The BCCI’s Position in Budget Consultation Part I

Even the most casual consumer of local news would know at least two things: First, that the government’s deficit has climbed up to $500 million; and, second, that there’s a robust and fairly public debate as to whether or not the government should implement a public-sector wage cut. Following its last Tuesday morning meeting with the Ministry of Finance, the Belize Chamber of Commerce and Industry (BCCI) penned a February 8^th response to the Prime Minister in which it articulated its views on the best way forward to address the aforementioned leading issues.

As far as the second point goes, the BCCI’s letter concluded thus:

“It cannot be ignored that any move to cut public sector salaries at a time when the economy may need the preservation of as much spending power as possible is a challenging public-policy choice; however, it must also be acknowledged that Belize’s fiscal space is especially constrained due to those very same economic circumstances. Consequently, as far as the matter of public-sector wage bill reductions—which in our view would, in the short term, have a relatively nominal impact on the Debt-to-GDP ratio, the BCCI states that it will not object if it is that the Government ultimately decides that this is the most prudent option, after it has judiciously weighed its benefits and costs. As a part of any such exercise, it is also important for us and the public to be informed as to the precise purpose to which the resultant fiscal savings shall be targeted.”

The ‘diplomatic speak’ of the quote above requires some unpacking, especially if the logic governing the BCCI’s word choice would be made clear. Firstly, the reference to the need to preserve “spending power” under the present circumstances is BCCI reminding that there is potential risk that cuts to public workers’ salaries could reduce overall economic demand, which could further weigh down an already distressed economy.

Now, before proceeding, it is worth asking whether or not this line of thinking is unique to the BCCI. The short answer is “no”. In its June 2020 public policy note entitled “Governance COVID-19 Response: Managing the Public Sector Wage Bill during COVID 19”, the World Bank wrote:

“The public sector’s large labor market footprint means that the wage bill can help preserve livelihoods and complement the various income and business support measures that governments have undertaken. The wage bill is both a cost and a source of livelihoods. There will always be a trade-off between the fiscal savings from wage bill reductions that could finance transfers to private sector households on the one hand and the impact these measures have on the families of public sector employees on the other. This is a difficult choice, but governments should err on the side of maintaining public sector employment and wages at pre-crisis levels…Public sector employees are among the few with relative job security, and curbing their household consumption ability could further suppress economic demand.”

Missing from the quote above is the description of the phases of this crisis, which could be divided into the “Emergency Phase” and the “Recovery Phase”. The preceding advice quoted above is restricted to the former, which is described as a period when the economy is still struggling to get back on its proverbial feet and a large proportion of the labour force is unemployed.

Looked at from that perspective, it becomes necessary to determine two things: First, whether Belize is still in what could be classified as the “Emergency Phase”; and, second—if it is the country is indeed at that stage, is it prudent to reduce anyone’s spending power which, as the World Bank puts it, “could further suppress economic demand”?

The answer to first question is the easier of the two, because it is possible to track the country’s present economic output relative to where we were in 2019. In 2020, estimates suggest that Belize’s economy declined between 15% and 17%. For the first three quarters last year and in real terms, the Statistical Institute of Belize (SIB) already estimated a decline in output of 14.4%, and its yet to be confirmed what the last quarter (October to December) will show. Needless to say, this is the steepest economic decline the country has ever faced, a fact that is true for several other jurisdictions.

If, with the foregoing in mind, we agree that the Belizean macroeconomy is indeed in that emergency phase, then the second question must be addressed objectively. On the one hand, we have approximately 16,000 persons (according to the Approved National Budget Estimates for FY 2020/21) who are employed by the public purse and have a collective spending power of about $453 million. That’s money being spent on paying rent, buying food, paying for gasoline, looking after less-fortunate relatives who had lost jobs, and—apart from other spending that helps to keep many businesses’ doors open—it is also generating a certain amount of tax revenues.

Consequently, on the one hand, during this “emergency phase”, the wage bill serves as “an effective safety net for households to complement the various business and citizen support schemes that many governments have implemented.” At the same time, it is a cost to a government that has lost close to 30% of its revenue on account of the downturn.

As a result, the ultimate choice as to the most responsible way forward boils down to which public-policy response will yield the greatest returns as it relates to getting the Belizean economy to the recovery stage faster. That answer, however, requires far more analysis of data and information, most of which are tucked away in “Belmopan”. For instance, there is still need for clarity as to which programs or initiatives the government will repurpose fiscal savings. Additionally, it is still necessary to determine whether or not those programs’ outputs and outcomes will be more beneficial to holding up economic demand during the current economic times.

In essence, the point is this: if the public-sector wage bill is viewed as a type of social safety that complements “other” government-sponsored income support schemes to affected households and businesses, then does cutting it during the heart of the “emergency phase” support a speedy recovery? This consideration must precede any rushed decisions on this matter.

Additionally, the BCCI’s letter also raised the point that essential, frontline workers such as doctors, nurses and members of the security forces should be “insulated” from any cuts. Moreover, it was underscored that any decided cut should be progressive in nature so as to ensure that those workers on the lower pay scales are not as heavily impacted as those on the higher scales.

Now, as we conclude this installment of this multi-part discussion—which will pick up on the debt aspect of this discourse in subsequent articles—it must be made clear that the BCCI’s position is not to say that there should never be adjustments to the public-sector wage bill. In fact, the private sector organization continues to maintain its longstanding position on attrition, and likewise believes that once the economy starts to recover and more private citizens are able to return to work, the matter of wage-bill cuts should be revisited.

Additionally, it is worth reminding that the speed of our recovery is contingent on the Government ensuring that the business environment is as conducive to private growth as possible. It is for this reason that the BCCI’s letter— in addition to echoing the well-established recommendations for administrative fixes to tax loopholes and other areas of inefficient government spending—calls on the government to “aggressively implement business climate reforms so as to allow a speedier recovery from the present recession”. There are several such reform measures already in the works, with the Economic Development Council (EDC)’s Private-Public Sector Desk (PPD) actively severing as the chief coordinating agency.