The Barbados Economic Society (BES) is expressing little confidence that the local economy will show signs of a revival anytime soon.
In the wake of yet another downgrade this week, BES President Shane Lowe told Barbados TODAY despite strong performances by tourism – the island’s primary income earner – and construction, the economy would continue to be crippled by the growing deficit, which stood at $537.6 million last May when Minister of Finance Chris Sinckler presented his budget, and falling reserves, which stood well below the 12 weeks benchmark at just 8.6 weeks of import cover or $549.7 million at the end of September last year – the latest period for which information is available.
In fact, Lowe anticipates that things will get even worse this year, as a result of the much-hated National Social Responsibility Levy and other tax measures introduced by Sinckler in the 2017 Budget.
“In 2018 economic growth will likely slow as the anticipated growth in tourist arrivals just offsets the persistent weakness in consumer demand for goods and services from the full effects of the May 2017 budgetary measures and any additional measures, which may be imposed to further reduce the fiscal deficit,” the economist predicted.
Worse yet, Lowe said foreign reserves would fall even further this year if the authorities fail to complete the sale of some state assets and planned foreign-financed projects fail to get under way.
Government’s plans to sell the Barbados National Terminal Company Limited to the Sir Kyffin Simpson-led Sol group has been stymied by both a court challenge by Sol’s competitor, Rubis, and a ruling by the Fair Trading Commission that in order for it to approve the proposed sale, certain conditions must first be met, including that there could be no 15-year moratorium on construction of new terminal facilities, and Sol could not be afforded a 32 per cent pre-sale increase in throughput fees since this would be in violation of the provisions of the Fair Competition Act, which prohibits merger increases in prices.
In addition, the much talked about sale of the Hilton Barbados Resort, reportedly for US$80 million – well below the US$100 previously announced by Sinckler – has not been completed, while work on the Wyndham hotel on the site of Sam’s Lord Castle appears to have stagnated.
At the same time, the planned construction of a Hyatt property on Bay Street, The City, continues to face legal challenges.
“Economic growth may be stronger than expected if the planned construction of the Hyatt hotel or other projects like that commence and provide a boost to employment and consumer demand,” Lowe told Barbados TODAY.
The BES head also called for measures to stabilize the foreign exchange reserves, which he said can be achieved through “a surge” in tourism earnings and other exports, foreign investment or access to foreign borrowing, as well as a reduction in imports, which the Freundel Stuart administration was hoping to achieve when Sinckler introduced a two per cent tax on foreign exchange transactions.
However, Lowe acknowledged that under the current circumstances it would be difficult to increase imports to the levels required to make a difference to the reserves.
“Boosting exports sufficiently to eliminate the persistent gap between foreign exchange inflows and outflows in the short term – over the next 12 months – will prove difficult due to capacity constraints, while measures designed to yield a sharp cut to imports like that experienced in 1992 will likely immediately reduce economic activity and increase unemployment and have immediate social implications for the most vulnerable in society without a sufficiently large social safety net. Further, difficulty in doing business has restricted stronger foreign direct investment inflows, and access to commercial borrowing remains unaffordable,” he explained.
He said a homegrown programme, investment in technology, renewable energy “and other new and existing foreign exchange earning sectors [could] improve the economy’s competitiveness while reducing inefficiencies, the cost of government and the size of the fiscal deficit at the same time”.
“By 2021, an improved fiscal position and a faster growing economy should lead to at least partial restoration of Government’s credit rating to at least permit the roll-over of those two large foreign bonds due in 2021 and 2022,” Lowe said.
He stressed that in addition to needed cuts in Government’s expenditure, the current situation also called for a more efficient public sector to determine the ease of doing business and the attractiveness of Barbados as a place to invest.
“Improved conditions to do business in the public and private sector can go a long way to increase foreign exchange inflows to invest in our most important sectors and to encourage local business persons to invest excess savings in profitable, employment-generating ventures,” he said.
Government’s ability to borrow on the international market has been hampered by repeated downgrades – 23 since the Democratic Labour Party came to office in 2008 – by rating agencies.
The most recent came earlier this week when the Trinidad-based Caribbean Information and Credit Rating Services (CariCris) lowered the island’s foreign currency rating to CariBBB- from CariBBB+ and its local currency rating to CariBBB from CariBBB+.