Barbados’ international reserves position has sunk even deeper into danger, putting even more pressure on the island’s prized exchange rate of BD$2 to US$1, a regional economist has warned.
Days before the Central Bank of Barbados is set to release its economic review of the Barbados economy for 2017, Marla Dukharan is reporting that the international reserves fell to an all time low of $482 million, or just under eight weeks of import cover, as at November last year.
The reserves have been on a downward trajectory with Government facing a high import bill, a massive debt of just over 100 per cent of gross domestic product (GDP), and a worrying deficit of about six per cent last year.
The reserves went from $705 million or 10.7 weeks of import cover at the end of March last year, to $635.5 million at the end of June, or 9.7 weeks of cover. By the end of September the reserves cushion was again deflated to reach 8.6 weeks of import cover or just $549.7 million.
In her Caribbean monthly economic report for January, Dukharan said the “international reserves fell 44 per cent year on year to US$241 million in November 2017”.
This, she said, was “the lowest level of reserves and the fastest year on year pace of decline in this century”.
“I estimate this level of reserves at roughly 7.6 weeks of imports. The main drivers of this precipitous drop in reserves is the extent of the Government deficit and the way in which it is financed – partly by Central Bank financing or printing of Barbados dollars,” Dukharan said.
“This is evidenced by the fact that the Barbados dollar monetary base expanded five per cent year on year in November 2017, when its ratio to international reserves stood at 10:1 indicative of the pressure on the exchange rate,” added Dukharan, who last year suggested that the Barbados dollar was over-valued.
Furthermore, the economist cautioned that the Central Bank’s financing of Government continues unabated despite numerous warnings, with the bank’s holdings in Central Government moving from 55 per cent to 77 per cent as at November 2017.
There have been mounting calls from worried economists and political pundits, as well as the business community, for Government to curb its spending and take urgent steps to shore up the reserves and return the economy to sustainable growth.
Calls have also been made for Government to approach the International Monetary Fund (IMF) for a reform programme.
Delivering the bad news about the falling reserves at the end of October last year Governor of the Central Bank Cleviston Haynes stayed away from taking a definite position on whether Government should bite the bullet and enter an IMF financing arrangement.
However, Haynes at the time 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”.
At the same time, he said some tough decisions would have to be made in terms of state spending, while suggesting that divestment of some Government assets should be a key consideration.
The Freundel Stuart-led administration has been banking on the sale of the Barbados National Terminal Company Ltd as well as the Hilton Barbados Resort to help put a dent in its worryingly high deficit.
During the first nine months of last year Government’s overall debt had climbed to 144 per cent of GDP, while expenditure increased by $13.9 million at the time, largely due to an increase in grants to public institutions.
Just last week Stuart told the Barbados Chamber of Commerce and Industry that he was counting on the new Barbados Sustainable Recovery Plan (BSRP) to put the economy on an acceptable growth path.
Dukharan, who is scheduled to take part in a live stream debate with former Governor of the Central Bank Dr DeLisle Worrell tomorrow on the topic, Is Barbados the Next Greece?, pointed to an IMF report, saying growth was expected at less than one per cent in 2017 and 0.5 per cent in 2018 based on higher inflation.
During the pay per view event, the high profile economists, along with other guest panellists, are expected to discuss solutions for the ailing Barbados economy.
The Central Bank is scheduled to release its review of Barbados’ economic performance for 2017 and prospects for 2018 on Wednesday.