A leading economist is warning that the island’s foreign exchange reserves will likely sink even further by the end of the fiscal year in March.
Soon after Governor of the Central Bank Cleviston Haynes announced today that the reserves had fallen to $410 million, or 6.6 weeks of import cover as at the end of December last year, University of the West Indies (UWI) lecturer Jeremy Stephen said the worst was yet to come.
Stephen said in video posted on Facebook that if Government did not quickly slash its expenditure, and if international oil prices continued to climb, come the end of March the reserves could plummet to just five weeks of import cover.
“We are looking at five weeks if that Barbados National Terminal Company Limited money don’t land; we are looking at five weeks if that Hilton money don’t land. You saw the Governor stressing on speed and being able to make key decisions quickly. But you have an election coming up and nobody wants to rock the boat,” he said.
In addition, Stephen said another credit downgrade was all but certain, and if inefficiencies in the public sector were not eliminated with the level of urgency required then “we are going to be spinning top in mud”.
“We are at a really precarious time in our history. If we can’t get the investors in and we are not achieving a growth agenda as a country, but a consolidation agenda, we are in ducks’ guts,” he said.
The former Barbados Economic Society head said there were signs in the economic report presented by Haynes today, that “we are now serious about the [economic] situation”, but he was concerned that “we are going about it in a really messed up way”.
He explained that Government seemed more concerned about raising revenues through taxes rather than trying harder to trim expenditure, which grew by $9.9 million during the first nine months of the current fiscal year.
Meantime, regional economist Marla Dukharan, who two days ago said the reserves had fallen to $482 million at the end of November last year, said the 4.4 per cent increase in prices was expected because of the rise in the National Social Responsibility Levy and other tax measures introduced last year.
She said while the tax measures, which were designed to constrain consumption, seemed to be working, “it has not been sufficient to arrest the decline in reserves or to actually see a reverse in that trend where we would really like to see”.
Though welcoming the reduction in the fiscal deficit, which fell to around 3.7 per cent at the end of December, as well as the more than $200 million revenue intake, Dukharan told a local radio programme expenditure was still an area of concern, pointing to increases in transfers and subsidies.
She also suggested that in the short term Government could “relax the foreign exchange control where you can allow foreign currency deposits.
“Part of the reason you would want to do something like that is if there are a lot of Barbados residents that have money abroad, the chances are, if they are confident in the economic trajectory of the country they might want to bring their money back home and use this money for investment purposes and consumption and buy homes. So that is a short term fix that could possibly help to alleviate the decline in reserves,” she explained.
Also speaking on the radio programme this afternoon economist Ryan Straughn, a candidate for the Opposition Barbados Labour Party, suggested that Government should employ a growth strategy instead of raising taxes.
“We have to pursue a credible growth plan whereby the private sector feels confident . . . that when it goes out and makes an investment that the Government will not turn around the next year and change the policy and jeopardize that investment. Therefore there needs to be a strong and credible plan for sustainable growth,” he insisted.
Straughn argued that the fall in foreign reserves “further compromised” the island’s valued fixed exchange, which currently stands at BDS$2 to US$1.
Though welcoming the drastic reduction in Central Bank financing for the first nine months of the current financial year, Straughn said the bank should not “beat itself on the chest” just yet since it was now up to Barbadians and overseas investors to invest, which he said was still uncertain given the low confidence levels in the Barbados economy.