BUSINESS MONDAY: Central Bank to assess economic performance soon
LATER this month it will be known if the targets outlined in the current Estimates of Revenue and Expenditure and reinforced in the Budget last year, are on course to be realised by March 2018 which is the end of Government’s financial year.
The Central Bank of Barbados is to assess the 2017 performance of the economy by the end of this month. No doubt the assessment will also take into account what has happened over the last nine months of Government’s financial year.
The targets set last year are the stabilization of the country’s fiscal position by having a deficit of either three per cent of GDP or not more than four per cent, a halt the slide in the country’s foreign reserves, and improved economic growth.
There were other matters that had called attention and which were discussed in the debates on the Estimates. The Budget which followed a few months after the Estimates, set out a number of measures to do justice to the problems facing the economy. However, two key policies took centre stage: the increase in the National Social Responsibility Levy (NSRL) from two per cent to 10 per cent, and a two per cent commission on the sale of foreign exchange, the latter to slow the demand for foreign exchange.
Lowering the deficit represents a broad programme of revenue collection and expenditure reduction which is proving to be somewhat challenging. It was also thought that higher growth levels would have been a plus but the minimal expansion the economy is experiencing is not helping much.
In the forthcoming the Bank is expected to zero in on the all important issue of growing the economy which many believe has suffered as a consequence of the NSRL. The challenge for Government has been to juggle its revenue and expenditure programmes to meet not only its goals of the fiscal balance but to ensure that employment levels, service provisions and debt repayments are not compromised.
All of this comes against the background of calls for Government to cut Transfers and Subsidies and to lower the size of the public service.
In the Budget last year Finance Minister, Christopher Sinckler said that the private sector was arguing for approximately 6 000 public officers to be sent home. More recently, the former Governor of the Central Bank of Barbados, Dr. Delisle Worrell, called for the shedding of 4 500 public sector jobs over a three-year period. None of these suggestions has not found favour with some economists, given the damage the proposals could inflict on the social landscape of Barbados.
Government Expenditure is broken down into Wages and Salaries for public officers, Transfers, Debt servicing (including interest payments), Goods and Services, and Capital Expenditure. There is also the pension bill which has skyrocketed in recent years adding to expenditure. The Estimates of Revenue and Expenditure for the current year refers to an amount of $260.1 million for Retirement benefits for the year to March 2018. This amount is projected to increase to $278.3 million by March next year (2019), and $297.7 million by March 2020.
The Revised Estimates for last year showed an amount of $206.0 million.
Sinckler had said in the Estimate’s debate that increments for the current financial year were projected to cost Government another $50 million this year. This type of spending when placed alongside the shrinking revenues Government is able to collect tells the story of the difficulties the country faces in dealing with these issues.
During the period, January to September last year, the Central Bank indicated that growth had slowed to 1.4 per cent from the two per cent it reported at the end of June. It also said that Government had made some progress in reducing the fiscal deficit which at September 2017 was 4.0 per cent of GDP, compared to 5.5 per cent at March 2017.
Current expenditure was $1 433.2 million at September compared to $1 419.3 million the year earlier. Contributing to this increase were grants to both individuals and public institutions, under the heading Transfers and Subsidies.
This is the area that has generated significant discussions, and where calls for cutting have been made.
It should also be noted that a lot of the allocations under Transfers and Subsidies are given to the Queen Elizabeth Hospital, Sanitation Service Authority, Barbados Tourism and Marketing Corporation, the University of the West Indies and other state bodies.
The problem here is that to reduce spending in the public service Government can retrench workers and in the process institute some savings. This policy will affect a lot of people. Even if implemented it could lead to the private sector sending home workers simply because the reduced public service lowers the demand for goods and services and reduced revenue for the business community.
The other point of interest is how impactful the foreign exchange commission has been on lowering the demand for foreign reserves and how much the country had in stock at the end of 2017.
All of this will be known when he Governor Cleviston Haynes reveals the information.