The Barbados economy simply could not take a major blow right now.
This warning from Canada-based Barbadian economist Carlos Forte, who further cautions that the island is dangerously perched just one step away from credit default.
“The truth is that one of those hurricanes striking Barbados, God forbid, would have been enough to put the country in a position where we could be contemplating a default given the state of affairs of the Government finances,” Forte told Barbados TODAY, amid the devastation caused by hurricanes Irma, Jose and Maria to several Caribbean countries.
Dominica has become the latest territory in the region to feel the fury of a major storm after Maria tore into the island at category 5 strength on Monday night, resulting in millions of dollars in damage, which officials say has set back its development by decades.
With the Atlantic Hurricane Season not yet over and this island already saddled with a very high debt, Forte suggested that Barbadians should be praying that they do not come face to face with a major storm.
“Thankfully Barbados has not been affected so far, but imagine if Barbados sustains any damage from a natural hazard. Certainly in terms of the fiscal space to respond to an event like that we would be contemplating taking on more debt and we are under circumstances where the debt burden is already significantly high,” he told Barbados TODAY in a telephone interview from Toronto.
Just yesterday Minister of Finance Chris Sinckler suggested that Barbados was being “punished” by some international agencies, as it no longer qualified for assistance for disaster relief at very low rates because it was considered a middle-income country.
And zeroing in on the country’s massive debt, which currently stands at more than 140 per cent of gross domestic product (GDP), Forte, who is a former Central Bank of Barbados economist, said “the truth is that all of the stack of debt that the Government currently holds, particularly domestic debt, should be on the table for refinancing”.
In this context, the senior economist at Ontario Ministry of Finance supported calls made by other noted economists, including former Prime Minister Owen Arthur and recently fired Central Bank Governor Dr DeLisle Worrell for Government to seek help from the International Monetary Fund (IMF).
“The Government would be best advised to engage an institution like the IMF, which has the expertise to provide the requisite guidance for embarking on a debt refinancing programme. They would not only bring expertise in terms of human capital, but also in terms of the credibility that would be needed for a successful debt refinancing programme,” said Forte even though the Stuart administration has made it clear that it is not prepared to go the IMF route at this stage.
However, with the country also faced with a high fiscal deficit of about six per cent of GDP, Forte called for a reduction in Government subsidies and transfers to statutory corporations, as well as pension reform and for Government to revisit the controversial issue of privatization.
“I don’t see any clear path out of the fiscal challenges that the Government has as an institution, and even if another administration takes the reins of Government after the next election they will have the same issues to contend with,” he further cautioned, while lamenting that there was simply too much procrastination on the part of the present Democratic Labour Party-led administration.
“There has been too much teetering. This Government has so ably demonstrated a passion for deferring necessary action and even when they have taken action is when their backs have been against the wall,” he said while suggesting that policy decisions, including the introduction of tuition fees at the University of the West Indies, had been implemented “too late”.
“Just for interest alone, revenues collected have to be used to service debt, and we are seeing the effects of this in terms of essential services being underfunded – the issues with garbage collection and waste water management and that type of thing, you name it . . . so the adverse effects of Government’s fiscal challenges are having a real material impact on the quality of services that they are able to provide to the population,” he said.
He also warned that the $542 million austerity package announced by Sinckler in his May Budget would have the effect of slowing down economic growth and that there was currently too much red tape and uncertainty surrounding domestic economic policy.