Trinidad Newspaper Guardian Business – wrote an article ‘Is Barbados Insolvent’

To say that the Barbados Government is bankrupt is hyperbolic and makes for sensational headlines, and is
essentially filtering the truth. The Moody Caa1 rating forces the country to pay a minimum rate of 10% on the world
market for loans, there is little appetite to take up any such rate, and thus the local options have been preferred. The
government is working with regional finance partners on a short term debt consolidation package that would give it
the room it needs to have major capital works projects being initiated have an effect, it is also working reduce its
exposure through a critical evaluation of all the entities currently depending on Central Government for financing.
All decisions will be underpinned by the firm understanding of the social contract government has with its citizens
and crucial support for youth and the indigent.

This is not absolve the administration of mistakes made, sometimes we try things and they do not work out as
required. As Edison responded to the question of his 1,000 mistakes before developing the light bulb; ‘I have not
failed, I have found a 1,000 ways it does not work’. If we want to speak about spectacular failures we should look
no further than EDUTECH.

The net point is that this administration took a bad situation and has yet been unable to improve on it. In fact, some
may say that they have compounded the problem by not articulating a cogent and cohesive policy position that could
be construed to be positive. I believe at this stage that we should negotiate with the IMF for a long term solution.
This will restore some measure of investor confidence and hopefully move us from the Moody’s Caa1 rating that we
currently endure. My reason for the IMF option has more to do with the discipline of executing the initiatives than
the reserve policy, though both are important.

I think it important that we understand the ethos of the problem in order to avoid repeating what now appears to be
cyclical issue. The period 1991 -1994 was even worse for the national economy than the current situation as the
government was forced to go to the IMF after GDP contractions of -4% (1992); -5.8% (1993) and +0.8% (1994).
The IMF shoring up of the reserves at the time was not contingent on devaluation of the currency and there is no
reason for that to be the case now.

The Barbados economy has been almost stagnant over the past twenty years, with an average growth of 1.4% per
year between 1995-2013; a much lower rate than comparative markets that showed an average rate of 3.2%. This
aggregate was masked by two periods of robust growth (1997-98 and 2005-06) when growth averaged 5% a year
and also two periods of contraction in 2001-2002 and from 2009 until 2015.

The lesson learnt here was that the growth was not sustainable and came at great expense with a crippling debt
annuity.

GDP.JPG
Under the Arthur administration of 1994-2008, Government revenue increased from $1.64B with expenses of
$1.06B; to $2.46B with $2.6B in expenses; essentially starting with a current account surplus of $58.1M, and
leaving in 2008 with a deficit of 137M. [See Current Account table below]

Current Account Balance.JPG

In addition to carrying a large Current Account deficit, public debt increased as shown below. Material to this debt
and current account deficit was the largest expansion of central government in the history of Barbados with several
new 'parastatal' entities being established. Resulting in an additional $500M in Transfers and subsidies between
2002 and 2008, and a further increase of $100M in public sector salaries over the same period. In effect saddling any
incoming government with $600M in recurring operational cost. [See summary of Gov't Operations – Appendix 1]

This action during the 2002-2008 period essentially reversed all the measures taken by the Erskine Sandiford
administration to solve these very same problems in the early 1990's.

As shown on Appendix 2; from 2008 to 2016 government revenue declined by $200M, (Corporate Tax - IBC's and
large entities being purchased by foreign firms) which has been buttressed by the new taxes to show a recovery to
2008 figures, of $2.5B. Government expense on the other hand has increased at a mean of 2% per annum over the
same period for the same period, making today's current account deficit $729M.

In the past the deficit was financed by robust Foreign Direct Investment (FDI), especially since 2005, remittances
and a surplus on the services account. The fiscal deterioration in summary is largely due to significant fall-off in
revenues and unchecked expansion in outlays on transfers and subsidies. As you can see below the Stuart
administration has done little or no capital expenditure during the nine year period, being constrained to service debt
and maintain almost all of the public sector employees by 'printing' money to maintain it when the reality is they
could not afford to do it. The alternatives were far worse.
The decision facing the Stuart administration was do we cut $800M out of the cost, which would include cutting the
public sector staffing by 25% and taking a look at the unemployment figures that endured during the 1994 period,
my guess is that they decided that printing money was the lesser of two evils. (See unemployment below). The
unemployment has remained stubborn increasing from 7.4% in 2007 to 10% today.

Barbados Unemployment 1992-2013.JPG

The 800 pound gorilla in the room that will not be ignored so how do we fix it.

Like I said earlier, we need to have the IMF as partner not a dictate, to assist with the shoring up of the reserves and
there is no shame in that. This gives us the latitude to make sensible, informed decisions about our strategic future,
rather than be forced into poor decisions for short-term gain.
There are systemic structural issues that we must address nationally to move forward and position ourselves as
stated as the prime impulse of the DLP by the founders; item 3 of 22 principles: " the sound, orderly and rapid
development of Barbados and its people in the shortest possible time". We need to achieve sustainable growth unlike
the jumps we had in 1997 and 2005, followed by contraction and a debt drag that still chokes us today.

These are built on three main pillars;

(a) A Balanced National Budget; (b) Creating a workforce for the 22nd century that is able to contribute to the
island’s growth and diversification (c) Economic diversification; the country must have at least three economic
contributing lines of similar size.
Thus we have to change the following:

(1) We must have a smaller, more efficient public sector that is primarily a regulator and facilitator. The
Government must relieve itself of all entities that trade in services and commodities. This is to be done sensibly and
with input and support from IDA's with the view of expanding the private sector and not merely giving leading firms
an opportunity to consolidate.

(2) The remaining public sector must be driven by technological efficiencies to increase productivity, accountability
and evaluation for service improvement. Unions need to embrace the urgent need for staff evaluation not for
victimization but as a scientific tool for organizational improvement.

(3) Our Educational system must evolve to produce technology grounded, creators and problem solvers. We must
mould our educational platforms to perform R&D for the private sector, thus solving real issues as our students
learn, allowing for the creation of new commercial opportunities.

(5) Simplifying and sanitizing the legislative framework that underpins the infrastructural renaissance.

(4) Finance for start-ups, FDI and scientific study to support new entrepreneurial pursuits are to be pushed through
our overseas Embassies and High Commissions.

(5) Town planning must be reformed to support rather than hinder business development; being polymathic in
maintaining the technical requirements while driving the commercial national development.

(6) Immigration must be reformed to better support the faster integration of new talent in areas of growth, retirees
and critical staffing for short term projects or start-ups.

GDC
Appendix 1
Summary of Govt Ops 2008-16
Appendix 2
Summary of Govt Ops 2002-08