The new Barbados Labor Party successfully won the country’s 11th General Election, making it the 6th time in our nation’s history the BLP has held the reins of power compared to 5 wins for the Democrats. They have been off to a blistering start with our first ever female Prime Minister Mia Amor Mottley giving not one but two public speeches within her two weeks of office, quite the opposite of our former Prime Minister who I’m sure everyone can agree was, ‘a man of few words.’
In her first speech PM Mottley, along with members of her cabinet assessed the current state of affairs of our great nation. Her account of our government’s finances was far less stellar than we all had hoped.
When the DLP took control a few years ago, our national debt stood at $6 billion dollars, after complaining profusely that it was too high, they borrowed enough money over the following years to increase our debt to the current level of $15 billion dollars. Our debt is currently 171% of our country’s GDP (the total value of goods produced and services provided in a country during one year). Unfortunately, this level of debt has ranked us third in the world, as only Japan and Greece have debt to GDP ratios as poor as Barbados finds itself in in 2018.
Our PM aired her concerns with the central bank printing so much money over the past 4-5 years causing significant increases in inflation and the price of goods in Barbados. This may have been their only choice to avoid defaulting on the nation’s debts at the time. There have also been 23 credit downgrades of our nation’s government bonds by internationally accredited rating agencies Moody’s and Standard & Poor’s with both agencies citing their concerns that the government at the time was having severe difficulty turning around its fiscal policy.
The Barbados government is 1.7 billion dollars in arrears, with a significant portion of this money owed to the University of the West Indies. At the time the UWI St Augustine campus located in the twin-island Republic of Trinidad and Tobago had advised its students that if the Barbados government was unable to pay monies owed to them shortly, that Barbados students attending the Trinidad campus would have to pay significantly higher tuition costs. One of the first things that the current administration did was to pay the balance owed to UWI St Augustine and with that I am sure several Bajan students were able to breathe a huge sigh of relief as those studying law and engineering among other disciplines would not see a hike in fees.
Other dollar figures of interest are the $459 million dollars the government owes to the National Insurance Scheme, partly because of the fact that government has not paid rent to occupy any of its buildings since late 2016 which is appalling to say the very least.
PM Mottley went on to discuss a number of other disturbing figures either owed to government or that the government owed to state-owned and international companies. She then mentioned that the previous administration should have to answer to the country on what is, “a direct dereliction of duties and has left the country in such a woeful state of affairs.” She described the previous administration’s actions as “picking the duck back bear” and leaving our economy devastated and “is the financial equivalent of the south coast sewage crisis.”
In addition to the exorbitant sums owed by government to businesses, she brought to light that the previous administration had made several concessions and given tax incentives to various corporations after the dissolution of parliament a practice that is certainly not condoned or respected from either party leading into an upcoming election. The DLP granted the Hyatt Hotel waivers of import duties, VAT, and excise tax. The worst part about this deal done by the DLP only ONE DAY before our May 24th general election was the wavering of import duties on a Mercedes Jeep for the director of sales of a resort that is not even expected to open until late 2019!
Mottley expressed great concern over this and many other concessions that were granted to businesses right before the election as there was no public transparency given for any of these contracts which is indeed unsettling. It looks like Mia and her team had to spend the first few days assessing damage rather than being able to jump right in to their manifesto.
Barbados’ new Matriarch then posed a few questions that need to be answered,
- How can we address the fiscal situation without building up further arrears?
- How can we put debt on a sustainable path without it choking us or preventing growth?
- How can we ensure our fixed exchange rate? A close representation of our foreign reserves is much closer to $11BBD to $1USDthan the required 2:1 ratio
She has sought assistance from the IMF in addressing these questions as they visited the island from June 5th to 7th lead by Bert van Selm who is quoted saying “Our goal is to help Barbados achieve higher living standards and more inclusive growth for the years ahead.” The Administration also announced that it has retained the services of Cleary Gottlieb Steen & Hamilton LLP as an external legal consul in the context of the planned debt-restructuring that was announced on June 1st 2018. The law firm is based in New York with two of its specialties being in anti-corruption & compliance and also sovereign government issues.
An early taste of proposed IMF restructuring plans are to increase bus fare from $2 to $5 which left the average Bajan who takes 3-4 buses daily very perturbed. The IMF has been known for coming into developing countries and enforcing strict policies to ensure government turnaround, after all, they are a business as well and need to make sure that their loan is repaid, but the policies have been known to notably produce hardships for the lower class of the countries that loans are received.
We will have to see what results come from the IMF’s 3 day assessment as the government has committed to giving the public a briefing very shortly about the proposed IMF plan and what will be implemented to save the country from further ruin.
Mottley left us quoting, “I am lost for words at how one government could have presided over the utter destruction of Barbados’ infrastructure and systems as the last government did over the last 5-6 years.”
What will PM Mottley and her new cabinet will do in regards to IMF recommendations and their own ideas as to what will turn around the Barbados economy? They certainly have their hands full and I am sure all of Barbados is eager to find out.