EDITORIAL - Crisis in the Bajan economy

Published: Wednesday | December 18, 2013 Comments 0

For that small, but influential, and sometimes noisy, group who still moan about the Jamaican Government's programme of economic austerity and harbour visions of stimulus spending, we urge them to take a look at developments in Barbados.

They might just conclude that the Simpson Miller administration has not gone far enough - as some might say about the policies to be implemented by the Barbados government.

In the aftermath of last week's completion of an Article IV consultation between a team from the International Monetary Fund and the authorities in Bridgetown, Freundel Stuart's government announced that it will cut 3,000 - or 16 per cent of - civil service jobs, as well as slash the salaries of legislators by 10 per cent.

The government also plans to undertake a major programme of tax reform, including the reduction, if not elimination, of the ability of the finance minister to grant discretionary waivers, which might, in part, explain the government's hustle to grant a rash of tax concessions.

UNPRESSURED LOCAL DOLLAR

The central bank is expected to reverse its direct fiscal support of the government, as well as push up its policy rates, which should make it more expensive for consumers to purchase foreign exchange to finance imports. That, hopefully, will help ease pressure on the Barbadian dollar, which has been fixed at US$0.5.

In some respects, what the Barbadian government is about to do is reminiscent of the policies implemented by another Democratic Labour Party administration, then led by Erskine Sandiford, 22 years ago.

The catalysts of both periods are, broadly, the same. Now, like then, Barbados is facing a fiscal and current-account crisis. The economy has not recovered from the global meltdown of 2008.

In the current fiscal year, for instance, Barbados' central government will run a fiscal deficit of nine and a half per cent of gross domestic product (GDP), which is substantially worse than Jamaica's. The gap on the current account will be more than 11 per cent of GDP, in the range of our own. Among the drivers of that deficit in an environment where tax intake has been weak is a public-sector wage bill of 10.3 per cent of GDP, among the highest in the region.

The country's foreign reserves have declined and so, too, has overall economic competitiveness.

RISING DEBT

In the circumstances, the country's debt crept up to 93 per cent of GDP, a far cry from Jamaica's 143 per cent, but in a range that causes prudent people to be concerned, especially given the country's weakened economy.

The policies now being pursued by Mr Stuart's government are aimed at returning the country to fiscal equilibrium. As was the case two decades ago, the government hopes to achieve this without disturbing a critical psychological pillar and article of economic faith to the average Barbadian: its pegged exchange rate.

There must be doubts, however, that - even with labour market pricing adjustments that should be triggered with the public-sector job cuts - the proposed measures can, of themselves, restore Barbados' external competitiveness.

We would not be surprised if higher prices are entrenched in the economy and might require an exchange-rate adjustment - even in the context of a pegged currency - to help return the market to equilibrium. Time, of course, will tell.

In any event, we hope for Barbados' quick return to economic health. That is in our interest, too.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.

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