The Institute of Chartered Accountants of Barbados (ICAB) said while it was generally pleased with the latest Central Bank report of two per cent economic growth for the first three months of this year, it was still concerned about the state of the country’s foreign reserves.
“Foreign reserves are very important, not just for transaction purposes, but to manage our risks and be a buffer,” ICAB’s Executive Director Reginald Farley told Barbados TODAY in response to Acting Governor Cleviston Haynes’ report on Tuesday that the island’s foreign reserves had grown slightly from $681.1 million or 10.3 weeks of import cover at the end of last year to $705.4 million or 10.7 weeks by the end of March.
However, acknowledging that this was still below the required 12-week benchmark, Farley called on the Freundel Stuart administration to immediately address the situation.
“It is a cause for concern and I think that great confidence can be induced in the economy if the Government were to take strategies to boost those reserves in the short-term because then individuals, businesses, foreign investors and anyone doing business with Barbados would have greater comfort that their upcoming transaction could be fulfilled,” suggested Farley.
He stressed that urgent action was needed to eliminate any doubts among investors.
And given the island’s vulnerability to external shocks, he warned that it could be affected by a geopolitical issue or some form of natural disaster that affects the vital tourism industry.
“So many things [could happen to] interrupt your flow of income,” he said, emphasizing that in such situations the foreign reserves provided an important buffer.
In his first quarter report this week, the Acting Governor also addressed the worrying fiscal deficit, which, at six per cent of gross domestic product (GDP), was slightly higher than the projected 5.8 per cent. According to Haynes, the shortfall was due mainly to the delay in the execution of planned divestment of state assets.
However, Government’s overall debt also remained high at 105.4 per cent of GDP, though slightly better than the 108.6 per cent for the corresponding period last year.
And while predicting growth of between 1.5 and two per cent for this year, Haynes also warned that Government was likely to fall short of its fiscal targets.
“I was very pleased to hear the Central Bank state that it would be weaning Government off the printing of money. The printing of money has been one of the great contributors to the foreign exchange issue,” said Farley, while stressing the need for urgent corrective action to be taken.
In fact, he said Government needed to take into account a number of external factors, such as global oil prices and possible changes in the value of the United States dollar.
He also underscored the need for the island to improve its credit ratings, saying it was unfortunate that some officials sought to downplay the impact of recent negative ratings by Standard & Poor’s and Moody’s on the economy. The ICAB executive and former Cabinet minister in a previous Opposition Barbados Labour Party administration said while the country continued to boast of a high ranking when it comes to literacy and the human development index, equal attention should be paid to its investment grade rating with a view to protecting and maintaining its image and brand.
“As a small country we are remarkable when all of our ratings are high. It is part of the brand, part of the excellence. So I think that apart from the practical cost and capital, there is a matter of confidence and the image which having an investment grade rating will bring and we trust that specific steps will be taken to address the weaknesses – the size of the deficit, the size of the debt and the level of foreign reserves,” Farley told Barbados TODAY.
Ahead of Minister of Finance Chris Sinckler’s Budget presentation this month, Farley said he expected these vital issues to be addressed.
“Clearly the Bank has identified the issues, some of which need to be addressed in the upcoming Budget so we look forward to seeing how those will be addressed,” the ICAB spokesman said, while pointing to the urgent need for public sector reform with a view to eliminating inefficiencies and increasing productivity.
He also called for speeding up of the justice system, as well as an “accelerated project implementation strategy” so that critical projects can get off the ground and the island can enjoy the benefits of needed capital inflows and achieve the desired economic growth.