With a general election approaching and the island’s foreign reserves situation deteriorating further, fear is mounting within the private sector that the country will not be able to achieve an economic turnaround.
Governor of the Central Bank of Barbados Cleviston Haynes confirmed today that the island’s international foreign reserves fell to $410 million or just 6.6 week of import cover at the end of December last year.
However, he said Government was able to rake in slightly more revenue and to lower its fiscal deficit to around 3.7 per cent while growing the economy by an estimated one per cent in 2017.
Reacting to the Governor’s assessment, Chairman of the Barbados Private Sector Association (BPSA) Charles Herbert said it came as “no real surprise” since it was “broadly inline with our expectations and fears”.
“The fiscal deficit report issued by a subcommittee of the Social Partnership in March 2017 warned that the country’s foreign reserves would create the first financial crisis and would fall to $430 million by the end of 2017, and be depleted entirely at the end of 2019.
“The actual position at the end of 2017 was slightly worse at $410 million,” said Herbert.
He also pointed out that following the May 2017 Budget the BPSA had expressed concern that the measures announced would not close the island’s deficit as projected “as the economy would slow and while the new tax measures would increase Government revenue, other sources of revenue would decline and reduce the impact.
“We labelled it ‘pain with no gain’. The Governor of the Central Bank has essentially confirmed this position,” he added.
While acknowledging that tourism improvements were expected, as well as stability in other traded sectors, Herbert insisted that “the principal problem” facing the country was “not a deterioration in economic activity, but one created by public finances”.
Despite a dramatic decline over the last nine months, Government still remains reliant on Central Bank funding, with the Governor today highlighting the need for Government to make a greater effort to stem its expenditure and improve its tax collection systems.
“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,” Haynes said.
Herbert said he supported that statement, adding that development in those areas should be underpinned by speedy implementation of investment projects.
He also emphasized the importance of service delivery “as part of the enhanced productivity thrust”.
“In this regard, efforts to improve business facilitation as outlined in the recently drafted Barbados Sustainable Recovery Plan should provide a framework for strengthening growth prospects,” the BPSA head said.
“Additionally the BPSA strongly recommends that the Government enter into negotiations with a suitable multi-lateral for a loan facility that will provide security to foreign reserves and may give a short term reduction in interest payments.
“Guidance on these negotiations will be evident from the recently finalized IMF Article IV consultation which we hope that the Government will release to the public to inform us of the policy initiatives that they recommended. However, we acknowledge that the imminent elections may prevent immediate negotiations,” he added.