The Central Bank of Barbados is issuing yet another warning of the need for further “painful” fiscal measures to stave off currency devaluation.
In his January economic letter released on the bank’s website Wednesday, Governor Dr Delisle Worrell said Barbados had repeatedly failed to achieve the balance between its foreign exchange outflows and inflows, necessary for a stable economy.
Dr Worrell is therefore recommending further restriction on spending in order to protect the country’s foreign exchange reserves.
“The reserves are what protect us against the devaluation of our currency,” the bank chief stressed.
He repeated a previous caution that that the road to a promising future would be a painful one.
“The future is exceptionally promising, but it will not happen unless we make it happen, and like all worthwhile objectives, realizing the vision will not be painless.”
In an effort to strike a note of reassurance, however, he said the Central Bank remained in a position to provide US dollars at the current exchange rate of BDS$2 to the US dollar to meet all “legitimate” needs, if no other source was sufficient.
Dr Worrell suggested that the country has had to draw from the Central Bank’s reserves of foreign currency, simply because of a failure to strike the right fiscal balance over the years.
“We know when we have achieved that balance because in that case we do not have to dip into the Central Bank’s reserves of foreign currency to make up the difference. The country has failed to achieve that balance since 2013 and there remains a need to dampen spending further in order to protect the country’s reserves of foreign exchange,” he wrote in the January economic letter.
Government’s chief monetary adviser also said the Freundel Stuart administration was committed to a further reduction in the massive fiscal deficit in order to relieve pressure on the foreign exchange reserves.
“The immediate objective is to set the debt to GDP [gross domestic product] ratio firmly on a downward path by achieving a deficit which is lower than the increase in the GDP forecast for 2017,” he said, adding this would serve to boost confidence and give access to funds from banks and other investors whose contribution to Government financing had not risen in recent times.
On a slightly brighter note, he contended that this country’s leading sector, tourism, was among the most competitive in the Americas, except for the US, Canada, Mexico, Brazil, Costa Rica and Panama.
The Central Bank Governor argued that interest in tourism investment in the island remained strong.
“The quality of our international business services is high, and our financial regulation is kept up to speed with international standards. We export world-renowned rums and other products; and we are leading the Caribbean in the adoption of renewable energy,” he said, stressing that these foreign exchange sectors were the drivers of an open economy.
Dr Worrell also explained that the growth rate was used to measure the overall performance of the economy and that the level of foreign reserves, fiscal deficit and the burden of servicing the US dollar debt, showed whether the growth was based on stable foundations.