Barbadians who have a “nest egg” stashed away in commercial banks across the country have no reason to fear devaluation, at least in the medium term.
President of the Barbados Economic Society Jeremy Stephen gave Barbadians this assurance following reports that international rating agencies have warned that the country’s currency could be facing devaluation because of the size of the national debt.
Stephen, one of Barbados’ noted economists, contended that even though the 2016/2017 Estimates show an increase in public expenditure on wages and salaries, Government has a chance to stave off devaluation, at least in the medium term.
“I do not want to put a number to the years, but I do not believe that we should be devaluing anytime soon unless some act of God pushes us into it. It does come down to the financial prowess or the ability to manage the economy by the Ministry of Finance and Economic Affairs. It really depends on the Ministry of Finance and Economic Affairs and the monetary policies of the Central Bank of Barbados,” he told Barbados TODAY.
Acknowledging that the rating agencies may have considered devaluation because of the increase in expenditure in the 2016/2017 Estimates, Stephen said it has always been part of Barbados’ macro-economic and monetary policy to ensure that devaluation was staved off as much as possible.
The economist contended that if the country is not pushed towards economic diversification and a very aggressive pursuit of growth in the Gross Domestic Product (GDP), Barbados will continue to have these threats looming over its head and eventually the country’s currency will be devalued.
Stephen argued that while Governor of the Central Bank Dr Delisle Worrell may rubbish any recommendations from rating agencies to devalue the currency at this time, he would hardly ignore the warnings because he would be aware of the pressure the BDS$2 to US$1 exchange rate was experiencing.
He recalled that in 2013 when pressure was placed on the currency, Worrell was forced to recommend cuts in expenditure, cuts in imports and increased taxes to stave off devaluation.
“Worrell knew that the threat was very imminent. He knows the importance of having strong monetary policies in place to stave off any threat of devaluation,” Stephen explained.
Questioning claims of a rebound of the local economy, Stephen argued that generally Barbadians did not believe that was the case.
“We have to try to maintain some fixed peg; otherwise, this economy could collapse overnight. Since the 1970s, we fashioned this economy to be one that depends very heavily on a few export industries that are no longer popular or are not that strong anymore and yet we continue to increase imports,” he added.
Responding to a suggestion that Government could be increasing expenditure at this time as a gesture of goodwill with an early election in sight, the economist said: “There is always a margin of error of around 0.5 per cent in recording economic growth in an economy. So really and truly when you hear our economy grew by 0.3 per cent or 0.5 per cent, nothing really happened.”