A thick cloud of gloom continues to hang over the economy with the Central Bank reporting that the island’s foreign exchange reserves have reached dangerously low levels.
The bank’s Governor Cleviston Haynes today revealed that as of the end of December last year, the reserves stood at a 22-year low of $410 million, or 6.6 weeks of import cover, well below the recommended 12 weeks.
The situation is even more dire than indicated two days ago by economist Marla Dukharan, who reported at the time that international reserves had fallen to $482 million, or just under eight weeks of import cover, as at November last year.
Therefore, the latest numbers released today by the Central Bank suggested that in just one month the reserves fell by $72 million.
Still, Hayes urged Barbadians not to panic, insisting that “panic won’t get us anywhere”.
“We have challenges which we have to face, but it does not require panic. It requires us to address the issues which confront us, to do so frontally and do so quickly. I think that is what is within our powers to do. Panic won’t get us anywhere,” Haynes said this morning as he delivered his economic review at the Central Bank.
Government’s top economic adviser explained that weak private sector capital flows, net public sector outflows and the delay in the sale of some state assets contributed to the low levels of reserves.
However, he was “optimistic that we will have adequate levels of reserves to meet our payments during the year”.
Despite his optimism, Haynes reported that unlike the customary practice, commercial banks were no longer selling as much surplus funds to the Central Bank “because the market is tight”.
In fact, he said, “in some cases they have actually come to us to buy foreign exchange”.
The struggle to maintain the reserves notwithstanding, there were a few gains, with the fiscal deficit falling to just below four per cent due to increased revenue intake, along with one per cent economic growth, a rise in tourist arrivals and a fall in spending in some areas.
Still, overall expenditure grew by an estimated $9.9 million and there was lower than expected tax revenues from the austerity measures introduced last year, as the Freundel Stuart administration struggled to bring economic balance.
The controversial National Social Responsibility Levy generated only about $115 million – $84.9 million from the tax itself and an additional $30 million from Value Added Tax (VAT) generated by the levy, a long way from the $218 million it was expected to bring in from July 1, 2017 when it was raised from two per cent to ten per cent of the customs duty on imported and locally produced goods, to the end of the fiscal year in March.
Import duties also declined, with the new foreign exchange tax earning the Treasury just $30.4 million as at the end of December, $22 million below the $52.5 million target for the remainder of the fiscal year. Over a full financial year, it was projected to generate $140 million.
Haynes reported that Government reduced its overall debt to 145.9 per cent of GDP during the April to December period, from 147.5 per cent of GDP the previous year, although interest on debt payment increased, which also contributed to the declining reserves.
He urged the administration to “continue to build on the gains it has made on reducing the fiscal imbalance” for fiscal year 2018/2019.
“The fiscal deficit for 2017/2018 is anticipated to be lower than for the previous year, but it is unlikely to achieve its target because of the non-receipt of divestment proceeds and the lower than anticipated revenue yield.
“Further consolidation, particularly through structural expenditure reforms and improved tax administration, is now required. Effective implementation of these measures would help to prevent further accumulation of arrears which will aid in restoring confidence and facilitating private sector activity,” he advised.
There were marginal increases in revenue from corporation, personal, financial institutions asset, and excise taxes, which, coupled with “stabilization of non-interest expenditure”, were primarily responsible for the reduced deficit, which stood at $399.5 million for the April to December period, a decline of $196.6 million.
The Central Bank also slashed its funding of Government to a mere $96.8 million between April and December, compared to $714.5 million for the corresponding period for fiscal year 2016/2017.
Despite the economic maelstrom – made worse today by the announcement by the International Monetary Fund that real growth for 2018 would be at 0.5 per cent and inflation would be expected to rise by 5.5 per cent – Haynes dismissed the idea of a devaluation of the Barbados dollar, saying this would not help the island achieve is economic targets.
At the same time, he recommended two key priorities for 2018, including strengthening of the adjustment efforts “to reduce the fiscal balance to a sustainable level, facilitate a reduction in the debt to gross domestic product ratio over time and engender the investor confidence required for promoting acceleration in economic activity over the medium term”.
He also said “significant public and private capital inflows” were needed to restore the reserves, “at least in line with the twelve week benchmark”.
The Central Bank is forecasting economic growth of between 0.5 per cent and one per cent for this year, as a result of continued dampened domestic demand due to the austerity measures announced at the end of May last year.