Acting Governor of the Central Bank of Barbados, Cleviston Haynes, has revealed that the May 30 Budget introduced by Government represents a substantial fiscal adjustment effort to restore macroeconomic balance.
Haynes told a number of Rotarians assembled at the Accra Beach Resort over the weekend for an installation ceremony and dinner, that it is no secret that Barbados currently faces economic challenges.
“Indeed, Government’s recent budgetary measures, by their sheer magnitude, represent a substantial fiscal adjustment effort that seeks to restore macroeconomic stability, engender confidence and place the economy on a sustainable growth path,” according to the top Economist.
He pointed out that as an import-dependent country, foreign exchange is critical to sustain Barbados’ economic activity. “Unfortunately, the foreign reserves have fallen below the levels to which we have become accustomed in the recent past, raising concern among the public about the trajectory,” the Central Bank of Barbados official remarked.
“This situation is reversible but increased foreign exchange inflows together with a dampening of demand for foreign exchange are now needed,” he suggested.
At the same time, the Acting Governor stated that taxes “we collect to finance public services and facilitate the distribution of resources to the less fortunate have historically been less than necessary to meet the costs of public administration, social services and infrastructure development.”
He acknowledged that education, health, sanitation, public housing and public transportation are all delivered to the public at below cost. As such, these investments in people and infrastructure have enabled Barbados to be ranked as having a high level of human development, the highest in the CARICOM area, he reasoned.
The Acting Governor reminded the audience of principally Rotarians that these services have been paid for in part by a progressive income tax system that requires those with access to greater means to carry a heavier burden.
“Traditionally, however, we have borrowed as matter of policy to cover the gaps between revenue and expenditure and facilitate improved living conditions. Over time the costs of financing the accumulated deficits that arose from this strategy have begun to absorb a substantial share of the revenue government collects, coincident with reduced access to private sector financing.”
In light of this, he stated that from a macroeconomic perspective, adjustment is therefore required. However, placing the public finances on a sustainable path requires a stable revenue base to fund expenditures necessary for enhancing socioeconomic conditions. We need, inter alia therefore, to improve the efficiency and effectiveness of both our tax collection effort and the delivery of public services. This is particularly necessary given that one of the outcomes of the current fiscal imbalance is that the State has found itself unable to sustain the level of funding being requested for some social services.
Government has been reviewing the scope and scale of activities in which it is engaged.
The economist pointed to comments where some persons advocate the need for cuts in public expenditures in preference to new or higher taxes, with public enterprise reform at the centre of the adjustment.
Haynes said that reforms “require us to make difficult choices as to how we will allocate available resources and where we will seek increased efficiency.”
He made it clear that Barbadians should not ignore the possibility, therefore, that such reforms may require some or all of us as citizens to participate more directly in the funding of services that we receive from government in the future.
Already some adjustments have been made, the most prominent of which has been the decision to ask students at the University of the West Indies to pay some of their tuition costs, the Acting Governor added. ̆