EDITORIAL - Country needs to curb spending

QUITE recently, while speaking at the annual investment forum hosted by Fortress Fund Managers at the Frank Collymore Hall, economist Charlie Skeete suggested that one of the ways forward for the Barbados economy is for the Government to suppress spending so as to keep the island’s economy afloat. 

 

This is not a bad idea, bearing in mind that all along Government has been trying keep the lid on its spending, as well as that being undertaken by private individuals.  

 

There seems to be a recognition that there is too much spending, and in the absence of any major inflows of capital, Barbados has to be cautious with its limited resources.

 

This country has some economic fundamentals which the Minister of Finance and Economic Affairs, the Honourable Christopher Sinckler and the Central Bank of Barbados, have been grappling with for a long time.

 

There is a high debt to GDP ratio; the fiscal deficit is running at over six per cent of GDP; and there is low growth of around 1.3 per cent as of September 2016. These are stalling economic growth and stability in the economy. The net international reserves which were declining up to the end of June 2016 have stabilised to about $900 million, which do not represent a very large amount in the grand scheme of things in the economy. 

 

Government’s programme has been to use fiscal policy to correct the situation. However, while some progress is being made it remains slow.

 

Up to September 2016 the economy grew 1.3 per cent and the fiscal deficit was six per cent of GDP. That growth was led by Tourism which increased three per cent; Construction which was five per cent higher; and Business and Other Services three per cent higher.

 

The average rate of unemployment was 10.2 per cent of the labour force and the current account deficit was lower by 3.6 per cent.

 

While some of this represents good news, there remains a lot of work to be done if Barbados is to make a dent on its present position.

 

This programme is exactly what Skeete wants to see, and especially if Barbados is to avoid adjusting its exchange rate, even though this will have no bearing on the situation unless the fiscal consolidation programme is aborted or not continued with the commitment that is very necessary. But there has to be a greater commitment to fiscal consolidation and this is where the challenge comes about. 

 

One of the things people have also been calling for is the privatisation of those troubling state assets, where there appears to be some overlap of functions. One gets the impression that Government is not too keen on going that way because of the fall-out which is likely to accompany such a policy. The Central Bank has said that the combined effect of the August fiscal measures and revenue from the sale of the Barbados National Terminal Incorporated is expected to slash the deficit to at least four per cent of GDP by the end of March next year; still a very tall order.

 

However, it has to be done and there is no getting away from the fact that Barbados has to curb its spending. It therefore needs to take the advice of Mr. Skeete.