Institute of Chartered Accountants of Barbados

Press Release

ICAB’s Comment on the Financial Statement and Budgetary Proposal 2017

“Brace Yourselves”

In the Budget presented by The Minister of Finance & Economic Affairs on May 30, 2017 there was a very

candid presentation on the state of affairs with respect to the Barbados economy. The Minister

acknowledged that the policy of large scale deficit financing averaging $611 million annually could not be

sustained. He further set the context for the Budget by making the observation that “overall investor

confidence has been dampened as slow growth, weaker foreign investment inflows, lower reserves levels

and burgeoning debt levels which now stand at 144.7 % of GDP, have led to successive downgrades of the

country’s international and domestic currency ratings by the credit rating agencies. This is leading to a

sharp increase in the cost of borrowing for the country, even as the available sources of reasonable capital

shrink or become shut off completely.”

In response the Minister took action on further fiscal consolidation but deferred action on structural

reforms in the economy. The Minister declared that “the fiscal deficit is now public enemy number one”.

He indicated that the Budget measures proposed had two objectives. First to “move as close as possible

to a balanced budget with a view to reducing the dependence on Central Bank financing”. Second, “to

reduce the demand for foreign exchange”. The measures are expected to reduce the deficit by $542

million and will thereby reduce the required Central Bank financing. This sharp adjustment came on the

heels of the recent indication from the Central Bank Barbados, at its recent press conference, that it would

be rolling back the practice of printing of money to finance fiscal deficits.

The Minister admitted that the steep increase in taxation is also intended to dampen overall demand in

the economy to ease pressure on foreign reserves. As such the fact that the Budget measures will add to

the cost of doing business, increase the cost of living, increase inflation, and reduce the rate of growth by

an estimated 0.5% in the short term are the intended consequences of the measures which represent an

internal devaluation. The 2% commission on foreign exchange transactions, for example, will not only

raise revenue but increase the cost of purchasing foreign exchange in an effort the dampen demand for

this limited resource.

ICAB is concerned that the tax measures did not include an indicative date by which they will be phased

out since such high levels of taxation are unsustainable in the long term. The increased cost to businesses

and consumers will further worsen our international competiveness and our ability to sell our goods and

services to earn foreign exchange. Ultimately Government must also take meaningful steps to reduce its

expenditure to fit within the level of tax revenue which the economy can sustainably generate.

With respect to structural reforms the Minister of Finance did not introduce any specific measures.

Instead he set a target date of the end of this year (2107) as his target for the implementation of a yet to

be completed “National Fiscal, Economic & Social Development Restructuring & Enhancement

Programme”. This will in effect be a new medium term growth strategy to address, among other things,

boosting foreign exchange earnings, reform of the productive sectors, enhancing competitiveness, and

reform of state owned enterprises (SOEs). ICAB is disappointed that decisions in these areas which are

critical to economic growth have been deferred for further consultation since the last few months have

been spent in several rounds of intense consultation culminating in the submissions of the two social

partnership working groups on foreign exchange and the fiscal deficit. These matters have been, for

several years, the subject of detailed study by local and international experts and many recommendations

have been made. Government is urged not to further postpone these reforms. A clear growth strategy

needs to be articulated as a matter of urgency.

Notwithstanding the deferral of the full reform programme the Minister announced a few initiatives which

are worthy of support. These include, the development of a new corporate governance code for SOEs

which will be legislated and will include penalties for non-performance by boards and management. The

divestment of the Hilton Hotel can be successful in raising some revenue but also if properly structured

could give a wide range of Barbadians an opportunity for an ownership stake in the vital tourism sector.

We look forward to a clear articulation of Government’s strategy on which SOEs it will divest, those that

it will make financially independent through raising user fees and those that are to be fully supported by

general tax revenue.

With respect to tax administration, we support the extension of the tax amnesty and we urge all taxpayers

to use this opportunity to regularize their tax status. It was commendable that the Minister acknowledged

the need to relieve businesses of the cash flow burden caused by its arrears in VAT refunds. Regarding the

proposal for a VAT factoring programme, however, it is our view that the current reluctance of investors

to hold Government debt may make it difficult to find financiers for this initiative.

May 31, 2017

Reginald Farley CPA, CMA

Executive Director

Institute of Chartered Accountants of Barbados

Room 29, Hastings Plaza

Hastings

Christ Church

BARBADOS

Tel: (246) 429-5678; Mobile: (246) 230-2430; Fax: (246) 426-0970

Email: reginald.farley@icab.bb; Website: www.icab.bb