President of the Caribbean Development Bank (CDB) Dr Warren Smith today sounded a stern warning that Barbados was not yet out of the proverbial economic woods by a long shot.
In fact, so worried is he about the country’s worsening debt situation that he suggested “front end adjustments” were urgently needed to correct the economic slide.
In a frank interview with Barbados TODAY, Smith also described the island’s overall fiscal position as “unsustainable”, while cautioning that if left unchecked, it would do untold damage to the Barbados dollar.
With that said Smith did not shy away from the dreaded “p” word – privatization, naming Grantley Adams International Airport (GAIA) and the Bridgetown Port as “naturals” for divestment.
“Long gone are the days when Governments need to be involved in things such as airports and seaports,” Smith argued.
“We do not believe that these types of investments need to continue to be in the hands of Government,” he added.
While acknowledging there would be political consequences arising out of the sale of these perceived crown jewels, he said Barbados was not unique in that regard.
In fact, the Jamaican-born CDB president gave the example of that country’s divestment of its Sangster International Airport in Montego Bay, saying, “foreign investors have come in, they have pumped money into the expansion of the airport, which is now promoting the growth of their tourism industry”.
Smith also made reference to the recently privatized Port of Kingston, which he said was now attracting large investments, while stressing that air and seaports were “a means towards an end”.
In Barbados’ case, he emphasized that there was room for both domestic and foreign investment in GAIA and the Bridgetown Port, while pressing home his argument that “these are opportunities to relieve the fiscal burden that the Governments face, so that you can put your priority on other things”.
The CDB head insisted that Government would not be adversely impacted if the Port’s ownership and operation were in private hands, adding that in Barbados’ case the situation was urgent, since it placed the country’s fixed exchange rate under threat.
“I am not saying that you are at threat at the current time. What I’m saying is that if these things are not addressed ipso facto you are going to find yourself in a position where you might not be able to maintain a feature of your economic model that appears to be of very great value to Barbadian authorities and to the Barbadian people. So fiscal rectitude is key. We need to have it and we can’t be in a situation where, for a protracted period, we are running fiscal deficits that are unsustainable, that have implications for debt and ultimately for the overall strength of the economy.”
In addition to both ports, Smith suggested other state-held assets could be sold off, including the Caribbean Broadcasting Corporation. He argued that Government could find other mechanisms for getting its message out.
In response to Minister of Finance Chris Sinckler’s suggestion that many state entities were highly indebted and therefore would not be attractive for divestment, the regional banker zeroed in on the Transport Board, saying it would have to undergo a process of reform to reduce the current burden on the state.
However, Smith was adamant that privatization was among a raft of options that could be pursued, even though he acknowledged that the decision was not his to take.
“At the end of the day the options that you choose to pursue must put you in a position where you get your fiscal house in order, address your indebtedness,” he said.
In this vein, Smith expressed support for Government’s “absolutely vital” fiscal consolidation programme, saying it was moving in “the right direction”, but stressed that the measures were simply not enough.
However, he said while the Bank had no difficulties with the policies being pursued, “the pace of adjustment is where we might have some difference with the Government
“If you look at where the debt trajectory is going, it is very worrisome,” he told Barbados TODAY. He therefore suggested that in order “to be able to bring that growth of sovereign indebtedness to a halt, and put it in the other direction where it needs to go, we need to address the fiscal [situation]”.
However, the leading regional economist also emphasized the need to address growth.
“It is a two-dimensional kind of response. So that yes, the fiscal adjustment programme is absolutely vital; if you don’t address it all sorts of unfortunate things are going to unfold. So that has to be high priority,” he warned.
Privatization was a major issue in the campaign leading up to the 2013 general election, with the incumbent Democratic Labour Party (DLP) accusing the Barbados Labour Party (BLP), led at the time by former Prime Minister Owen Arthur, of plotting to sell state assets.
Since the election, which saw the DLP returned to office, Sinckler has spoken about divesting some assets, and announced in April the sale of the Barbados National Terminal Company Limited was all but complete, with Government simply “waiting on the cheque” to consummate the deal. Nothing has been said of that deal since.
Arthur, meantime, has become more vocal and adamant that there is no way out of the choking fiscal situation other than to sell off some state assets, while senior Barbadian economist in the Ministry of Finance in Ontario, Canada Carlos Forte told Barbados TODAY last December that the Freundel Stuart Government should shed some of the “statutory” dead weight contributing to the current economic drag.
In his mid-year economic report, Governor of the Central Bank of Barbados Dr Delisle Worrell said the fiscal deficit had reached $204 million, and that debt owed to private financial institutions, individuals, businesses and the Central Bank was equivalent to 108 per cent of gross domestic product at the end of June.
As Government struggles to bring the bring fiscal situation under control, it has sent home over 3,000 civil servants and has imposed several taxes in the course of the now two-year-old austerity programme. Just last month, Sinckler used his Budget address to announce a two per cent National Social Responsibility Levy, as well as higher bank charges, to much outcry from interest groups.