The problem with treating your country as a “society” first and an “economy” second is that the latter usually comes back to bite you.

The subprime mortgage market’s collapse started to undermine the larger financial system just around the time the new DLP government was coming in, and by mid-2008, the reasonable expectation was that all the goodies promised by the new government would have to be tempered in the crucible called Reality.

But there was no reality check, and as the economic tide of the century’s first decade receded, we continued to play on the shore, confident that another new wave would soon come in. By the following year, this had not occurred, yet the government did nothing about it. In those two years alone our government overspent by about a billion Barbados dollars.

By early 2010 the writing was on the wall and in a hastily-produced new document called the Medium-Term Fiscal Strategy. Despite its long-windedness, this document was really a commitment made, under the influence of the IMF, by Barbados, promising that, no matter what policies were adopted by the government, they would all dovetail into less spending and increased revenue. The measurable goal was to get our public debt-to-GDP ratio down to around 90% and to balance the budget (that is, to have no fiscal deficit) by 2014/15 fiscal year.

According to the IMF that did not happen.

On page 5 of its latest Country Report, dated, November 21, 2011, but only recently made available online, it says, “The MTFS went off track in the first year of implementation due to weaker global conditions and low revenues, and the authorities are currently revising the strategy. The MTFS is not binding however and no date has been established for the revised strategy to be in place.”

In fact, the Central Bank of Barbados public debt ratio of 96% notwithstanding, the IMF says that “At the end of FY 2011, total public sector debt was117 percent of GDP, up from about 91 percent two years earlier. Domestic debt accounts for about 70 percent of public debt, mostly at fixed rates. Its main holders are the NIS and the domestic banking system.”

However, the central bank, in its report last week, found that percentage of NIS holdings to be little cause for concern, noting that “While the amount of Government securities held by the NIS Fund has risen steadily, as a percentage of its total investments, these holdings have declined from over 80 percent in the late 1990s, to an estimated 68 percent in 2011.”

The IMF begs to differ, saying that “Staff urged the authorities to reduce reliance on the NIS to finance public sector borrowing, while recognizing that NIS has limited investment opportunities...At close to 70 percent, NIS’ current exposure to government is well above the prudential guideline of below 54 percent recommended in the 2005 actuarial report.”

What worries me as a laymen is the central bank not only touting investments in foolhardy investments like Four Seasons along with the piling on of more and more government paper in return for your and my pension-intended cash money, but then doubling down by discounting it from the overall government debt-to-GDP ratio with arguments like this one: 

“With this fiscal consolidation, there was only marginal growth in the net general government debt, which takes into account NIS holdings and government deposits. This, along with the increase in nominal GDP, resulted in a fall in the general government debt ratio from 51.1 percent in 2010 to 47.3 percent.” (CBB, 2011 review, page 7)

Remember the IMF putting our national debt at 117% of our GDSP? Well, it seems that if you remove the NIS-held portion of that debt the “general government debt ratio” is now only 47.3%. May I remind the central bank of Barbados that the NIS money does NOT belong to the government to “borrow” as it likes. It is an insurance fund paid into by us and it is a shame that the government can have so much influence over it. 

But then I am only a layman, and as for the IMF saying the same thing (in more economic language) well, what do they know?

There is much more to talk about on the economy, but I will close here for today by noting another piece of cruel news from the IMF, which is that “Even under the best implemented MTFS, Barbados’ debt remains very high, above 90 percent of GDP.” (IMF Country Report, page 10.)

And why should we care dear reader about all this? Because if we keep spending more than we earn, and borrowing to make up the difference, we are putting the dreaded devaluation card on the table.  The IMF calls this the “currency peg,” stating on page 15 that “While the exchange rate peg has served the country well, it needs to be reinforced by a credible fiscal consolidation effort to lower deficits and support external stability. The sustainability of the peg will depend on the authorities’ ability to successfully address risks to external sustainability related to ongoing fiscal deficits.”

As it stands, we are walking on the edge of the cliff and will continue to do so for a long time, with the IMF projecting that our debt-to-GDP ratio will come down just ten points, to around 110%, by 2016. That is 20% higher than the 90% ratio predicted under the original MTFS cobbled together under the Thompson administration and shows the real performance of the DLP administration, according to its own benchmarking.

Was there ever a worse group of financial managers running our affairs than the present one?