In a bold and far reaching Budget speech, The Honorable Prime Minister Mia Mottley outlined her plans to build on those measures already taken during the first 10 months of her administration. Many of the announced measures have been pro-growth, primarily geared towards boosting private consumption and investment, with some participation from Government through public/private sector partnerships. Under the banner “Stay the Course” her speech focused on the key areas of stabilisation, growth and transformation.
The measures that this Government has already taken have boosted confidence in the economy, created a sense of hope in the population and gone some way towards restoring Barbados’ international reputation. In a relatively short period much has been achieved. The country’s international reserves have risen by $400 million to $1.1 billion or 15 weeks of import cover, and following the successful local restructuring of Government of Barbados debt, the debt to GDP ratio has fallen from 170% to 125%. The Government has also improved the country’s fiscal position and implemented a number of its key manifesto commitments including:
- a 5% pay increase for public sector workers;
- an increase in the non-contributory pension; and
- the payment of tuition fees for Barbadian students attending the University of the West Indies.
Barbadians will also be relieved to know that there is now a plan to settle corporation tax and VAT arrears dating back to 2011. Commencing 1 May 2019, those debts will be settled through immediate payments up to $10,000, while those in excess of that threshold amount will be paid over a 42-month period.
With the objective of stabilising the economy well advanced, the Prime Minister has turned her attention to growth and transformation. Cautioning Barbadians that transformation cannot be achieved overnight, she sees her budget as the first step towards the fulfillment of her vision for a ‘fit for purpose’ Barbados by 2025.
The Budget outlined a number of tax measures designed to reduce the level of direct taxes on individuals while increasing indirect taxes and broadening the tax base, and included a number of other transformative measures that we expect will be welcomed by individuals and businesses alike. The establishment of a self-financing commercial court, the promise of new legislation focused on arbitration and alternative dispute resolution and the establishment of three temporary additional criminal courts will go a long way towards restoring public confidence in our justice system, both at home and internationally.
A plan to improve the efficiency of Government departments including digitisation in some areas, if achieved, will likely impact the country’s overall productivity, as many productive hours are lost each year by workers queuing in Government departments. The outsourcing of the management of CAIPO and a commitment to improve the speed of approval of town planning applications will be welcomed by the private sector and demonstrates that this Government is willing to take measures which are critical to ensuring Barbados remains internationally competitive.
The international business sector was also assured that the Government is in active negotiations with the EU to have Barbados removed from its blacklist.
While making it clear that she saw the Government as an enabler of growth primarily through investing in its citizens, the Prime Minister nonetheless also announced a number of measures and innovations expected to drive economic growth. Projects with a value of $2 billion dollars were announced which, when completed, are expected to create 1,500 new hotel rooms and 3,000 new jobs.
Government is also keen to stimulate a broad base of local investment in the economy and working in conjunction with the Financial Services Commission and the Barbados Stock Exchange (BSE), will be developing a regulatory regime and introducing new investment vehicles for Barbadians. This includes a promise to list minority interests in assets such as the Hilton Hotel on the BSE. These initiatives are welcomed given the limited opportunities for meaningful local equity investments coupled with the fact that bank interest rates are at historic lows.
Other initiatives, including a commitment for Barbados to be carbon neutral by 2030 and for a medical cannabis programme, demonstrate a refreshing vision for a twenty first century Barbados.
A number of the measures that the Government plans to implement to raise indirect taxes may prove to be controversial. The increase in bus fares and commercial water rates are likely to be unpopular measures. Nonetheless in our view the Budget builds on the Government’s achievements over the last 10 months. Given the number of measures outlined, it’s clear that there will be no pause for breath in the effort to transform and rebuild the country.
Like the Prime Minister, we recognise that the road to recovery is going to be a long one and that there will be bumps along the way. However, every successful organisation and country needs a clear vision which its people both understand and can believe in. In our view this Budget sets out such a vision. We have set out below a more detailed analysis of some of the measures announced and we have reviewed the country’s recent economic performance in our Appendix.
Read the full commentary here.