The troubling foreign reserves situation has improved somewhat, but continues to hang precariously below the recommended 12 weeks of import cover.
Acting Governor of the Central Bank of Barbados Cleviston Haynes today announced that the reserves, which had been the topic of much public discussion when they plunged to $681.1 million, or 10.3 weeks of cover at the end of last year, had risen.
However, the progress was slow, with an increase of just over $20 million to $705.4 million or 10.7 weeks of import, led by the tourism sector.
But another worrying issue for the Freundel Stuart administration, the fiscal deficit, ended the financial year at an estimated six per cent of GDP, higher than the projected 5.8 per cent. The Acting Governor blamed this on “delayed execution of planned divestment of state assets”.
Gross Government debt, which requires servicing to the tune of over $300 million annually, also remained high at 105.4 per cent of GDP, but slightly better than the 108.6 per cent for the corresponding period last year.
Haynes said Government’s prediction is for the deficit to be at 4.4 per cent of GDP for the 2017/18 financial year. However, he warned that the current financial constraints and the decline in international reserves over the past three years meant further fiscal consolidation was necessary.
“The immediate challenge is to bring the current fiscal balance in line with available financing resources so that delays in payments for the provision of services to Government can be eliminated,” he said.
Haynes today delivered his first quarterly report since taking over from Dr DeLisle Worrell, who was fired in February after publicly falling out with Minister of Finance Chris Sinckler over monetary and administrative policy.
However, the acting boss sounded somewhat like Worrell in the waning days of his governorship, during which the former Governor had predicted a two per cent growth rate over the next five years, while calling for belt-tightening measures, including reducing Government spending.
Unlike Worrell, Haynes did not mention the controversial issues of the printing of money by the Central Bank to fund public servants’ wages and Government’s social programmes. However, he acknowledged that the bank’s funding of Government remained too high and was unsustainable, pointing out that during the first quarter, the monetary regulator “sought to minimize new credit creation”.
“All policy is being directed towards addressing that situation as quickly as possible,” assured Haynes.
The Acting Governor revealed there is still life in the economy, which grew by two per cent during the first quarter of 2017, down from the 2.3 per cent recorded during the corresponding period last year.
Haynes also predicted an overall growth rate of “between 1.5 per cent and two per cent” this year, consistent with the 1.8 per cent forecasted by the Barbados-based Caribbean Development Bank.
The improved performance will be led by tourism and new construction activity, but the Central Bank executive warned there were “significant downside risks to the growth forecast, partly related to ongoing delays to the start of major tourism-related projects earmarked for 2017”.
“The Barbados economy has shown some signs of improvement, but it continues to face significant challenges as it seeks to restore its international reserves buffer, accelerate growth and address the build up of debt. The bank considers that further strengthening of the efforts at fiscal consolidation together with the unlocking of private sector investments are crucial to ensuring an orderly adjustment path that creates the conditions for sustainability over the medium term,” the Acting Governor said.
Haynes acknowledged that Government’s “protracted adjustment” programme had failed to deliver the desired result, adding that the fiscal challenges “require us therefore to be deliberate and focused at this time, taking decisive action now to achieve the results we desire”.
Although he did not recommend any statutory agencies that should be sold, Haynes said it was crucial that Government finalizes the planned sale of state assets.
The administration had been banking on the sale of the Barbados National Terminal Company Limited to the Sir Kiffin Simpson-led Sol Group to shore up the reserves.
However, the sale, which was expected to bring in US$100 million, has been held up by a court injunction granted to Sol’s competitor Rubis, and is also being probed by the Fair Trading Commission.
Government had also been banking on another US$100 million dollar investment by way of the Hyatt Centric hotel development on Bay Street, St Michael. However, that too has been held up by litigation.
In the meantime, the Acting Governor said structural measures were needed in the medium-term “to ensure the ongoing sustainability of the fiscal effort, including measures that embrace improved tax administration and expenditure containment both within central Government and state-owned enterprises”.
Haynes also called for continued growth of the alternative energy sector to “cushion the impact of higher energy prices on the balance of payments”.
Despite the fiscal challenges, Government revenue improved to $962.3 million, compared to the $905.1 million for the same period last year, largely due to the collection of higher indirect taxes, which rose by 9.9 per cent, as well as a push by the National Social Responsibility Levy. There was also a 7.5 per cent expansion in direct tax revenue, on the basis of improved personal income taxes and corporate taxes.
He said while everything targeted would not be achieved during the current fiscal year, every effort “is going to be required in the current year to bring stability to the public finances”.