Barbados got the second Budget from PM Thompson in his guise as Finance Minister yesterday. When he made his first presentation, in July last year, I was close to my radio trying to hear what directions he would try to set, after his party had regained power after 14 years out of office. I was intrigued at how he was going to lay the groundwork to help Barbados weather the advancing storm of a world recession. In his judgement, tax increases were an important part of the necessary measures (see previous post). One of the other messages that was clear to me was a less favourable attitude to foreign property investors, one that has been repeated several times.
This year, I was also close to my radio and watching the performance on TV. I also had the tough challenge of being part of a radio panel later in the evening to discuss first impressions of the Budget. That was no easy task. I found myself alongside the current and previous Ministers of State in the Ministry of Finance, Senator Darcy Boyce and Clyde Mascoll (who is now working as an economist), the president of the Barbados Economics Society, Anthony Johnson, and a well-know accountant, Douglas Skeete. So many economists in one place? Must lead to lots of opinions. So it was, but it was great fun, and we got pizza. I wont pretend that we arrived at any consensus, even on the food. We spent a lot of time talking about the outlook for government debt, which to me is something that should get people's attention.
No one doubts that a politician taking over power during the past two years has had anything other than an economic baptism of fire. But politics is a funny game. I remember when I first got here most of the criticism I heard from Mr. Thompson, when in opposition, was that the economic ills, especially rising prices, could be put at the door of the government of Mr. Owen Arthur. Now that the hat has a new wearer he is quick to point out he was having to deal with 'circumstances not of our making', and much blame is laid on the world recession. I don't have a problem with that observation, but I wonder what changed in the shifting of positions.
The government is in a tough situation. Revenue is less than desired. Spending is higher than desired. Foreign exchange is flowing less than desired, especially because foreign tourists and investors are also facing a tough time. Prices are not falling as desired. Financial institutions are causing clients concerns.
Without going too much into the details of the budget, there is a darkening outlook for Barbados in that it is being increasing perceived as highly indebted, as the pincers of revenue shortfall and expenditure that is not falling fast mean that it has to borrow more. The fact that the so-called debt-to-GDP ratio seems headed to 100 percent is a red flag, and the government's strategy does not see it coming down to around 70 percent until 2018 (a decade away) should give pause for thought. The Budget had a long story of how the credit rating agencies and international financing institutions are laying their beady eyes on this. Barbados should rightly be getting hot under the collar.
Much of the success in economic policy is about confidence and credibility. Barbados needs foreigners' money and it comes in three main forms--from tourists, from those setting up and operating international businesses here, and from investors in real estate on the island. My own view is that the government did not see that nothing should be done to jeopardise any of those pillars especially in the current fragile economic conditions. People are fickle when it comes to putting their money to work abroad. Tough economic conditions in the UK, Canada and the US will crimp tourists arrivals and spending. Plans by the world's economic 'big boys' to rein in what they call 'tax havens' have had Barbados and other countries with relatively low taxes scrambling to paint themselves as less harmful. But, I think the ball was missed in making foreign property investors less welcome, and I fear that once they turn their backs it will be hard to get them to change their minds.
The latest budget did much to allay fears of new tax increases, but at the same time put together measures that were geared to shore up jobs. People's fears of having less in their pockets and maybe feeling less secure at work may well be eased. Those selling motor cars will feel easier with the increasing of the rebate on new vehicles. Many will welcome lower VAT on building materials and the housing measures. Many, however, will wonder how large will be the promised increases in water rates, from July.
There are many dark clouds that need to be cleared. Many people have serious concerns and seek clarity about the real situation with CL Financial and the life insurance company, CLICO. It still is not there. Searching for a private sector solution has many merits but the path to that is leaving many scratching their heads. The creation of an oversight committee which will temporarily be responsible for approving expenditure and decision relating to the financial subsidiaries of CLICO holdings may raise concerns rather than diminish them. Since the problems of CL Financial broke earlier this year, PM Thompson has been trying to pour cold water on concerns about the health of CLICO Barbados. This latest move suggests that more cold water is being dispensed.
Part of the fall out of financial sector supervisory lapses may be addressed with the creation of a Financial Services Commission to oversee all non-bank financial institutions, from the first quarter of 2010. But let's not run with this before we see it walk.
I don't get a sense that the approach to renewal of the Queen Elizabeth Hospital is really the best one.
On of the major challenges is for the government to make all feel that the problem is a national one, not one that is about partisan positions. Mr. Thompson has come up with the "Team Barbados" concept as a rallying call, but I do not feel that it does not do enough to really draw people into a national effort.
Whether the "Barbados experience", which will try to sell all that the country "has to offer in terms of our environment, our friendly people, our international business services, our high quality of life, our cultural services, our tourism experience, our educational standards, our infrastructure, our history, our reputation and our good name" will be more than a marketing slogan, we will have see.
The economic road ahead is not easy but it is also not impossible to pass without falling on sharp rocks. Let's see if people feel ready to help each other walk the road or if they will be readier to push each other over to avoid being the ones to fall.
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