Impose penalty on debts, says Barker

ECONOMIST Paul Barker says penalties should be imposed when the Government exceeds its debt level as prescribed by the Fiscal Responsibility Act 2012.
Section 2c of the legislation says the Government “will not raise the overall general government debt as a share of gross domestic product above 30 percent of GDP – apart from the years 2013 and 2014 in which it will not exceed 35 percent”.
Barker is the executive director of the Institute of National Affairs.
He was reacting to a statement by the Treasury Department, which recently released its mid-year fiscal and economic outlook report, that there would be a situation where a debt to GDP ratio of 32 percent would be reached if nothing was done between now and the year end to rectify the current economic situation.
Treasurer Patrick Pruaitch wanted cuts in the 2016 national budget so that the Government remained under the prescribed limit.
Barker said the fault did not lie with low commodity prices but also with the poor budget forecasting and management, lack of fiscal transparency and consultation.
“Yes, low commodity prices are to a large extent responsible,” he said.
“But good planning and budgeting, including debt management, is about effective and prudent, and not over-optimistic budgeting and price and revenue forecasting, or pushing ahead with over-priced and in some cases unproductive, prestige or overpriced contracts.
“The penalty should entail more than a rap across the knuckles.
“It must come from the legislature and the wider public, rather than the courts, and entail the need for lessons to be learnt promptly, with a much greater adherence to fiscal transparency, consultation, humility and reform and working with the private sector and public to greatly improve responsibility and accountability over public funds than seem to have been the case in recent years,” Barker said.
Barker said it was both an economic and a legal issue.
“Legally it’s an issue. Despite recently adjusting the GDP (gross domestic product) figures to show a larger GDP over several years than recorded hitherto, the debt levels to GDP have been growing in excess of the allowable ceiling under the Fiscal Responsibility Act,” Barker said.