Theory and experience of various countries suggest cutting expenditure and increasing the tax burden in a deep recession are counter-productive (IMF 2012 publication). These measures are not likely to lead to smaller deficits or to income and employment growth, but to the aggravation of the economic decline.
The present deficit is generated by the debt as the economy attained a primary surplus. How then can deflationary budgetary policies focusing on the need to generate an increased surplus to pay the debt allow for resources to provide investment and generate jobs? Where is the fiscal space in such a budget? The budget amounts to a government balance sheet, not an instrument for change and growth.
We have been hobbled with the same approach for many years while the country has de-industrialised, remained uncompetitive in exports, expanded imports of luxury goods, increased investment in non-traded goods production, recycled foreign exchange inflows, etc. In economic terms we have had over the years the "Dutch disease".
The question is often asked what are the possible alternatives. The few suggestions put forth such as fixed exchange rate are subject to debate and are often lacking as growth inducement to less. I am willing to proffer a few suggestions for discussion:
*Design and implement measures to improve resource allocative efficiency; too much of the budget has gone in the past to non-productive activities, that is, Christiana Road, Goodyear building, etc.
*Improve public sector productivity, not just by amalgamating agencies and even reducing ministries as necessary as these measures are, but training and redeployment of human resources based on specified growth and stability objectives.
*Review the performance of agencies directly related to investment and production, etc, and make the necessary changes, that is, land, factories, financing - investment funds, banks, etc.
*Workforce multi-tasking, multi-skills training - specifically in essential and investment attracting skills, create incentives to stimulate real entrepreneurial activities, particularly foreign investment in industrial activity - the import-dependent service sector is long overstretched.
*Review our employment, inflation, exchange rate, interest rate and general monetary tools which have proved inadequate in fighting inflation and promoting growth over the years. There may well be an argument for fixed exchange rates and free currency movement together with the abolition of the central bank. Who knows?
Hope Bay, Portland