Dennis Jones is a Jamaican-born international economist, who has lived most of the time in the UK and USA, and latterly in Guinea, west Africa. He moved back to the Caribbean in 2007. This blog contains his observations on life on this small eastern Caribbean island, as well as views on life and issues on a broader landscape, especially the Caribbean and Africa.







**You may contact me by e-mail at livinginbarbados[at]gmail[dot]com**

Monday, January 11, 2010

Should Barbados Consider Selling Public Sector Assets?

The following is an article I was requested to write for the Barbados Business Authority: it was published today.

Barbados is now unquestionably a highly indebted country, that needs to improve its public finances as its key debt ratios move into the chilly air countries breathe when their ratio of debt to GDP exceeds 100 percent. IMF data in its 2009 Article IV Consultation report show Barbados' public sector debt was due to end 2009 at 116% of GDP and would exceed 131% by 2014. Public debt rose quickly in the previous half decade: the ratio rose from 87% in 2004. Another measure of the 'pain' is the ratio of debt to revenue, which rose from 185% in 2004 to 224% in 2009 and may reach 239% in 2014. Simply put: the economy is not growing as fast as the debt, and significantly government revenue growth is also lagging the rise in debt. These are worrisome developments. So, how to solve them?

Few ways exist to reduce these debt burdens quickly, especially during a recession, when the government finds it harder to cut spending and raise revenue, being tempted to do the reverse to help boost the economy. One option to give Barbados some breathing room while it tries to improve its public finances on a sustainable medium term basis may be to sell some government assets and use the proceeds to help pay off some of the debt. That would ease the immediate debt burden and ongoing obligations that come from having to repay interest and principal. Last October, the UK government announced a £16 billion programme of asset sales as part of a deficit reduction plan to bring down the massive state debt built up during the recession(see http://www.telegraph.co.uk/finance/economics/6305708/Gordon-Brown-unveils-16-billion-asset-sales.html). Britain is no stranger to high debt burdens or to asset sales.

One problem with implementing such ideas in Barbados is knowing what assets the government has and their worth. As the IMF reported in its 2007 Fiscal Transparency Report (see http://www.imf.org/external/pubs/ft/scr/2007/cr07338.pdf), we have only a partial set of data about government financial assets and liabilities:

'Information on central government financial assets is published monthly and annually but is incomplete. The monthly and annual financial reports of the Accountant General that are tabled in Parliament contain statements of the central government’s financial assets ... However, the statements do not provide a full picture of all financial assets, such as equity investments in public enterprises.'

Simply, the country does not know what the government is worth. That makes it hard to know how much we could reasonably expect from selling public assets, even without discussions about their value and possible buyers.'

Asset sales help reduce the debt burden, but such sales also let a government reconsider its overall policy of economic involvement. Is a wider policy of divestment appropriate? The government may want to review why some of its debts were incurred, and if these were initially for temporary or good historical reasons, whether those reasons remain. The government has shed assets in the recent past by selling some of its part of a rehabilitated Barbados National Bank. The government could offload its holdings in hotels or tourism-related activities. The government may also review providing certain goods and services which could very adequately be done by the private sector. It needs breathing space from fiscal burdens so no options should be off the table.


acox said...

the government is not going to sell what little it have.It would prefer at some point when the going gets tougher to tax the people.They are all about"keep what yuh got and catch what yuh can".

Dennis Jones said...

@acox, your argument presumes that what the government owns is of benefit to it and the country at least in financial terms. What we know is that some of the assets are loss makers, and they may be harder to sell, but they are draining away the 'little'.

Carson C. Cadogan said...

I would not advise the government to sell any of its assets.

The last time the DLP Government did that it proved to be a disaster. It foolishly sold its stake in Cable and Wireless. They must not make the same mistake twice. The DLP Government should tough it out until the recession passes.

Carson C. Cadogan said...

Also Dennis I am extremely distrustful of the Nation Newspaper which was set up by Barbados Labour Party bigwigs in the early 1970s.

They may well be using you, unknown to you, to coerce the DLP Government into making a dumb move which they will exploit to the fullest.

I just do not trust the Nation Newspaper knowning its pedigree.

Dennis Jones said...

@Carson C. Cadogan, what would have been the benefit of not selling the assets ands why would you want the the government to have continued as owner? What outcomes did you see that would have been undoubtedly better?

Your comments about the Nation and its origins are interesting, not least to think that the government could be coerced. If that were the case then we should all line up to have our turn. Maybe I see power differently to you.

Suggesting that the Nation is a stealth or even open organ of one party may be valid but you leave the impression that without them the national print (or other) media landscape is neutral. That I do not believe. Even those one trusts can be harmful; but those whom one does not trust can more easily be countered.

acox said...

I am basing my point on the statement made in the article as stated:"Simply the country does not know what the government is worth". I assuming that if it is worth any thing of real value they would be hesitant to sell at this timebecause of the global recession and rather keep what they have, If it is worth nothing then they would be little or if anything at all to be gained by selling.

Dennis Jones said...

@acox, the gains from selling those that are draining the public purse can be big. One needs to consider whether the government should remain in the particular area of activity (eg hotels) and explore if there are buyers.

Dennis Jones said...

What has to be considered is what is the purpose of the public asset and is keeping it something a government can afford. The reasons are many, and may involve certain strategic considerations. Even if strategic, keeping it may be too much for a country. Look at Air Jamaica, which is losing US$10 million a month. Yet, even in these difficult economic times, a buyer (Trinidad's Caribbean Airlines, which too is losing US$7 million a month) looks to have been found. It may be a good or bad deal for Caribbean Airlines, but it opens up new opportunites for both Jamaica and Trinidad.

So, unless you have looked at the assets properly and what they are supposed to be doing then you cannot comfortably just take the view of 'hold them'.

acox said...

@DEnnis Jones

But then again dennis it may not be that simple to sell because of the world wide economic crisis.In that the government may not receive a substantial amount of its value.
HOwever I see the point you are making.

@carson Cadogan
In reference to which paper dennis
wrote the article.Politics make strange bed fellas

Living in Barbados said...

@cox, people seem to think that the world has come to a grinding halt because of the economic recession. There's a lot of business going on and difficult times may have little effect on the willingness of a buyer and a seller to make a deal.

Given that I've written in all of the main Barbadian papers it may show what a big bed there is :-)

In passing, people who play politics can do that all day long with nothing more than the will. Those who don't play politics can obviously be played. But not playing politics does not mean that one is not in control. One of the joys of one's own publication like a blog is that you play to no one's tune but your own.

acox said...

@dennis Jones

"People seem to think that the world has come to a grinding halt because of the recession". Fortunately or unfortunately that is the message being sent out by big business and leading economist.
That is a fact.

My response to "playing politics"

So as long as you know the characters and the part you are playing.

Dennis Jones said...

Dr Estwick proposes selling GEMS, http://www.nationnews.com/news/local/sell-the-gems-says-estwick