Mar 2007 Financial News

It's Budget Time Again In Barbados

Mar 12, 2007

IN what could very well be his last before seeking a fresh mandate from Barbadians, Prime Minister, Owen Arthur will be going to Parliament Wednesday with his 12th Budget. It is expected that this economic package will be aimed at further shoring up the economy which needs to have more balanced growth, and also maintaining the programme to depress the growth of imports.

In addition, it is not anticipated that the Prime Minister will be raising revenue, even in the face of some revenue losses from the removal of the Cess and having to finance a higher public sector wage bill. On the social front more policies are likely to emerge to deal with social issues.

It is expected therefore that the presentation on Wednesday will be informed by such measures, as will be by the economy which Dr. Marion Williams, the Governor of the Central Bank of Barbados, said should perform better in 2007 than was the case last year.

It is widely anticipated that the Prime Minister is going to call a general election following CWC which ends in late April. As such his policy script will take that event into consideration.

One of the highpoints of the Prime Minister's January 2006 Budget, was to shield the Barbados economy from the high oil prices which were contributing to a spiralling energy import bill and runaway inflation, and eroding whatever competitive gains the economy may have attained.

Two months after that exercise came the Estimates of Revenue and Expenditure for 2006/2007. Those Estimates reflected to a very large extent increased spending in preparation for the ICC Cricket World Cup which has just started.

There will be no repeat of that spending in 2007/2008 since many of the road improvements, the rebuilding of Kensington Oval and the facelift given to Bridgetown, have all been completed thus far, and the security arrangements put in place for CWC will no longer be needed.

Last year's 3.5 per cent economic growth was mirrored by a generally good period for the private sector. Out of that came increased corporate taxes.

Dr. Williams is projecting higher growth in 2007 and this is likely to reflect improved private sector activity. Furthermore, the takings from the Value Added Tax are expected to increase given the additional spending and the presence of more visitors in Barbados for CWC. It seems likely therefore that the revenue losses from the Cess ' about $60 million ' and the higher wage bill ($75 million in respect of public officers' pay increases) should be more than accounted for based on the increased economic activity this year.

However, the issue of containing imports is something that Government still has to maintain.

The Cess along with the higher interest rates and moral suasion, had in the words of Dr. Williams, slowed the growth of imports in 2006. The interest here is what measures will be instituted to keep lid on imports now that the Cess has been removed.

Will interest rates as a policy tool be revisited? Will there be credit controls? Only the Prime Minister will be able to say.

It is not anticipated that capital account liberalisation will be pursued with any vigour, given that safeguarding the foreign reserves is vital in these times of liberalisation. Therefore measures to further stimulate manufacturing and agriculture should be contemplated. Already the Barbados International Promotion Corporation to add more drive to the International Business sector, is up and running. Here the Prime Minister will have to report on the progress made with the setting up of Export Barbados Incorporated, a Trade Policy Organisation (TPO) which was to give a boost to the export of goods and services.

It was announced when the Cess (at three per cent) was introduced in September 2005. Government is pinning its hope on the facility to do for manufacturing what the BIPC will do for international business.

In the area of social issues successive governments in Barbados has scored high marks in this area.

In his presentation last year the Prime Minister adjusted pensions (both NIS contributory and non-contributory) as well increased Welfare payments, and launched a Catastrophe Fund. More is expected. In addition, he had also promised to tackle the high cost of living especially where this relates to food.

Come Wednesday these should complete the package.

The Barbados Advocate
Business Monday
Moday, March 12, 2007.
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