A strong word of warning today to the Freundel Stuart administration that it is “running out of time”.
Reacting to the latest Moody’s downgrade of Barbados’ issuer and bond ratings to Caa1, former Prime Minister Owen Arthur pointed out that after “C” comes “D”; therefore the island was one notch above debt “default”, which would only mean further downgrade.
He likened the economy to an aircraft, pointing out that eight years after Government embarked on a programme of economic stabilization, it was still going through “tremendous wind shear, being tossed and turned by contending forces,” adding that there was “urgent need to pull out and change course”.
“In economic terms it would be for the Government to recognize that you cannot go safely through what you are experiencing without a very significant change in policies,” Arthur warned, while lamenting a seeming reluctance on the part of Government “to do the necessary things that would stabilize the economy for fear that it would cause it popularity”.
However, Arthur, who was prime minister for 14 years until 2008, advised, “good politics and good policies are one of the same” and that though “the wine is bitter, it is all wine”.
In this regard, he pointed out that the current rate of growth in the order of 0.1 to 0.2 per cent really amounted to “no growth”, adding that the International Monetary Fund had told Government as much.
Arthur also expressed serious worry over the state of the country’s foreign reserves, which he said continued to fall and were now $500 million less than they were in 2008.
“That is a serious matter because the direction of the change in the reserves is what is critical; that you may still have enough for the time being ignores the fact that the direction is wrong,” he said, while concluding that Government’s growth strategy was not working and the administration was running out of financial options.
Arthur said the solution had to be more than simply “cutting spending and imposing taxes” as he called on Government to deal with its mounting debt, given that 60 per cent of its revenues currently go towards debt servicing, which raises the prospect of economic default.
“That in itself reflects a crisis,” Arthur said, warning that Government’s debt to GDP ratio was approaching 160 per cent.
The country’s former leader also suggested that more attention be paid to the business culture and “the ease of doing business” on the island, while insisting that Barbados’ economic growth must be investment driven.
He also suggested that privatization of some state assets was the way to go, arguing, “if you are cash strapped but asset rich, you have to sell assets”.
“I don’t think anything is off the table,” he said, pointing out that state transfers currently amount to $1.2 billion a year and that issues of governance also need to be addressed.
He also reiterated his warning issued during the Estimates debates for Government to avoid certain “high risk investments, such as the proposed $250 million sugar cane restructuring project, the waste-to-energy project, its planned marina project and dedicated cruise pier, which he said could not be justified on financial grounds but would add to the present debt.
Arthur also called on the Central Bank to stop printing money; a practice, which he said, amounted to economic “madness” and would only spell further downgrade. (KJ)