Central Bank of Barbados Governor Dr DeLisle Worrell has defended the bank’s decision to fund Government last year, saying it was “appropriate”.
Worrell’s comments came yesterday as he fielded questions from reporters after the bank reported on the island’s economic performance for the first quarter of this year.
Following its Article IV Consultation with Barbados last year, the International Monetary Fund (IMF) cautioned against the Central Bank’s financing of Government. But explaining the rationale behind the financing, Worrell said it was also in an effort to help Government lower the deficit, which is targeted to be lowered to six per cent by the end of the current financial year.
“The reason we have a Central Bank is to actually finance the Government in appropriate circumstances. So when in May last year we saw that there was a need to accelerate the progress in terms of reducing the deficit in order to protecting the foreign reserves we saw that this was something that we sort of needed to put in place,” he said.
“We then went about designing the programme of adjustment. That is a fiscal programme. So you have to take it to the Cabinet and the Cabinet then has to contact the social partners, then we have the whole process of designing the programme. So it is all this before you actually have the first part of the programme, what we thought was the complete programme, put in place.
“What happens in between there? What we are saying is that the tool that we have for adjusting the economic expenditure is a tool that takes time to put in place and to have its effects. Its effects are going to be spread out over 18 months. So it is 18 months from the time you actually do something to the time you get the full effects. In the meanwhile, you still have to run the Government.
“That is what the Central Bank is for. So it is in that interim period that you expect that the Central Bank would be financing Government,” Worrell further explained.