ANDRE WORRELL
UWI economist Anthony Birchwood is warning citizens to be prepared for serious adjustments in the upcoming budget to be read by Finance Minister Colm Imbert on September 30. He is forecasting cuts in expenditure and introduction of new taxes.
"We will have to make serious adjustments just as the rest of the world has been doing to cope with the difficulties arising from shortfalls in fiscal revenue. We have to attack our current situation aggressively in order to treat with the new economic realities," he said.
Birchwood said the Government should be focused on eliminating waste as much as possible
"Where cuts in fiscal expenditure take place will obviously be a political choice, but it should be a matter of the Government reviewing its past spending, determining where wastage is taking place and eliminating as much as possible of this wastage. This would go a long way in helping the government consolidate its fiscal position," he said.
Birchwood said making the tough economic decisions now would auger well for the country as opposed to having to structurally adjust the economy by force.
He said: "The good thing about our current situation is that we can take our own austerity measures before we have to approach international institutions who would recommend more drastic austerity measures. So right now we have a little window within which and enough resources to make the hard but necessary decisions to put the economy on the right footing for the long term"
Birchwood said while he expected the Government to do more borrowing in the upcoming fiscal year, the choice should be to approach multi-lateral funding agencies as opposed to private banking and international financial institutions.
Commenting on the exchange rate and foreign exchange position, Birchwood advised that the Government maintain a tolerance limit for how far the currency should be allowed to depreciate.
"Having signalled its intent to offer some support for the currency earlier this year within a certain limit, the hope is that the depreciation is managed within that limit," he said.
"The Government needs to be careful so as not to allow a total downward slide of the currency. Even though foreign exchange earnings are down significantly we still earn enough to support the dollar."