Drastic cuts in expenditure, it argues, would mean more job losses and a more depreciated exchange rate could lead to higher prices.
Instead of relying on these measures it is (i) addressing the revenue shortfall by borrowing, drawing down of Heritage and Stabilisation Fund (HSF) savings and by other measures and (ii) meeting the foreign exchange challenge largely via bank rationing and minimal depreciation. There is no good reason to doubt the Government’s belief in its strategy.
Close attention to statements by the Government reveal an underlying assumption of the above strategy. The assumption seems to be that the current difficult situation is temporary or cyclical and that energy sector and perhaps other revenues would soon rise to meet still relatively high expenditures.
In sum I see a strategy of what is described as a “soft landing” for the population even if the population itself does not see the landing as “soft.” If this scenario and strategy turn out to be the case then, arguably, things will be back to “normal.” There are very good reasons to believe that the challenges which face this country are not cyclical but structural and therefore there would not be any early return to normality.
If the present fiscal and foreign exchange challenges are not temporary and the current sluggish economy will not adjust in the short and medium run, then there are serious challenges for this economy which must be addressed now. Bolder measures would have to be taken now, if not the pain that the Government is trying to avoid is likely to visit us sooner rather than later.
In that scenario, the country’s stock of foreign reserves would rapidly contract, savings of the Government in the HSF and of the population would fall, joblessness would rise and debt service would command a far larger share of dwindling revenues, pushing out much needed social and capital expenditures.
In such a case the Government will have to deal with the accumulated challenges and the action that it would then be forced to take would perhaps still lead to the social dislocation which it is seeking to avoid.
What is required now are policies that would begin to transform this economy from less consumption of foreign imports to more local consumption and export production, from recurrent to capital expenditure, from dependence on government to a greater dependence on oneself, from slackness to productivity, from the grant of even more incentives to the removal of disincentives, from unsustainable distribution to opportunities for wealth creation and from government extension to private sector expansion.
Would Budget 2017-2018 point in these directions? We will soon see.
RONALD RAMKISSOON economist