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Caribbean Development Bank: Spending cuts necessary – should be applied gradually and cautiously
Spending cuts in Barbados are necessary as government revenues remain under pressure, but reductions which are too swift and deep could do significant damage to the economy.
The caution has come from the Caribbean Development Bank’s (CDB) acting chief economist Carl Howell, who said the economic conversation in most countries was “fiscal consolidation”.
He said in the effort to rein in government spending, consideration should also be given to what impact such deep spending cuts could have on overall economic activity.
“You don’t want a situation where you have brought fiscal consolidation to the point where it chokes off growth. What you want to do is to be measured in your approach,” Howell stated.
The senior economist, who was among top brass of the CDB at the bank’s annual review of regional economies, said: “The conversation in Europe is for fiscal consolidation. But one has to recognize where Europe is now. Europe is at the epicentre of the global crisis and Europe has countries that for years have been fiscally reckless.”
Howell added: “In the Caribbean you have one or two – who have not paid attention, but I would argue that in the main, we have had a sense of fiscal responsibility.”
“You need a good balance of fiscal austerity and if you have fiscal space, try to allow growth to proceed in a manner that you would allow you to deliver on issues in relation to poverty reduction and so on,” he pointed out.
On the issue of short-term work programmes that have been introduced in some Caribbean countries to keep employment numbers down and alleviate poverty, Howell had one warning:
“Short-term work programmes have been tried in the past. They have delivered on some benefits but what you don’t want is for a short-term programme to become entrenched and hence you have a public sector investment programme that runs awry. I would support a short-term work programme, recognizing that it cannot be open-ended,” he added.
Meanwhile, CDB president Dr Warren Smith defended the bank’s approach to regional governments facing economic difficulties, stressing that the institution did not impose economic solutions on borrowing member countries.