The head of the Barbados Economics Society is “very surprised” by Central of Barbados information showing the island’s reserves of foreign currency have held firm amid a period of economic decline.
BEC President Ryan Straughn told Barbados TODAY this indicator warranted further investigation, and was one of the striking factors he noticed in the Central Bank 2013 first quarter review released on Tuesday.
The financial institution’s Governor Dr. DeLisle Worrell reported that the foreign reserves “declined by $35 million during the first quarter of 2013”, which he said “compares with an average underlying first quarter decline of $67 million over the last four years”.
This fact apart, he said, Barbados’ $1.4 billion in reserves “continues to be adequate at 19 weeks of import cover”. But Straughn said something was not adding up, especially when the island’s main foreign exchange earner, the tourism sector, had under performed in all categories between January and March this year.
This meant that while in the same period last year inflows of foreign exchange was $110 million, it was a mere $16.6 million in net capital inflows this time around.
“I am surprised by the performance of the reserves given that the hotel capacity is down seven per cent, tourist arrivals are down nine per cent, spending by tourists down five per cent, room occupancy down three per cent, airlift down six per cent,” the economist said.
“And looking at the balance of payments, there were no significant capital inflows on that side so I was very surprised at the fact that the reserves were able to remain roughly on the same level. And in a very perverse way the performance of itself seems to suggest that we can do just as well if more hotels and restaurants and tourist attractions closed, which obviously is very counterintuitive.
“It is still something that I am trying to wrap my mind around because in that environment one would expect, unless there was some other significant capital inflow, for there to be a fall off in the reserves. So I was very surprised by that and it is something that I think would require a little more digging to get a sense as to what is the real story there because based on those matrices that is a very surprising number, given too that imports were up, even if slightly,” he added.
Straughn was also concerned about the growing extent to which both the Central Bank and National Insurance Scheme were financing Government.
The Central Bank review noted that in order to fulfill Government’s increased spending last year both of these institutions accounted for about 40 per cent of state financing last year, with the NIS providing 28 per cent, and the Central Bank 12 per cent, with in both instances was an increased provision.
“That of itself is testimony to the fact that if the Central Bank is also financing the Government deficit that we are really operating in some serious times here,” the BEC spokesman said.
“That is really something that we really must pay attention to because not only is the NIS financing Government, the Central Bank has been also financing the Government and I don’t know to what end because the Government of itself isn’t actually addressing its own problem in order for the economy to breath.” (SC)