Ladies and Gentlemen of the media, other colleagues present here this afternoon, and fellow Barbadians listening to this media conference over the various broadcast systems, a pleasant good afternoon to all of you.
The Context
The year 2014 has seen major structural reforms in the Barbados economy and society, as the government moves ahead with the implementation of its fiscal stabilization and growth program.
The high quality of life in Barbados is built around sound institutions, a strong social consensus and a strong economic policy framework supporting the fixed exchange rate regime.
The policy framework has remained consistent across successive political administrations and it is one to which the current government and indeed all Barbadians are unstintingly committed.
Just over a year ago the government introduced a revised fiscal consolidation programme the principal objective of which was to stabilize the foreign exchange market, thereby protecting the Barbados dollar. In parallel, that programme also set out to reduce our fiscal deficit to more manageable levels and through this over the medium to longer term slow and eventually cut the growth of the public debt.
Having gone through more than a year of implementing and managing the key elements of the programme I am able to report to the nation that we have in fact seen appreciable gains towards achieving our objectives with several successes, some more significant than others, and some still slightly less than satisfactory results.
Most notable among our successes has been the return of stability and confidence in the foreign exchange market. Indeed based on the current figures before us, and which would have been shared in the last week???s report by the Central Bank of Barbados on the local economy, it is clear that the fiscal consolidation program has been effective in restoring balance to the foreign exchange market and further securing the Barbados dollar.
The normal pattern of changes in foreign exchange reserves has been restored, and reserves are currently equivalent to 15 weeks of import cover. This has also been underscored by positive growth in foreign inflows net of outflows which are $266 million more than for the same period last year.
A large part of this, I am told, is as a result of a quiet but assured resurgence in second home market sales as developers report the movement of real estate inventory at a faster rate in the past 10 months than for the previous three years.
Equally, evidence is becoming clearer every day that external investors, behind a positive shift in government policy on investment are seeing renewed opportunities on island.??I would however hasten to add that in regards to this area of concern we are not yet out of the woods and must continue to forge ahead with our efforts to further strengthen the FX market and grow foreign investments.
On the fiscal side the picture has been mixed. Following the explosion of our deficit at the start of the programme when the 2013 deficit reached just over 12 % of GDP, we set ourselves the ambitious but necessary target of reducing the fiscal deficit to 6.6% of GDP by the end of the current fiscal year, March 31 2015. ??
This constitutes a reduction of near 6% of GDP, or a fifty percent reduction in one fiscal year. A reduction of this magnitude constitutes a herculean task, but we view this as necessary if we are to stabilize the public finances, which is absolutely critical if the fixed exchange is to be protected and the economy is to return to a sustainable growth path.
At September 30 2014, or half way through the fiscal year the fiscal deficit stood at 4.3% of GDP as oppose to 5.1% for the same period in 2013. On its current course the deficit year on year is largely where we expected it to be as a percentage of GDP and in real terms. The expenditure targets set out in the fiscal consolidation program for 2014 up to this point have largely been achieved and that aspect of the program is reasonably on track.
However, while revenues are largely to date above those of last year, they are currently below the levels projected in the approved Estimates, and if left unchecked would compromise our ability to achieve our target deficit of 6.6% of GDP.
Permit me though to say that based on what we have achieved thus far with continued vigilance and smaller targeted interventions we can achieve those targets without any further major economic or social dislocation in the economy or society.
In this regard in the next six months and certainly beyond, government???s focus will be on the following:
1. To ensure that we contain the number and cumulative value of supplementary allocations to the budget approved by Parliament. Last year such additional allocations amounted to $382 million. Our goal is to keep this figure under $100 million for the remainder of the financial year.
2. To continue to restrain and where necessary institute smaller expenditure cuts across ministries and departments to programmes which are not absolutely critical to the achievement of the core objectives of the government.
3. To continue to forge ahead with the aggressive implementation of our reform of the tax administration system with the build out of the Barbados Revenue Authority and the continued enhancement of the assessment and collection of revenues. We are happy to see that several major categories of tax revenue, including Corporation and Personal Income taxes, have begun to grow again while the dramatic decline in other areas has been slowed. We confidently expect this trend to continue just as we expect the new taxes which were introduced in last year???s budget to continue to perform exactly as was forecast.
4. To initiate during this financial year and across the next two financial years the process of reform of our national tax policy with a view to making it more simple, fair, broad based, buoyant, and effective at raising the maximum amount of revenue for government while increasingly lessening the burden across tax categories. As you are now well aware the IMF Fiscal Affairs Department, at our invitation, has conducted a review of tax policy in Barbados and the insights and recommendations are now ready for review and response by all critical stakeholders.
5. To continue our efforts to reform the operations of several State-owned enterprises to ensure that they reduce their dependence on the public purse while still being able to deliver a reasonably acceptable level of goods and services to the general public. In this regard I must publicly commend the Oversight Committee, headed by Dr. Justin Robinson on State Owned Enterprises which I appointed earlier this year (working alongside an enhanced Management Accounting Unit in the Ministry of Finance), for the excellent work they have done thus far in helping several statutory entities to institute operational and financial reforms to their systems that are already beginning to bear fruit.
This process will show its positive impact in the reduced level of supplementary grants to state owned entities in this financial year. Fellow Barbadians, to the extent that together we can stay the course on our adjustment programme and build on the results we have achieved thus far by focusing our attention on aggressively pursuing these five interventions we will be able to achieve the target for the fiscal deficit in 2014-15. This aspect of the job is not finished but contrary to what you might have heard we have definitely not lost the battle.
With this firmly in mind and our target clearly in view we must then re-intensify our efforts to return our economy to growth. This is not proving to be the easiest of tasks, but the signs are encouraging. I have spoken already about the resurgence in foreign direct investment and we must continue to press further along with this.
Undergirding this also must be a two-pronged attack from public and private sectors to jump start our construction sector. From what I have been advised I am confident that between now and next year this time new projects across both sectors will begin. Some have already started and others will follow. This should give a much needed boost to domestic economic activity and of course employment.
For our own part, my colleagues and I are working assiduously to get our works started and I would like to appeal to our local private sector to do the same. The incentives are in place, the facilitation though not the best is getting better and the whole of Barbados is waiting on us. We have no choice but to deliver.
I am increasingly confident that with the current projected bookings for the coming winter season, increased airlift from key markets, the expected success of special events scheduled for the current financial year and beyond, and the planned investments in the hotel industry with Sandals, Sam Lords and others that our main foreign exchange will lead a return to growth next year.
This will no doubt be buttressed by increased stability and some growth in international business and financial services sector with additional support from agriculture, manufacturing and of course alternative energy.With these inputs and some luck for a more stable international environment a return to a reasonable level of growth in the Barbados economy in 2015 is not a far-fetched or unrealistic forecast to make.
The program in place has stabilized the foreign exchange market, we are reducing government expenditure in line with the targets set; we have major new investments in the key growth sectors of the economy, and are poised to return to economic growth. To protect the gains we have made, stabilize the economy and complete the platform for economic growth we need to finish the job of fiscal consolidation.
We need to show the world, that on our own, using our own expertise and will, with the cooperation but not the dictates of external agencies we can achieve the objectives we have set ourselves. In this regard, we must be leaders not followers. Thank You.
The full written statement may be downloaded here??while the video may be found here.