Posted: Wednesday, February 15, 2017. 11:30 am CST./>
By Richard Harrison: After interviewing several public and private sector leaders of the economy, I have come to the conclusion that they are mostly fixated on micro-economic issues…with rightful concern about nit-picking areas where the economy is bleeding through government corruption, and where efficiency can be gained.
BUT….too much focus on the micro-economy is coming at the expense of focus on the macro-economy.
Macroeconomics (from the Greek prefix makro- meaning “large” and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole.
Macroeconomist’s study aggregated indicators such as GDP, unemployment rates, national income, price indices, and the interrelations among the different sectors of the economy to better understand how the whole economy functions.
Macroeconomist’s develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance.
While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national income). Macroeconomic models and their forecasts are used by governments to assist in the development and evaluation of economic policy.
If government corruption was the ONLY thing wrong with the economy….then it would be logical to conclude that reducing corruption would be all we need to do to see improvement of the overall economy. This is not the case…we can get rid of corruption completely, and we will still have a stagnating economy.
The macro-economy is much more than government….and measurement and analysis of the Gross Domestic Product (GDP) helps us to see the bigger picture and some of the indicators, other than government and its corruption, that needs our attention.
This article will deal mostly with Gross Domestic Product (GDP) and how to grow it sufficiently and sustainably. We will use the figures for FY 2015-16 to help us put the numbers into context.
GDP = C + I + G + (Ex-Im)
Gross Domestic Product = National Consumption + Investments + Government Spending + (Exports – Imports)
$3.44 billion = C + I + $1.1 billion + (- $0.85 billion)
These numbers were taken from Statistical Unit of Belize and Central Bank of Belize official reports.
The Central Bank of Belize reported foreign direct investments (FDI) of BZ$0.26 billion in 2015, which does not include domestic investments.
Thus national consumption (C), plus domestic investments can be calculated to total $2.93 billion….as there is no available figure for domestic investments alone.
The fiscal reform package I have recommended separately, which aims to make the Belize economy optimally competitive and productive, would allow Government Spending (G) to increase to $1.23 billion on a balanced budget.
The trade deficit would decrease from $0.85 billion to $0.75 billion, as production of goods for domestic consumption and export rebound in the short term.
Foreign Direct Investments would conservatively increase from $0.26 to $0.3 billion. This will follow a sigmoid curve, with a slow starting phase, because the confidence of foreign investors will likely be slower than domestic investors.
Consumption and domestic investments would increase from $2.93 billion to $3.1 billion.
Thus GDP = 3.1 b + 0.3 b + 1.23 b + (- $0.75 b) = 3.88 b
GDP of $3.88 billion is 12.8% growth over $3.44 billion.
This is what we should aim for…..so that we reach at least 5% real GDP per capita growth, after compensation for around 2% annual inflation and 2% population growth….both of which are good for the economy.
I have said many times….that one of the good things about Belize is its small size….in the same way it can be taken down rapidly….so can it rebound rapidly. At the moment it is being TAKEN DOWN RAPIDLY!!
The important things with regards to government, as I see it, is not to curtail or reduce government revenue or spending, it is to force them into a BALANCED BUDGET for a five-year recovery period, while at the same time re-engineering the government and its line ministries and departments to achieve NATIONAL GOALS (short, medium and long term).
The structure of government revenue MUST have the ultimate objective of making the economy more COMPETITIVE and PRODUCTIVE….because improvement in these two things are the ONLY way of creating NEW WEALTH….and creating the POTENTIAL for generating new wealth is what will drive domestic and foreign investments up….create new production and jobs….reduce imports RELATIVE to exports (notice that this does not recommend reducing imports)….which will fuel increased consumption…so we open all the valves that feed into GDP growth….and which is what will create the positive feedback cycle of continuous increased confidence, investments and growth.
The government recurrent budget should not increase by more than the previous year GDP growth, and capital spending should come from revenues raised over and above recurrent budgets and debt-servicing requirements….for 5 years there should be a moratorium on government borrowing from foreign lenders (even borrowing from domestic sources must be restrained so as not to crowd out the private sector, which will demand a lot more investment capital).
Our governments have proven themselves to be like opiate addicts…spending a lot more than we are making….borrowing in excess to feed their bad habits….and selling Belizeans out for cheap to the lowest bidder and corrupt elements…from drug kingpins, money launderers, contrabandistas and immigration traffickers to facilitating illegal shipping and financial fraud, etc….while they and their families and lambiscones live high and lavish life styles….they MUST be reined in.
The revenues of government should be enough to pay ALL our debts according to their terms and conditions….finance our government’s recurrent budgets….as well as our capital investment budgets….we should not be a beggar country running around the world with our palms upward. BUT, everyone making money here should pay their fair share….which is why the fiscal package recommends optimally low rates and broad base to pinpoint WHERE to collect this revenue from.
The existing tax formula taxes the poor and middle class too much…which explains why those in poverty have grown to near 50% of the population….while it allows a lot of big fishes to ride free via development concessions, EPZ, IBC, etc….it heavily taxes fuel, which puts our productive sector out of business from the get go….every year running budget deficits to subsidize the status quo…financing these deficits with an ever ballooning debt…choking the future generations of this otherwise RICH COUNTRY….in a negative feedback cycle of decreasing confidence, and increasing debt and depression…and THIS CYCLE HAS TO BE BROKEN!!
The early stage of recovery must be driven more by increases in domestic investments relative to foreign investments….so that Belizean citizens own more of a growing Belize pie. If you do not invest, you do not own. The only way to invest is to make profits….the only way to make profits is to reduce costs and/or increase revenue. The fiscal formula I presented reduces every line item of cost in the Profit & Loss Statement of ALL Belizean individuals and businesses…and being more cost competitive in the domestic and foreign markets opens the potential for increases in revenues…thus increasing the bottom line…boosting the productivity of every Belizean significantly, in terms of profits generated per person…which is where the beef is at.
THEREFORE….how the Belize government and people approach the FISCAL FORMULA in the upcoming budget is most important to creating the foundation for sustainable, balanced and rapid GDP growth…and our government’s choices will tell us clearly in what direction the Belize ship will sail….will it continue towards the deep blue, higher-risk, turbulent seas….by continuing to protect the status quo at all cost….or will it move closer to safe and comfortable harbor….using the creativity and ingenuity of this revolutionary fiscal formula.
I believe this is the “local, home-grown economic formula” that the bond-holders were suggesting government negotiate with its citizens when they explained their rejection of our Government’s recent proposal to refinance the SuperBond…where our government presented yet another creative accounting “forecast” which they pulled out of a hat, just like the last ones they presented in 2006 and 2012.
You cannot expect different results doing the same thing over and over….using the same formula!
Do not allow your pride and ego to blind you Belize….call it what you want….and take credit, it does not matter….what is important is that this Belize ship be put on the right path to sustainable, balanced and rapid growth that is in the best interest of ALL Belizeans, as well as all who invest here….but let your choice of solution option be along these lines…even if you feel you need to “tweak” it to put your original trademark on it.
So be it…
The views expressed in this article are those of the writer and not necessarily those of Breaking Belize News.
This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Masters in Business Administration degree from Lancaster University.
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