With election fever already in the air, Acting Central Bank Governor Cleviston Haynes is not about to tell the Freundel Stuart administration to bite the proverbial bullet and agree any International Monetary Fund (IMF) financing arrangement.
However, during a press conference today called to review the country’s performance for the first nine months of this year, Haynes made no bones about saying that the island’s foreign reserves position was currently out of whack.
And while staying clear of taking a definite position on whether Government should go the IMF route, he warned that assistance from international development partners, including the Development Bank of Latin America, would not “address the overall issues we have in terms of the demands and supply of foreign exchange”.
However, he said some hard political decisions would have to be made in terms of state spending, while suggesting that divestment of some Government assets should be a key consideration.
“It goes without saying that we are concerned about the direction in which the reserves have been going,” Haynes said, while reporting that the economy grew by a modest 1.4 per cent during the first nine months of this year, led by tourism, which expanded by four per cent.
But this was simply not enough to erase the country’s worrying deficit, which was estimated at $279 million for the last six months, a $115 million improvement over the same period in 2016.
Equally worrying was the state of the country’s international reserves which plummeted further below the 12 weeks benchmark to reach just 8.6 weeks of import or $549.7 million at the end of September, putting more pressure on the stability of the Barbados dollar.
“Despite moderate economic growth and policy-induced reduction in the fiscal imbalance, the Barbadian economy continues to face significant economic challenges. In particular, strengthening of the international reserves is needed to ensure that the reserve buffer remain adequate in order to protect the fixed exchange rate peg,” the acting governor stressed.
At the same time, he reported Government’s overall debt has climbed to 144 per cent of gross domestic product, with current expenditure increasing by $13.9 million, largely due to an increase in grants to public institutions.
During the first half of the year, the deficit was largely financed by local sources, with commercial banks providing 76 per cent of the funding and Central Bank assistance “contained to $46.1 million”.
Following the presentation by Minister of Finance Chris Sinckler back in May of a $542 million austerity package that included a 400 per cent increase in the National Social Responsibility Levy (NSRL), there has been a slight improvement in the fiscal position over the last nine months, with Haynes reporting that tax revenues increased by $98.6 million, due in part to a $48.8 million boost in receipts from the controversial NSRL.
In addition, excise taxes rose by $46.4 million, resulting from higher excise duties on fuel and improved chargeable values on imported goods.
Corporate taxes also rose by $35.5 million, but the Central Bank said there were smaller gains in the collection of Value Added Tax and personal income taxes as the overall revenue outturn was dampened by weaker import duties and a fall in withholding tax.
In this context, Haynes said while it was “understandable” that a lot of the focus this year has been on tax measures, there was a need for stronger focus by the Freundel Stuart administration on addressing the expenditure side, even though he acknowledged that the situation could not be fixed overnight.
“Political decisions will have to be taken as to where they want to effect such cuts and what the nature of those cuts will be. When I say cuts in expenditure it could come in different forms . . . but the bottom line is that we have to reduce the size of the fiscal deficit,” Haynes stressed.
“The fiscal outlook underscores the need for expenditure restraint in the short term to supplement the recently introduced revenue measures, as Government seeks to place the public finances on a sustainable path and reduce the debt overhaul,” he added.
With elections constitutionally due here by the middle of next year and political parties already in full campaign mode, the acting governor further warned that “the scale of fiscal and debt imbalances now require significant structural reforms, related to the public sector financial management and improved tax administration”.
He said while the economy was expected to record between one per cent and 1.5 per cent growth for the current financial year, this was highly dependent on the execution of some large tourism-related projects.
The growth, which is higher than the revised 0.9 per cent projected by the IMF, is also dependent on the amount of revenue earned from the recently announced tax measures, as well as the level of financial investment to help “offset some of the reduction in domestic demand arising from the fiscal measures”.