Prime Minister David Thompson is pictured as he delivered an address at the Ministry of Finance, Investment, Telecommunications and Energy’s Public/Private Sector Consultation on Economic and Related Issues, at the Lloyd Erskine Sandiford Centre.
THE HON. DAVID THOMPSON, PRIME MINISTER & MINISTER OF FINANCE OF BARBADOS
at The Public-Private Sector National Consultation On The Economy
LLOYD ERSKINE SANDIFORD COMPLEX
MONDAY, MARCH 2010
". . . once, when my feet were bare, and I had not the means of obtaining shoes, I came to the chief of Kufah in a state of much dejection, and saw there a man who had no feet. I returned thanks to God and acknowledged his mercies, and endured my want of shoes with patience . . ."
Sadi – The Gulistan,
I put myself this morning in your position and I ask myself "what would have motivated me to come out to this consultation this morning?" And what is it you would like to leave here having heard or having been reassured about?
I suspect when all the generalizations are over and we come down to the nitty-gritty, you each want to know, or be reassured, that Barbados will emerge from the current global economic crisis with all its ???fiscal faculties’ intact and that new and exciting economic and developmental opportunities will abound. I would like to be able to say to you this morning that you can rest assured that economic stability is our objective. I would also like to reinforce this by showing you this revelation in a crystal ball.
However, life is real! The current global economic crisis is also real…and there are no reliable crystal balls.
As Prime Minister and Minister of Finance, I have not to date nor will I attempt now to hoodwink you, or anyone in this country, about the serious and acute challenges we confront. Perhaps I don’t use fashionable words like "catastrophe, crisis, doom, gloom and destruction" well. I know about human resilience and prefer to call it into action.
Nor will I attempt to do so in relation to the uncertainty that exists in relation to the timeframe and the extent to which sustained recovery is possible. So, again, the words "immediate, now, imminent" cannot flow from my mouth.
Barbados is blessed to have some of the finest intellects and managers at its disposal, we have harnessed your resources to minimize the fall-out and to hasten the turn around, and recovery we desire.
Look around this room and see the architects of our fiscal and economic salvation!
Those architects are not seated at the head table…neither are they seated in the first row of chairs. They are not seated in any particular corner or section of this room!
The architects and builders of our economic recovery are each and every one of you. I am under no illusion about the finite capacity of a leader, especially a Prime Minister and Minister of Finance. I am acutely aware that the correct signals have to flow from the Cabinet Room and ultimately from the Prime Minister and Minister of Finance.
However, if there is no buy-in and if there is no resolve on the part of stakeholders to effect this recovery and propel Barbados to the new and next economic level, all the speeches from this and similar platforms, including that of parliament, will be in vain. That is why I wish to express my sincere appreciation to all of you, who have taken the time and made the sacrifice to attend this session here today. By attending, you are signaling your desire and intent to report for national duty and to play your part in this national undertaking. It is for this reason that I have deliberately timed this National Consultation to precede presentation of the Annual Estimates of Revenue and Expenditure as well as the Financial Statement and Budgetary proposals.
This consultation today is not meant to be a talk shop or a public relations exercise. It is not an occasion to respond to critics or to pander to lovers. We have invited you here today because we value your input and we need your assistance. If I had all the answers to the economic problems confronting Barbados this morning, I would have addressed the nation last night and called an election tomorrow!
However, unlike some others, I do not believe there is any single brain in this country that is so blessed to possess all the formulas and approaches necessary to solving our problems. I repeat here and now that the challenges confronting our economy are not purely arithmetical in nature and therefore cannot, and will not, be solved by arithmetical theories alone. And I will deal with that shortly.
If a correct statistical or accounting formula were all that is required to solve our nation’s problems, then issues of cost overruns to the tune of $750 million in the ten years before I assumed office would never have arisen.
If all that were required is the articulation of a particular approach or series of measures, then not only would Barbados be a model for all the world but also, would be the home of the 21st century Albert Einstein.
The point I am making is that we are intelligent people and we need to recognize that we are travelling in uncharted waters. If this is the worst economic downturn since the Great Depression, how can any single individual, born in the second half of the 20th century, be so gifted as to have the perfect and complete formula for solving a problem that has not existed in the lifetime of 90 per cent of the world’s population?
The most reliable approach to tackling the issues that we confront is through rallying the collective will, intellect, talents and resources of our population and working together in earnest to bring about meaningful results.
And, more than all of that, to communicate!
In this room today is a perfect representation of the best Barbados has to offer at this particular time and I am hoping that by the end of this consultation we would have crafted a consensus for carrying this nation forward. You elected me as your leader…not your ruler! Therefore, I am here to lead you along the path that, collectively, we determine is best for Barbados…at this time.
However, Barbados does not and cannot operate independent of its environment. Our fortunes are influenced and shaped, in large measure, by global occurrences. Thus, it is important that before devising a homegrown approach and formula, we survey and reflect upon the international experience.
Members of Cabinet?? (left to right) Minister of Transport and Works, John Boyce, Minister of Community Development and Culture, Steve Blackett and Minister of Environment, Water Resources and Drainage, Dr.Denis Lowe, at the Ministry of Finance, Telecommunication and Energy’s Public/Private Sector Consultation on Economic Issues held today at the Lloyd Erskine Sandiford Centre.
International Economic Performance
In my address to a similar public-private sector national consultation on the economy two years ago, I high-lighted developments such as global warming, rising energy costs and food prices as matter that needed to be addressed by us.
Almost immediately thereafter, there was the collapse of the sub-prime mortgage market and other financial markets in the United States of America. This development created a ripple effect in other financial markets throughout the world triggering a decline in credit and available finance to consumers and investors alike, thus generating a sharp fall in demand for houses, automobiles and other consumer durables.
The collapse of American and British financial markets invariably led to the global financial crisis and consequently to a global economic recession, which can only be compared to the depression of the 1930s. Indications are that at the end of 2009, global economic activity is estimated to have contracted by approximately 1%, reflecting the impact of the global financial crisis and the contraction in global trade. There was a significant fall in economic activity in advanced economies and transmitted to emerging economies.
However, there are encouraging signs pointing to a recovery, commencing from the second and third quarters. There is an improvement in consumer and business confidence, boosted by the aggressive monetary and fiscal policies put in place in response to the crisis. The US economy, after being extensively impacted on by the financial strains and the housing sector decline, showed signs of recovery in the third quarter of 2009.
The Japanese economy accelerated in the third quarter also, driven by business investment, consumer spending and exports and supported by a fiscal stimulus package.
In the EU, the economic situation also appeared to be on the mend, with growth in some countries and a moderation in the rate of decline in others. Growth in the emerging Asian economies remained positive, but fell to around 5% in 2009.
Among these economies, China was the fastest growing, with real GDP increasing by 8.5%, while India grew by 5.4%.?? In Latin??America, economic activity showed signs of gradual recovery. The sustainability of the overall 2010 recovery is contingent on certain factors, including the extent to which oil prices continue to rise and weak labour market conditions persist, as well as the timing and pace of the eventual unwinding of the macroeconomic stimuli and correction of global imbalances.
A section of the audience at??the Ministry of Finance, Telecommunication and Energy’s Public/Private Sector Consultation on Economic Issues, held today at the Lloyd Erskine Sandiford Centre.
Regional Economic Developments
In most regional economies, preliminary estimates indicate that real output contracted in 2009, reflecting the lagged impact of the global financial crisis and economic recession.
Indications are that Belize, Guyana, Haiti and Montserrat recorded positive GDP growth in 2009. ??Antigua and Barbuda and Cayman Islands recorded declines that were in excess of 5%, while the real output contraction among most of the remaining regional economies was between 1% and 4%.
The main features of the crisis to regional economies were sharply declining tourist arrivals and a fall-off in Foreign Direct Investment (FDI), which negatively affected investment in tourism-related construction projects; reducing output and employment in both the tourism and construction sectors.
In addition, the financial crisis adversely affected offshore sector activity in all major jurisdictions and threatened the soundness and stability of regional financial sectors.??
Generally, stay-over arrivals declined across the Region, with double-digit falls posted by most destinations, amid weak source market demand and reduced airlift.?? This was also reflected in significantly lower visitor expenditure.?? Conversely, cruise passenger arrivals have remained buoyant, with several countries reporting increases in excess of 15%. Available data indicates that the downturn in economic activity has been reflected in rising unemployment in most countries, particularly in the hard-hit tourism and construction sectors.
Inflationary pressures in the Region subsided during 2009 from their peaks in 2008, largely reflecting the fall-off in aggregate demand due to the crisis and the generalised reduction in international food and petroleum prices observed since the latter half of 2008.
The public finances deteriorated in most other regional economies, largely reflecting the impact of the crisis on already-limited fiscal space.?? In some cases, salary increases, interest payments on accumulating debt stocks, rising transfers and subsidies, pre-election spending and/or fiscal responses to the crisis played a role in the resulting large fiscal gaps.?? A significant decline in revenue, especially in those countries with narrow revenue bases, was also a major contributing factor.??
The outlook for regional economies in 2010 is largely predicated on the timing, pace and magnitude of the incipient global recovery, with recovery in the Region expected to lag behind that of the major world economies by a few quarters.??In 2010, growth is expected to return, but the recovery of regional economies is not likely to take hold before 2011.
Collectively, those forecasts beg the question as to how is it possible for any entity or individual in Barbados to possess the secret formula for returning Barbados alone to prompt and total economic recovery.
The outlook for every other country in the world is hazy at best and unpredictable in the main.
Domestic Economic Performance
Barbados like other Regional economies is faced with a number of challenges occasioned by the Global financial situation and economic recession. The challenges strike at the very core of the domestic structure of the economy.??
The impact of the global economic recession on Barbados has been felt mainly in the real economy. The recession manifests itself in lower rates of growth;?? decreases in foreign exchange inflows from tourism and other services; falling exports and remittances; and reduced private commercial financing and?? direct foreign investments.
This scenario has generated lower levels of government revenue, a rising fiscal deficit, higher levels of unemployment and an increasing public debt.
Such developments place great strain on the social safety net and threaten to erode the considerable gains made by Barbados in poverty reduction.
Under the impact of external shocks, a significant contraction in GDP of around 5.3 percent is estimated for 2009. The nature of current economic conditions has led to broad-based contraction in output across virtually all sectors during 2009.
This economic outturn has in large measure been driven by a severe downturn in tourism activity which plummeted by 8.7 percent in 2009 following a 1.2 per cent decline registered in 2008.
Preliminary data suggest that the decline in tourism activity was due mainly to an estimated 11.0 percent fall in long-stay arrivals and took place in spite of a 6.0 percent increase in cruise ship passengers.
The contraction in tourism output, as expected, had a knock-on effect and severe declines in manufacturing and non-sugar agriculture were recorded at the end of 2009.
The recession-related loss of foreign exchange from tourism is estimated to be $170 million. This outturn, coupled with an estimated shortfall of $465 million in private capital net inflows relative to initial forecasts, were the main factors in a lower than anticipated NIR position. In the non-traded sector, lower tourism activity was reflected in the wholesale and retail sub-sector, transportation, storage, communication and other services, which all contracted for the first time in many years.????
In relation to unemployment and inflation, the position on these indicators during the reporting period was mixed. Although the inflation rate has moderated during 2009, falling from 8.6 percent at the end of 2008 to 3.1 percent at the end of 2009, reflecting a return to normalcy of commodity prices, I must also in the same breath report that the unemployment rate rose to around 10.0 percent, due to slumping domestic demand. Since then, I am happy to report, there has been a decrease in unemployment.
On the financial sector side, domestic deposits of commercial banks declined marginally during 2009. Credit accumulation was severely constrained by the great downturn in productive activity. Notwithstanding the relatively flat performance in credit and deposits, liquidity in the banking system continued to edge upwards. The excess liquidity ratio rose from 8.9 percent at the end of 2008 to 10.7 percent at the end of December 2009.
Following a similar trend to 2008, the fiscal deficit widened during 2009/10 to an estimated $637.4 million or 8.2 percent of GDP. This fiscal outturn reflected a marked slowdown in revenue intake on account of the weakened domestic economy. A projected slight decrease in expenditures was not enough to reverse this outcome. Revenues from VAT, which had increased at an average rate of 6.5 percent between 2001 and 2008, slumped by an estimated 18.2 percent in 2009/10.
This contributed to an overall reduction in tax revenues by approximately 9.4 percent. Despite the fall off in economic activity, it is projected that corporation taxes will increase slightly by $30.1 million, or 6.7 percent, while personal tax receipts will decline by $8.9 million or 2.4 percent. Revenues from import tax also fell by 16.0 percent in 2009/10, mirroring dampened domestic aggregate demand.
On the expenditure side, Government expenditure rose by an estimated 0.8 percent in 2009/2010. This slower rate of expansion in Government’s spending can be attributed to a reduction in current transfers and capital spending by a projected 3.6 percent and 12.4 percent respectively.
Projections for 2010
Current projections suggest that in 2010 the Barbadian economy is likely to register a marginal growth rate of 0.5 percent.
These projections are in large measure however determined by the kind of recovery that will occur in our major source markets.
While any signs of a global recovery are welcome, your government acknowledges that there are a number of policy initiatives that must be continued in order to reposition the Barbados economy. In my view, the challenge facing Barbados is to protect employment and output, while at the same time enhancing the promotion of exports of goods and services, with a view to maintaining essential foreign exchange earnings in the light of a slowdown in capital inflows. Your Government remains committed to efforts geared at creating a new, efficient, productive and prosperous economy for all.??
This will pave the way for the complete transformation into the new Barbadian economy, which I envision by 2030, will be a fully developed and people centered society based on new development pathways.
Medium Term Fiscal Strategy 2010 – 2014
Your government is in the process of rolling out a medium-term fiscal strategy (MTFS) for the period 2010 to 2014 which has been circulated to the social partnership as well as the World Bank and IMF staff. This document was widely circulated more than 10 days ago – and therefore is no "secret" document that needed to fall of the back of a truck – is available for all to see, read, inwardly digest and comment on. This Fiscal Strategy constitutes one of our Government’s key crisis management tools for the realization of a sustained recovery, adjustment and sustainable growth during this waning period of financial crisis and economic recession.
The Medium Term Fiscal Strategy 2010 to 2014, together with our Medium Term Development Strategy, also for the period 2010 to 2014, will lay the framework for sustainable growth. The Plans, through encouraging strong foreign exchange earnings, increased productivity and competitiveness, the creation of private sector jobs and greater social advancement, can achieve these goals.
The Medium Term Fiscal Strategy highlights the targeted policy interventions and strategies over the next five years that are designed to address the fiscal issues and challenges confronting the economy.
These issues and challenges point to the following:
- the growth of Government Expenditure: If this growth trend continues over the medium term, our primary fiscal objective of maintaining macroeconomic stability will be in jeopardy. It is therefore Government’s intention to ensure that there is no further deterioration in the fiscal position. In particular, wages and salaries, along with subsidies and transfers will be closely monitored, as these constitute the largest expense to government.
- slowing of revenue yields/growth: This is attributed to the periodic declines being experienced during recessionary periods and a result of certain administrative and structural issues that have to be addressed such as Tax Collection and Tax Arrears. Over the last two decades the major revenue collecting agencies; the Customs, Inland Revenue and Land Tax Departments, along with the National Insurance Scheme as well as the Barbados Licensing Authority accumulated a high level of arrears. It is estimated that BDS$500.0 million (excluding NIS arrears) is owed in arrears. Of this total, an estimated $238.2 million is owed to the VAT Department and $114.5 million to the Land Tax Department. There is therefore an urgent need to collect this portion of the existing arrears and to minimise the accumulation of further arrears. In this regard, it is expected that the establishment of the Central Revenue Authority should result in an improvement in the collection of tax arrears, through reducing the cost to businesses of compliance, as well as improving the efficiency of tax collection procedures.??
- the sustainability of the fiscal balance: Since the 1990-1992 recession, the aim of government has been to ensure that the fiscal deficit did not exceed 2.5 per cent of GDP. This target was achieved in the ensuing ten years, except in 1996, 2001 and 2002. The fiscal deficit of central government reached a high of 6.4 per cent of GDP in 2002 and is estimated to have increased to 8.4 per cent at the end of 2009.
- the rise in public debt: Our percentage stands well above the 60.0 per cent rate accepted by the international rating agencies.
- Efficient implementation of the Public Sector Investment Programme: Our PSIP faces a number of administrative challenges that serve as a hindrance to the smooth implementation of projects.
For example, the long period between the conceptualisation, implementation and execution stages of projects not only delays the delivery of benefits to targeted beneficiaries but results in high real costs of project financing due to higher than expected transaction/administrative costs, accumulated commitment fees and inflation in?? cost.
- the inefficient performance of a number of public sector enterprises.
For the most part, the operations of a number of public sector enterprises need to improve and to rely less on central government’s scare resources. This must and can happen without reducing the service being provided to the public.
The Medium Term Fiscal Strategy outlines eight broad strategies to confront the above fiscal issues and challenges.
1) Expenditure Management
2) Revenue Management
3) Debt Management
4) Development of Public-Private Sector Partnerships
5) Divestment Policy
6) Public Enterprise Reform
7) Incomes and Prices Policy and
8) Financing and Management of the Public Sector Investment Programme.
- 1. enable Barbados to make the critical transition from crisis to recovery;
- 2. turn the page on an era of expanding fiscal deficits;
- 3. adopt a set of policies parameters, regulations and reforms to meet the needs of the 21st century global economy.
The specific objectives and targets of the MTFS are to:
- i. Put Barbados’s public finances back on a more sustainable footing.
- ii. Ensure that a balanced budget is obtained by 2014/15 and a small fiscal surplus by 2015/16.
- iii. Reduce central government’s debt to GDP ratio to near 70.0 per cent by 2017/18.
- iv. Maintain an investment grade rating for Barbados.
- v. Provide a stable fiscal framework that will enable the Government to better achieve national goals and the objectives of its Medium Term Development Strategy.
- vi. Maintain macroeconomic stability through sustainable management of the fiscal deficit and debt.
- vii. Increase productivity and international competitiveness.
- viii. Return real GDP growth to the sustainable annual average rate of approximately 3.0 per cent by 2012.
- ix. Ensure that Government’s social policy objectives are not compromised in anyway that will jeopardised the social welfare and well-being of citizens, and the most vulnerable persons/sectors in the society.
Medium Term Development Strategy 2010 – 2014
It is important to note that the medium-term fiscal strategy will constitute only part of a much broader Draft Medium Term Development Strategy for the similar period 2010 to 2014, and this document has also been circulated to the members of the social partnership.
This comprehensive Medium Term Development Framework will represent the blueprint for growth and development over the next five years. Let me reiterate the point that your government will not waiver in its commitment to re-balance the economy while at the same time repositioning all sectors to benefit from growth prospects when the global economy returns to buoyancy. The Medium Term Development Strategy sets out a broad framework of policies and programmes for 2010 – 2014. The MTDS also gives support to the country’s long-term vision of becoming "A Fully Developed and People-centered Society, through New Development Pathways". The plan will serve as an important recovery tool that will be used to guide the country as it emerges from the current global recession.
In this respect, the theme "Recovery, Adjustment and Sustainable Development" adequately speaks to the policy framework that has to be put in-place if Barbados is to remain on an upward growth and development path.
As a strategic planning document, the MTDS will provide just the broad blueprint for recovery, adjustment and sustainable growth. In addition, the Development Strategy embraces the key component in the Short and Medium Term Action Plan, which was formulated by the Special Working Group on the economy in 2008.An important feature of the plan is its focus on maintaining macroeconomic stability through sustainable fiscal and debt management. The plan also promotes the need for new areas of growth using foreign and domestic savings.
These new areas will most likely be found in services such as health, education, sports, culture etc. On economic sectoral matters, in the area of tourism, the plan outlines measures to further develop and expand the tourism product with critical focus on market expansion and airlift.
In agriculture, emphasis will be placed on greater use of technology and ensuring food security. In terms of energy, this sector will be targeted for the advancement of alternative forms of energy such as wind, waste to energy and solar. In the international business sector, government will be seeking to expand its double taxation treaty arrangements with countries within the various continents while also engaging in other initiatives to expand the sector.
As an important pillar of development, there will be increased efforts to further develop the small business sector through technical support and ensuring that the necessary policies are put in place to assist small business persons and create employment. Regarding trade and investment, the plan speaks to the need to attract new investors and create new enterprises that can earn foreign exchange through higher exports.
On environmental matters, the water mains replacement programme and sanitation, development of special waste management projects, and coastal zone management and climate change adaptation, will be key projects.
As it relates to infrastructural development, roads enhancement and the expansion of the Bridgetown port will be part of the main priorities going forward. Concerning social issues such as housing, the programme of "housing every last citizen" will be a major initiative going forward. In the area of education, health and poverty reduction, the plan outlines a number of key strategies which government will pursue over the medium term. The further enhancement of these services will be the principal focus.
Finally, the plan speaks to a number of special development issues such as culture and sports, competitiveness and productivity, science and technology and foreign and trade policy.
Based on the current strategies outlined within the plan and the possibility for further amendments, the broad objectives going forward are to:
- 1. Become a globally competitive and productive economy capable of sustaining a rate of growth of 3.0 per cent and over. This growth will be export-led with focus paid to traditional and non-traditional sectors. It will also be driven by increased focus on science and technology.
- 2. Generate adequate levels of foreign exchange to help finance our development needs through an export led policy while also seeking to attract greater investment by ensuring that the correct fiscal, legal, and human resource environment is in place.
- 3. Keep the unemployment rates in single digits, by among other things, creating a cadre of entrepreneurs and small business persons and ensuring that the right investment climate is maintained.
- 4. Preserve a stable macroeconomic environment by:
- a) ensuring a comfortable rate of inflation while seeking to have a more sustainable fiscal and debt position;
- b) maintaining a sustainable external current account position by preventing too high a growth in imports and seeking to develop greater export potential; and
- c) Maintaining the fix exchange rate peg by ensuring that foreign exchange reserves are at adequate levels.
- 5. Work towards the alleviation of existing pockets of poverty through the improvement in governance of our resources, while ensuring that other social services such as – health, housing and education/training, are adequately provided.
- 6. Ensure environmental sustainability while seeking to address issues relating to climate change.
Conclusions and Recommendations
As stated in your Government’s manifesto, for Barbados to be an active participant in the global economic and social progress of the twenty-first century it must, as a Nation, find new pathways to improving and strengthening its people.??
These two key strategy documents, the Medium Term Fiscal Strategy and the Medium Term Development Strategy for the periods 2010 to 2014 constitute the Government’s strategic and developmental intent to honour its manifesto pledge of a better life for all.
Indeed, over the next ten years, the challenge for Barbados and other Caribbean economies will be to close the performance gap between itself and the rest of the world, as we seek to improve our economic prosperity.
Significant emphasis will have to be placed on indicators of international competitiveness such as productivity improvement measurement, labour cost, organisational enhancement, best practices, performance based incentives schemes and domestic price factors.
It is therefore incumbent on you, the Social Partners, to help find solutions that would enhance the output of the tradable sector.
Partners such as you must also seek to sensitise your respective constituencies to the challenges that affect the Barbados economy at this time. The role of the Trade Union Movement, in particular and in my view, must be one of support for the exercise of wage restraint and the facilitation and promotion of the productivity of its membership.??????????
In addition, it is now, more than ever, imperative that the Private Sector play its role. In particular, we must allow for the repositioning and full integration of Barbados into the global economy, in such a manner as to maximise the benefits and minimise the threats of recession, globalisation and trade liberalisation. It is also imperative that the necessary human and non-human resources are mobilised to provide the productive sectors with the tools necessary to compete internationally.??
Productivity must be enhanced, and social and economic barriers to further development dismantled.?? I therefore wish to challenge the Private Sector to find new ways to compete in a rapidly changing global economy.?? Both private sector and public enterprises will have to pay greater attention to their strengths, market challenges, identification of new opportunities and the ability to leverage human resources to create new competitive advantages.
In concluding, let me return to where I started. Some complain that they have no shoes. Until they see someone who has no legs. ??We hear much about economic survival. But survival is not simply an economic concept.
Survival is a human instinct and a societal instinct. Barbados is, first of all, a society in which the sum of its parts is the whole. This exercise today is not about first philosophical principles. But if it were, I would like to say that I hope my legacy will not only be interpreted by how I run this economy. That I will do without a doubt.
I hope my legacy will be how I was able to bring the parts together in such a way as to create a safe, harmonious, inspirational, economically sound, fair, just, democratic and compassionate nation.