden under the minister’s bed. The only logical answer is that it comes from re-auditing of accounts, or it is a figment of Chris Sinckler’s imagination.
Even more frightening is that parliament was told the government planned to spend $3.8bn, a 6.2 per cent increase, over the financial year, which is unbelievable. Further, government is spending over $205m in interest on monies it has borrowed. The nation was also told that apart from spending Bds$65.4m on the incompetent Transport Board in the current financial year, government had planned a further grant of $20m, along with over $172m on the University of the West Indies, and nearly $500m to the Queen Elizabeth Hospital over the two-year period, presumably along with the $800m hospital promised in the Queen’s Speech. The Barbados economy is in serious need of rebalancing, that is an urgent need for business investment, consumption and tourism to collectively play a more central role in economic growth.
Taxes and Spending:
One of the first things this government should do was to announce a 15 percent reduction in departmental expenditure over the lifetime of this parliament. Ministers, permanent secretaries and other heads of public sector organisations should be told in no uncertain terms that they must come up with a three per cent reduction in spending for every year of this parliament, including a reduction in staff numbers. Government should then look at ways of raising funds, principally to reduce public sector debt, from substantially raising so-called sin taxes – alcohol, tobacco, sweet drinks, confectionary, etc.
It should also give serious consideration to taxing mobile (cell) phones, raising car-parking fees in central Bridgetown from the ridiculous Bds$1 an hour to $2.50, in the first instance, then to $5 within three years. And it should introduce parking meters, speed cameras, tougher penalties for non-motor insurance, and other road traffic violations.
It should give serious consideration to a road congestion charge, especially at rush hour, and penalising those private cares in particular travelling in to congested areas with only the driver, or even a single passenger.
Most of all, we have a public taxation paradigm in which ordinary Barbadian workers are paying multi-millionaires to laze about on our West Coast contributing nothing, or very little to the development of the nation. Government should think long and hard about introducing a tax on properties above a certain value, or on second homes, or on property owners who are not domicile in Barbados for tax purposes. Those that are should be taxed on their world-wide earnings, or pack their bags and leave. The bragging rights of being an attractive destination for the retiring and drug-using rich and famous has past its use-by date.
Then there is the matter of our industries and services, which are in generally under-performing even in terms of the leading Caribbean economies – just look at the rum- manufacturing sector. We can start by realising that many of our best-known manufacturing and service companies are undervalued because of poor management strategies. This can be improved upon by government jointly launching with the private sector a senior management programme – with or without the university.
Labour Productivity:
The main way of injecting growth in the economy is through labour productivity gains, both in the public and private sectors. This productivity slack means that nominal GDP is substantially below what it should be and it now looks as if the economy is entering a period of deflation – households losing confidence in holding on to their jobs and, as a result, is paying down household debt and trying to save, as their purchasing power will improve over time.
Analysis and Conclusion:
The government is even more out of its economic depth than we at first imagined. Its Revenue and Estimates proposals are one of the longest economic suicide notes ever written by a modern government. No where is there any spending proposal for the badly needed infrastructure improvements, no mention of job creation, no mention of a radical overhauling of the education system which continues to produce generations of expensive dunces every year – and, most of all, not the slightest sign of an apology to the nation by the finance minister or prime minister.
Part of the reason for our flawed policymaking is that we inherited the very worse of practices from our former colonial masters and in the intervening years failed to improve upon them, or even restructure them. So, not only do we have outdated policymaking customs, but the very structure is creaky and collapsing. It is the worse of both worlds.
But that is only part of the story. Pretences that we have an equity market, when in reality the stock exchange is little more than a village financial fete which does not offer the range of equity investments to allow local investors and savers to build a diversified investment portfolio. So, for the high net-worth and mass affluent, the only sensible investment opportunity is property, with the dangers of escalating bubbles that suggests, saving or investing in government gilts. Again, I say that the moral basis of this government would be tested through its collective decision to forego a pay rise for the rest of this parliament. Such a move would send a message to public servants, and the rest of society, that the pain must be shared. That it has refused to do so – I though the general election campaign was a good time to make such an announcement – sends the message that they are all in it for themselves.
The real reason why this government could propose, within days of the general election, a ridiculous Estimates and Expenditure proposal is that the entire general election campaign was void of any serious debate. It is the price the people of Barbados must pay for their encouragement of yaboo politics.
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