Despite its ongoing economic challenges, ex-Central Bank Governor Dr DeLisle Worrell suggests overseas investors are still eager to invest millions in the Barbados economy.
However, writing in his November newsletter, Worrell said these potential investors were currently holding back due to the unstable economic environment and the threat of a devaluation of the Barbados dollar, which is currently pegged two to one against the United States currency.
Worrell therefore called on the local authorities to take “decisive action” to close the national Budget deficit and to improve the performance of the public sector.
“There is much that Barbadian policymakers can do to lend greater confidence to those who are interested in investment in Barbados,” the ex-Governor stated, adding that “the most urgent task is to effectively reduce Government’s deficit to relieve pressure on the foreign exchange market.
“Foreign exchange shortages are still widely reported, and importers and others needing foreign exchange are being placed in a queue. This naturally puts a damper on incoming investment,” he noted with the country’s foreign exchange reserves having plunged below the standard 12 weeks benchmark to 8.6 weeks of imports, or just $549.7 million, at the end of September.
This has caused much unease both locally and internationally, with some officials calling on the Freundel Stuart administration to take urgent steps to shore up the reserves and cut its spending.
Without making any mention of Government’s new National Sustainable Recovery Plan 2017, which is due to go before Cabinet this month, Worrell insisted that any uncertainty could be reduced by “appropriate policy”.
“Because our country is small, a small capital inflow by international standards can provide a major boost to our economy. There are investors who are eager to invest in Barbados, the international climate notwithstanding. What they need is a more stable domestic economic environment, without the threat of a devaluation,” he said, adding that investors must also be reassured that administrative and regulatory systems are on par with major financial centres like New York, London and Switzerland.
“Finally, they expect a high degree of worker engagement and productivity. These are matters all Barbadians and our Government can and must do something about. The country’s future growth depends on how well we meet these challenges,” Worrell stressed.
The prominent economist acknowledged that there were risks associated with any investment.
However, he argued that investors were often willing to take them if they were assured of better returns.
At the same time, Worrell pointed out that “investors worry that expected returns from their investment may not materialize because new restrictions are imposed, or existing regulations are amended”.
“Other concerns are that taxes may be increased or losses result from fluctuations in exchange rates or interest rates. These risks may all be lowered or eliminated by official policy changes,” he insisted, adding that “once financial markets are reassured about the stability of the foreign exchange market, Government must turn its attention to the regulatory and administrative framework affecting potential investors,” he said.
The former Governor, who was fired back in February at the height of public disagreement with Minister of Finance Chris Sinckler on economic and administrative policy, also acknowledged that Barbados was competing with other jurisdictions for investments in hotels, international businesses, energy, spirits and other large projects.
Therefore, he said, it was necessary for the island to improve its competitiveness and doing business rankings.
Further highlighting the challenges facing Government, Worrell pointed to the World Economic Forum’s Global Competitiveness Report, saying many of the respondents believed “regulation has become more burdensome, the legal framework less efficient and that Government has been wasteful in its spending”.