Noted economist Ryan Straughn believes the latest report from international ratings agency Standard and Poor’s (S&P), suggests there is still a lot of work to be done to get the economy back on track.
For the second straight year, the New York-based firm maintained its B/B rating with a negative outlook for Barbados.
“I think overall though, it suggests that there’s still quite a bit of work to be done and particularly the financing aspect of the debt may warrant some measure of refinancing and restructuring. But of course that is up to the authorities to determine,” Straughn told Barbados TODAY.
He said while it was good news that the island had not been downgraded any further, there were concerns in terms of the outlook remaining negative.
“Number one is given the Central Bank’s liberalization of deposit rates earlier this year, I am hard-pressed to understand what kind of date they would have been looking at to suggest that savings as a percentage of GDP [Gross Domestic Product] would basically double for this year compared to last year at nine per cent. And that’s something that’s a bit odd.
“But coupled with that, part of the release suggests that the Government has narrow financing opportunities. And I think that if savings are going to be so high then obviously it will either suggest that or further compound the issue that presumably people are running away from the Government. But of course we know that savings bonds have been issued and have been taken up, so clearly that has not been the case,” he said.
S&P also raised the possibility of a downgrade “if tourism investment projects fail to support a turnaround in growth or if external pressures mount”.
However Straughn noted that Barbados would be able to attract investments easily if there was a attractive business climate. However he said the fact that the country has been downgraded suggested that the growth prospects “which would be underpinned by business activity” would obviously have to be lower.
“Therefore I think investors would find it very difficult to enter an environment where the business climate is not as robust as it could be. And that is squarely due to the monetary fiscal policy that has been pursued over the last few years. So in fact that we’re in a position now where the domestic economy is pretty much dragging because of the Government’s financing requirements, we are having to rely on these external projects to drive growth,” he said.
He also cautioned that Government needed to ensure that projects are completed in order to encourage more investors as well as spur economic activity.
“We’ve heard of things being started and there’s nothing concrete in terms of these massive projects that will start and complete because the issue here is not starting a project. The issue is actually having a project start to finish, which in the case of Sandals, which obviously was extraordinary, pretty much opened the way for that project to start and complete on time,” he noted.
On the issue of Barbados’ growth rate lagging behind that of some of its Caribbean neighbours, Straughn said he was not surprised, given that there was “robust business activity in pretty much the rest of CARICOM [the Caribbean Community]”.
“Yes the Government has done some stuff but it’s not gathered any specific momentum to ease its financing burden. That’s why for this year in particular, in the budget in June, you had more tax increases.
“And so therefore in that kind of environment I really don’t see how growth rates of one or two per cent for this year and next year could be realized when more disposable income will be taken out of the economy and a large part of it will go toward debt service. And so therefore there is really no value added in terms of economic activity being generated from that.”
He advised that Government needed to ensure some semblance of credibility to get the economy back on track, contending that confidence is “still very low” although there were signs that it was picking up somewhat.
“But the general conditions aren’t there for the kind of robust growth that is required to turn the economy around and a lot of that hinges on the credibility of Government,” Straughan said.