Minister of Finance and Economic Affairs Chris Sinckler has conceded that the Barbados economy will not grow by two per cent this year.
In fact, given the impact of Government’s “tight” fiscal programme, he told reporters that growth was more likely to be in the range of 0.5 per cent and 0.7 per cent in 2017, which is in keeping with the forecast made by the International Monetary Fund (IMF) back in June.
“Of course because we have such a tight fiscal programme, demand is going to be constrained and once demand is constrained in an economy like Barbados . . . we don’t think [growth] is going to be as significant as . . . one and 1.5 per cent.
“We believe it will be [about] 0.5 to 0.7 per cent. We won’t get two per cent growth as originally predicted at the beginning of the year, before there was this Budget,” said Sinckler, following his announcement of a $542 million austerity package on May 30 with a view to closing the deficit of $537 million and achieving a small $4 million surplus.
However, the jury is still out on the success of the measures, which included a controversial hike in the National Social Responsibility Levy, from two per cent to ten per cent amid protests from the island’s trade unions and members of the local business community who complained that the tax was simply too onerous.
However, to date Government has been sticking slavishly to its programme with Sinckler reporting yesterday that “we seem to be on track, but we have to ensure that we keep the expenditures under control”.
“People only look at the revenue side, [but] we have to look at the expenditure side,” he stressed, adding that provision must also be made for unexpected occurrences.
Back in June this year, the International
Monetary Fund (IMF) said it stood ready and willing to come to Barbados’ rescue, while warning that slower growth and a doubling of the domestic cost of living were on the immediate horizon as a result of the austerity measures announced by Sinckler in his May 30 Budget.
Following a visit to the island from June 20–29, a team from the Washington-based financial institution, led by Judith Gold, warned that the economy, which registered 1.6 per cent growth in 2016 and a further two per cent acceleration in the first quarter of 2017, was likely to falter as a direct result of Sinckler’s $542 million austerity package.
“Growth in 2017 is projected to slow to less than one per cent, reflecting the fiscal consolidation efforts introduced in the FY2017/18 Budget,” the IMF team warned in its statement, in which it also cautioned that domestic inflation, which stood at 3.2 per at the end of last year, was likely to accelerate to 6.7 per cent by the end of 2017.
Since then there have been no more public warnings from the IMF, but just last week, the international ratings agency Standard & Poor’s (S&P) announced that it was lowering its long-term local currency sovereign credit rating on the island to ‘CCC’ from ‘CCC+’, while warning that there was now a higher risk associated with maintaining the country’s $2 to US$1 exchange rate.
In addition, the New York-based agency warned that Government would fall short of balancing the budget this year and the next due to a range of factors, including a weak track record of execution, “the likely overestimation of one-off revenues”, and the fact that certain political considerations would have to be made as an election year approaches.
With Government’s deficit estimated at six per cent, and overall debt at about 140 per cent of gross domestic product (GDP) – one of the highest in Latin America and the Caribbean – the ratings agency also urged the Stuart administration to address its policy challenges.
“Barbados’ policy challenges include high general Government debt, deficits, and debt servicing requirements; limited appetite for private-sector financing; and a low level of international reserves raising the risk to sustainability of the peg to the US dollar,” S&P said.