The stability of the Barbados dollar continues to be an issue of concern for economists, who worry the local currency is under threat.
Despite repeated assurances from Government that the dollar will not be devalued, both local and foreign economists continue to raise the subject whenever they discuss the state of the Barbados economy, particularly its ballooning debt and dwindling foreign reserves.
However, while the fear lingers, the consensus appears to be devaluation will do little to help the country rebound.
A day after visiting economist John Tammy warned that devaluing the dollar would have catastrophic consequences for the country, and would result in higher prices, demands for greater salary increases and social disorder, a Caribbean Development Bank (CDB) official has come to a similar conclusion.
Director of Economics Dr Justin Ram today said devaluation would be senseless since it would lead to inflation and demands for higher wages, while the expected upsurge in exports would fail to materialize since the country did not produce sufficient goods for export to take advantage of the favourable exchange rate.
“Devaluation is supposed to provide incentives to your exporters so their goods now become cheaper for those in foreign countries who can import their goods. I don’t think the Barbadian economy, and certainly the industrial sectors here, can take advantage of that because we are not producing that many things here in Barbados. So right now I don’t think we can take advantage of devaluation,” Ram said.
“And . . . the trade unions are now going to say, ‘well, we need an increase in wages’, and so the overall effects of devaluation can be negated if you have an increase in wages.”
The CDB economist recommended an internal devaluation, which could mean cutting labour costs.
And while not offering specific recommendations, Ram said Government needed to make a greater effort at fiscal consolidation to ensure reduced demand for foreign exchange.
“Government expenditure has to be consolidated right now to bring it closer into balance, and in addition to that, because we know that we are in a situation where we need to earn higher levels of foreign exchange here in Barbados, we need to diversify and that can only happen if we improve the doing business environment in Barbados,” he explained.
The economist also urged the Freundel Stuart administration not to dismiss privatization of some state assets as a cost-cutting measure.
Like his boss, CDB President Dr Warren Smith, who last September told Barbados TODAY Government should divest the Grantley Adams International Airport, Ram suggested the airport would attract more business if placed in private hands.
“Currently the Government doesn’t have the fiscal space to spend that money now. They cannot borrow to do that. Why not allow the private sector to come in and provide some of that financing? We’ve seen that operate very efficiently and effectively in the case of the Sangster International Airport in Jamaica,” Ram explained.
“The private sector would bring the necessary capital to bring the airport capacity up to where it needs to be and to also improve the overall ambiance,” he added.