The Central Bank Of Barbados’ recent report on the performance of the economy in the first quarter of 2014 and for the year ended 31 March 2014 is worthy of careful analysis.
What can we glean from the report?
- The economy declined again in the first quarter. The Barbados economy has recorded net negative growth in the last 5 years.
- Despite significant tax increases and more set to come, tax revenues have fallen by $245 million in the last fiscal year.
- The fiscal deficit for 2013/14 was a staggering 11.3% of GDP up from 8.0% in the prior year. The fiscal deficits for the last 5 years are 7.2%, 8.7%, 4.4%, 8.0% and 11.3%.
- The debt to GDP ratio worsened by 15% in the last year to reach 70.2% more than double what is was in 2008.
- Interest on Government debt absorbed 29% of all Government revenues in 2013/14, double the amount interest absorbed in 2007/8.
- The unemployment rate has increased to 11.7% up from 8.1% in 2008 and is still increasing.
- Foreign capital inflows have fallen dramatically.
- Our credit ratings are at an all time low.
The CBB report attempts to be encouraging by suggesting that in the next 3 years Barbados will receive $4.5 billion of investment ‘in tourism, infrastructure and other financial inflows’. Details are lacking and are needed. This would be an amazing performance based on historical data on such inflows. It would be telling to see the conditions under which such investments will be made, the sources and who will be the major beneficiaries.
Failure to account for management of the NIS Fund is also cause for grave concern. Why are there still no published audited financial statements which are now about 10 years in arrears?
I started writing about this 3 to 4 years ago and elicited some publicly promised actions of accountability from the then chairman but still nothing tangible has been seen.
Will Government ever be able to repay the debt it owes to the NIS Fund? Currently the NIS Fund is subsidizing Government debt by charging lower than market interest rates would demand.
The most troubling aspect of the report is the Government’s continued pursuit of higher taxes as a recovery strategy at a time when economic growth is what is most needed.
Higher taxes will depress growth further.
In all, tax measures are expected to contribute to $200 million of extra revenue, about 2.3 percent of GDP in 2014/15.
I doubt very much whether Government will collect these taxes so the reduction in the fiscal deficit anticipated by the CBB is dubious.
Higher taxes will continue to result in less investment, debt defaults, bankruptcies, corruption, tax avoidance and nonpayment of taxes, capital flight, increased joblessness and higher crime.
Surprisingly, the CBB report does not deal with the very high levels of indebtedness owed by Government to private firms in the form of overdue tax refunds, unpaid creditors etc. This continues to create major challenges for many businesses.
The worsening economic picture is very troubling from the perspective of policy decisions that are being made in these times of severe stress. These decisions will burden Barbadian taxpayers for decades.
Some of these decisions relate to Almond Beach Village, the waste to management project, Andrews Factory, Four Seasons, NIS indebtedness, CLICO etc.
It is difficult to imagine why we should deliver a fully equipped hotel paid for by Barbadians to a non-Barbadian operator with tax concessions for 30 years at no risk to the operator but with all the upside profits.This surely is not in the national interest?
We need far more transparency about each of these projects.
Reference by the CBB to improved competitiveness are noted but do not go nearly far enough to address the anti-business environment that now exists.
Policy now should be all about:
- building confidence with investors (not by giving massive concessions to a few chosen ones),
- reducing taxation (and business costs),
- reducing the cost and size of Government (whilst improving effectiveness of operations),
- labour productivity,
- open market competition (removal of exchange controls and restrictive skilled immigration policies),
- entrepreneurship development,
- diversifying the economy’s export potential, and
- vastly improving all aspects of business facilitation.
For this to happen adequate funding must be accessed by Government from the IMF to underpin the adjustment period.
With a strong IMF programme in place there would be transparency and accountability.
It is unfortunate that few now look to the CBB for guidance as to the economy’s real performance and outlook.
The situation is serious enough to warrant serious consideration to the creation of a Coalition Government with full working support from all Social partners.