Submitted by Doc Martin
The DLP has dropped its promised bombshell and the revelations of Mr. Owen Arthur in his press conference given yesterday are like shrapnel! Conspiracy theorists and sensationalists will have a field day not only with Mr. Arthur’s revelations of the alleged malfeasances of the Mottleys but with his motivation for the expose.
But Mr. Arthur also painted a sombre picture for the economy of Barbados. Not that we needed him to do this. Any Barbadian who is willing to understand what is really going on in the economy can do so by perusing at least three readily available official documents: (1) the Central Bank Reports (2) the Annual Financial Statement and Budgetary Proposals of the Minister of Finance and (3) IMF Article IV Consultation reports on the country. (See selected links at the end). Of course, these documents need to be studied together if enlightenment is to occur.
The Annual Financial Statement and Budgetary Proposals of the Minister of Finance are, of course, tinged with partisan political perspectives and the Central Bank is a creature of the government, as the recent firing of Dr. Delisle Worrell illustrates. The IMF Article IV Reports on the country are less subject to local influence and, therefore, offer a more unbiased assessment of the economic state of the country.
I would like to address two issues emanating from these documents: (1) what they tell us about the state of the Barbadian economy and (2) what are the implications for the incoming government and by extension, current electioneering.
State of the Barbadian Economy
In summary the documents listed above tell us three things that we need to truly understand about the finances of Barbados Plc:
(a) As a country, we have over borrowed and are now nearing “insolvency”
(b) On a recurrent basis, we are spending more that we are earning.
(c) Government institutions are highly inefficient and this obviously means we are spending more on and in them than is necessary.
Together (a) and (b) are tell us that we are living above our means! That conclusion is not new. In all fairness to the Mr. Stuart, he has said this on more than one occasion. It is also true that the Government has tried to rein in expenditure.
What is most important for Barbadians to understand is that all three of these things are interrelated. We have borrowed to help finance capital expenditure e.g. for infrastructure such as schools, roads etc. (on a household / personal level, this is equivalent to borrowing to build a house or buy a car). But we have also borrowed to help finance current expenditure e.g. paying salaries of government workers, paying utilities etc. (this is like our taking a loan to buy food and clothing, paying the electricity bill etc).
We are also using up our savings (namely national insurance) to finance both of these types of expenditure, so much so that the NIS is under pressure! And worse of all, when we do get money, we channel it into government departments and statutory corporations (e.g. Sanitation Service Authority, Barbados Water Authority, QEH, Corporate Affairs) that are highly inefficient and unproductive.
All of the above are reflected in the 2016 Barbados Article IV Consultation No. 16/279 of states:
The fiscal situation remains challenging despite ongoing government adjustment efforts. The [Financial Year] 2015/16 budget deficit was broadly unchanged at about 7 percent of GDP. Revenue measures, though raising revenue by 1 percent of GDP, fell short of target due to implementation delays.
Within that last sentence lies the culpability of the DLP government viz. “implementation delays”, sometimes referred to as the “implementation deficit”. This general characterization continues in the latest (2017) Barbados IMF Article IV Report which, inter alia, states:
With the growing financing challenges and falling reserves, the government introduced an ambitious budget on May 30, 2017 aimed at significantly reducing the fiscal deficit and shoring up international reserves. However, exemptions to the NSRL, lower-than-expected non-oil imports, shortfalls in some other revenues, and high transfers indicate that the government is likely to fall short of its target…
The adjustment strategy should focus on addressing the high transfers, containing other current expenditures and maintaining a strong revenue effort… Reforms of state owned enterprises should include improved management, cost recovery, reduced services, mergers, closures, and privatization…
A concentrated effort to improve implementation capacity, including by providing clear direction and clarifying expectations, is also needed.
Again, that last statement shows the problem facing the Freundel Stuart administration: lack of capacity to implement. This translates into managerial performance (or non-performance) and therefore, critics may feel justified in charging the government with mismanagement.
Ironically, however, the government could justify its implementation behaviour by claiming that it has been trying to soften the blow on Barbadians. In fact, that is what it is arguing in this current election. The problem is that not many Barbadians are likely to accept this. The man-in-the-street will only be concerned about whether he (or she) is employed, the size of his pay packet and the cost of living. He is not concerned about “fiscal deficit”, “external debt”, “implementation deficits” and concepts of the sort. Life is seldom fair; political life unforgiving.
It should also be noted that these IMF reports support the criticisms levelled by Mr. Arthur and others at the BLP’s pie-in-the sky manifesto. The reader should also note that the Leader of the Opposition is included in IMF Article IV consultations:
The [IMF] mission met with Minister of Finance Christopher Sinckler, Acting Central Bank Governor Cleviston Haynes, Minister of Industry Donville Inniss, the leader of the opposition Mia Mottley, senior government officials, and representatives of the private sector, labor organizations and academia.
Implications for the Incoming Government
I doubt I could a better job of addressing this than Owen Arthur, notwithstanding his penchant for melodrama. According to him (Nation Tuesday 15 May p.14):
“The next government will have to dig Barbados out of an economic black hole…What is facing the next government cannot be fixed overnight…It might take three years or even more to even stabilize it…before we can think of giving out benefits to the Barbados society”.
We can liken Barbados Inc. to a family that has managed its finances badly and now finds itself up to it neck in debt, cannot feed itself consistently, pay bills etc. It has several choices, none of them pleasant: if it is renting it needs to find cheaper accommodation; if it has the privilege of having its own home it might have to sell off the property to pay back the bank; it may have to beg for handouts etc!
From time to time, we have seen articles warning Barbadians about their spending and personal finances. Successive Barbadian governments have led us to believe that it is OK to spend and to expect Government to provide a range of free services. The ready availability of credit cards has not made it any easier for Barbadians to exercise personal financial discipline. We have now come to the end of our financial tether and, as I said in my previous submission, there are no pain-free ways out of this mess.
Implications for Voting
Barbados now needs a mix of people to steer the ship of state away from the rocks. As the IMF reports show, the DLP has failed to manage the process of restructuring in a timely manner. They have also engaged in several corrupt practices themselves; for example, they have restored the 10% ministerial cut in salaries at a time when we cannot afford it yet would have us tighten our belts.
On the other hand, the BLP, as the most recent events have shown, appears to be very much out of touch with fiscal reality.
Regarding the UPP, one of their former candidate, Linda Field, has painted a picture which is quite revealing:
“Unfortunately, I have come to realize that the UPP is not a serious political organization. It has no structure [and] communication with the leadership is limited to WhatsApp and Facebook. Frankly, I don’t think that Ms.Eastmond has what it takes to lead and I want to make a difference”. (Barbados Today, April 5, 2018).
Solutions Barbados has some good ideas for dealing with efficiency in the public institutions (badly needed according to the IMF) and the issue of integrity. However, their fiscal measures announced in January this year by Scott Weatherhead, are inconsistent with what we know about the needs of the economy:
“Complete removal of the 10 percent NSRL in its entirety; complete removal of the 17.5 percent Value Added Tax; complete removal of the 2 percent foreign exchange commission; reduction of personal Income tax from the range 16 – 35 percent, to a 10 percent flat tax; no taxes on public workers salaries, a removal of import duties, taxes and levies on healthy foods, and a reduction in land tax through our agricultural incentives.”
(Loop News [online] 23 January, 2018)
Unless the party has subsequently come up with brilliant measures for raising replacement revenue above and beyond the current amount required to reduce the fiscal deficit to about 4% (as advised by the IMF), as well as reduce the national debt, then the party is making the same mistake as the others. However, to its credit, and unlike the UPP, the party has strong leadership and highly committed candidates.
Despite what the commentators have said about third parties, a desperate Barbadian electorate has opened a space in its mind for a viable third party. A third party is a new product, an innovation and regrettably, like most people who do not understand what marketing is, the third parties have failed to perceive themselves as new products and therefore, apply well known strategic marketing management principles and practices to this new product. This includes product configuration (ensuring the party has mix of people with different backgrounds e.g. lawyers, economists, strategic management specialists, other professionals), targeting (addressing the needs of multiple stakeholders), positioning (Solutions Barbados for example, is perceived as a party of technocrats) and finally integrated communications (messaging, advertising, promotions, public relations etc. etc).
All of this poses a real dilemma for the voter looking for a real change. However, I do hope that the election will NOT be won outright by either of the main parties and that a coalition will be needed. This would help at least one of the new parties to gain some parliamentary experience, some “first hand” knowledge of fiscal issues and hopefully prepare them for the next election.
My ideal coalition would be made up of the DLP and Solutions Barbados candidates. Given their track record so far, I would not trust UPP candidates NOT to cross the floor!
2015 Barbados Budget:
IMF Article IV Consultation 2016
- IMF Article IV Consultation 2017