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The state of the economy inevitably plays an important part in the run-up to any election. The feel-good factor tends to influence voting intentions especially among the floating voter. There is little doubt that the economy is today in much better shape than it was in the 2001-2002 and 2004 period when the country registered a low 0.3 per cent growth rate. The growth rate last year was 2.9 per cent which represents a vast improvement. With this growth rate and the inflation rate finally within the Maastricht criterion the country is hopefully on its way to qualifying into the eurozone. This is no mean achievement and certifies much of the results achieved as a result of economic decisions taken which are bearing fruit.
Entering the eurozone is a further opportunity for the country to get its economy in order. It is not the panacea for all our economic problems many of which still remain with us but it certainly together with further hard decisions taken should put us on a clear line of recovery.
The state of the economy on the eve of our entering euroland was clearly presented by the Governor of the Central Bank at a business breakfast organised by Business Today where he suggested a number of decisions that still need to be considered in order to put the economic fundamentals in place.
There is little doubt that we have lost ground against many of the new European entrants. Our growth in the nineties was fuelled by government spending which resulted in both a fiscal and current account deficit. We spent too much on imported goods which left a lot of the money overseas.
In order to carry on growing the country needs a prudent fiscal policy and the shifting of government money into growth activities for example tourism as was done recently with the subsidies to the low cost carriers. We need to carry on opening markets by further liberalising the economy. Government needs to spend more on research and development and as was done recently in the budget to carry on incentivising women to go out to work. The female work participation rate is low, hopefully the incentives will work, and after all we need to give incentives to people to work and not incentives them to stay at home. The recent positive discrimination in favour of students taking up science courses is also a step in the right direction. This newspaper however feels the stipend regime needs re-visiting and the possibility of it being subject to means testing studied.
The country also needs to prioritise and meticulously analyse how public funds are being spent. It is not sufficient to state that millions are being spent on education. This is all very positive but is the money being channelled into quality education? Are we producing the right kind of skills required by the country in this fast changing globalised world? The same applies to the health sector. Is the money being wisely spent and most especially can the country afford a totally free health service? Even in the health sector a means testing regime needs to be looked at.
At the heart of many of our economic problems lies the fact that the country is not producing enough. As a result we are losing our competitiveness. The public sector today representing a good third of the population, a praiseworthy decrease from former years, is simply not producing enough. The country can produce more in a number of ways. We can get better value for the money we invest in public services. We can go for the right kind of spending. We can lower taxes. We can trim further public expenditure and we can reallocate resources to invest even further in quality education.
Government can also carry on sub-contracting any services but certainly in a more prudent fashion. The recent cases of cost overflows in the subcontracting of roads is a matter for concern which raises eyebrows.
The Governor’s recipe for recovery may neither be sweet nor music for the ears of politicians on the eve of an election, but they certainly constitute good advice which we ignore at our peril.
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