The Economic Society of Barbados has described the downgrade of Barbados’ foreign currency credit status by Standard & Poor’s today, as very serious, while the Chamber of Commerce and Industry considered it “most unfortunate”.
S&P has given this country’s external credit rating junk bond status, based on the competitive challenges in tourism and international business, the difficult external environment impacting the economy and the continued debt accumulation, particularly the debt to GDP ratio.
President of the society, Ryan Straughn told Barbados TODAY this evening that the situation was serious when one considered the present fiscal position of the Government. Straughn also noted that the Government had artificially brought down the fiscal deficit by shifting its off-budget accounting to the National Insurance Scheme.
“There has been no real reduction in the deficit. Government is still spending at serious levels,” added the spokesman for the economic community.
He argued that when one combined the impact the closure of Almond was having on an already under-performing tourism sector, no clear solution to Almond, the depressed international economy, and Government’s borrowing to pay wages and salaries and fund its daily operations, the downgrade did not come as a surprise. Straughn questioned the Government’s ability to raise its proposed bond on the global market to help resolve the CLICO debacle. He was of the view that with the now junk bond status, borrowing would become more expensive.
Straughn suggested that the problem with the Medium Term Fiscal Strategy was that it was not designed to reduce the government debt, but instead to close the gap between expenditure and revenue.
“Until that happens, we will be increasing debt every year. The Governor [of the Central Bank] said there is no debt problem, but that is not true. We are borrowing to pay public servants, to pay for paper, to pay for everything,” the economic society chief insisted.
He added that the Government needed to get the balance right again. He explained that prior to 2008, Government had been running its operations on a surplus, but not since then.
Meanwhile, the Chamber of Commerce and Industry, which represented the business sector, suggested the need for Government to take decisive action on a †number of fronts, particularly as it related to the economic fundamentals.
“The Barbados competitiveness programmes remains the most important need to keep the programme on schedule,” the chamber said.
The organisation said it was noteworthy that the report highlighted several positive factors, namely that the outlook was stable, the strength of the social partnership, political stability and strong institutions.
“It is also worth noting that the UK, our major source for visitors, has slipped back into recession and that many developed economies have worse problems than Barbados,” argued the chamber.
It said the S&P report indicated that Government had demonstrated a commitment to reduce the fiscal deficit.†However, the private sector said it would be more satisfied to know that the Government was prepared to take additional steps to address expenditure levels without further delay and with the same intensity as shown for the revenue side.
The chamber was also concerned about negative factors highlighted in this same report. These being the use of NIS funds and unsuccessfully reducing high transfers and subsidies.
“We encourage a rigorous review of privatisation of some aspects of Government business and look toward collective efforts at prudently reducing spending at a national level. The BCC remains committed to encouraging its private sector partners to retain confidence amidst this circumstance,” it added.
The chamber revealed that it would be seeking an urgent meeting with the minister of finance and the governor of the Central Bank to discuss how it could rally the country through this challenge. (EJ)