A regional economist is warning Barbadians to brace for more hardships given the likelihood that Government will miss its fiscal targets and that the island’s overall economic performance will be weaker than expected this year.
Marla Dukharan issued the grim assessment in response to the latest country risk report prepared on Barbados by the United States-based global insurance credit ratings and information services firm A.M. Best.
The report, which was issued last month, suggested that the country was now at tier four (CRT-4) in terms of its level of economic and financial risk, just one stage away from the highest category with a “relatively unpredictable and nontransparent political, legal, and business environment . . . underdeveloped capital markets [and] partially to fully inadequate regulatory structure”.
While suggesting that the country was now on par with Trinidad and Tobago and Antigua and Barbuda, the report highlighted several challenges, including Government’s high debt burden, the country’s ability to maintain its currency peg to the US dollar, its high dependency on tourism, low foreign reserves, as well as the Central Bank’s continued financing of Government.
Dukharan, who is the chief economist at the Barbados-based financial technology company Bitt.com, told Barbados TODAY she agreed that those areas required urgent attention, but stressed that any decision taken must “safeguard the most vulnerable”.
However, while Minister of Finance Chris Sinckler’s May 30 presentation of a $542 million fiscal adjustment package was aimed at erasing the country’s deficit, which currently stands at around six per cent, the economist said she had very little confidence that this would happen.
“With the corresponding monetary tightening, it is difficult to envision how an adjustment of this magnitude, if fully executed, will only reduce growth by 0.5 per cent. As such, I expect growth and fiscal revenues to be weaker than expected, and as a result, the fiscal (surplus) target is likely to be missed again,” she said.
Though hopeful that Government could still realize a surplus for the current fiscal year ending March 2018, as Sinckler has projected, she said: “I am not very confident that it will, given the years of missed deficit targets, which perhaps indicate a significant implementation deficit, over-ambitious targets, and unrealistic assumptions.”
Besides Government’s high debt burden, which is over 140 per cent of GDP, the regional economist said another concern was that of exchange rate stability.
“The level of reserves is well below the precautionary benchmark of 12 weeks, at roughly nine weeks by my estimate. This level of external vulnerability could potentially affect everyone across the board, because on average, 80-90 per cent of what we consume is imported. But a balance of payments crisis, again, could affect the most vulnerable more acutely, as it demands austerity-heavy reforms as a remedy, which will affect those at the margins relatively more significantly,” she added.
In a separate interview, Canada-based Barbadian economist Carlos Forte told Barbados TODAY the economic risks of growing debt, wide fiscal deficit, lack of ease of doing business and low reserves were “significant” and increasing.
He said the country’s falling international reserves were but one example of the deteriorating conditions, which were an indication of the increased risk.
At the end of June the reserves plummeted to $635.5 million or just 9.7 weeks of import cover, down from the already low 10.7 weeks of import or $705.4 million at the end of March. The international benchmark is 12 weeks of cover.
In addition, Forte said some missed targets, including the pending sale of the Barbados National Terminal Company Limited and delay in some foreign direct investment projects, were contributing to the mounting risks.
“Those things have not happened. So it is quite possible that at the end of the year that declining trend may very well continue, and that lends itself to increasing risks in terms of the country’s risk profile,” Forte said, warning that each year the fiscal deficit remained high and its debt continued to grow the country’s risk profile worsened.
“Of course the silver lining is that the economy has been growing. It has grown last year and so for this year it is growing in the region of two per cent. Tourism has been performing well . . . that is one of the bright sparks,” said Forte.