Government appears to be softening its resistance to seeking the support of the International Monetary Fund (IMF) to turn round the economy.
Two days after Central Bank Governor Cleviston Haynes revealed that the island’s foreign exchange reserves had slumped to a dangerously low $410 million, or 6.6 weeks of import cover, Minister of Finance Chris Sinckler hinted that the Democratic Labour Party (DLP) administration would not rule out a programme with the lending agency.
However, he said any decision to approach the IMF would have to be mandated by the people in the general election, constitutionally due by the middle of this year.
“The IMF option is always on the table, it is just one of the options Government always has. That is why we joined . . . .If that is what the people of Barbados want and they say that is what ought to be done, then we shall see,” Sinckler told Barbados TODAY before entering Parliament this morning to debate the Crown Lands Vetting and Disposal Act.
“There is an election coming up and all of these things are going to be debated and we will see what the mandate is, but the Government has not taken any decision at this time.”
The last time the economy was put into IMF hands back in the early 1990s, the bitter fiscal medicine that followed proved too powerful for many Barbadians to stomach, and was blamed for the eventual collapse of the then Erskine Sandiford-led DLP administration, following crippling street protests.
Among the major expenditure cuts instituted then was an across-the-board eight per cent pay cut in the public sector, which was later restored.
However, with the economic and social fallout still fresh in its mind and a general election now looming, the ruling party, though still faced with a deficit of 3.7 per cent of gross domestic product (GDP) and debt of 145.9 per cent of GDP, along with the dwindling foreign reserves, has been reluctant to seek financial help from the Fund, even though the IMF has publicly indicated that it “stands ready to assist the Government of Barbados, including through continued policy dialogue and technical assistance”.
With leading economists, including former Prime Minister Owen Arthur and former Central Bank Governor Dr DeLisle Worrell, urging Government to turn to the lending agency, Sinckler has said repeatedly in the past he had yet to see the logic of those making the calls.
“We do not at this time believe it is necessary for Barbados to enter into an International Monetary Fund programme, whether stand-by or structural adjustment or whatever terminology,” he said last February during a press conference on the state of the economy.
This morning he said the latest Central Bank report showed that Government’s fiscal measures were working, evidenced mainly by the reduction of the fiscal deficit from $586.5 million to $399.5 million between April to December last year.
However, the minister also acknowledged that the 23 downgrades which the country has suffered since the DLP came to office have affected the country’s investment grade, making it difficult to source funding at reasonable interest rates on the capital market.
“Of course we know that we are not investment grade, we know that we are below that category; as a matter of fact we are at junk status. Therefore, approaching the capital markets as often as we did before is not possible because the rates are going to be exceedingly high,” Sinckler said.
“Now we may very well have to do it in the end to shore up the reserves. I know that the Central Bank and the Ministry [of Finance] are working on some alternatives in relation to funding so that may very well happen. At the end of the day it is a structural problem that we have to resolve because short term inflows are not going to resolve that permanently,” he stressed.
He contended that the drop in reserves was largely due to the stalled projects, the delay in completing the sale of some Government assets, external market factors and the servicing of external debt.
“Those projects we know that can bring in foreign exchange need to be let loose. I am not suggesting that we break any laws to do it but we have to make sure that we speed up that process. We had put some contingency plans in place to address the foreign reserves problem, some of which were dependent on assets sales, which have been delayed,” he said.
Sinckler pointed that the US$100 million expected from the sale of the Barbados National Terminal Company Limited to the Sir Kyffin Simpson-owned Sol Limited had not materialized, as the sale has been stopped in its tracks by the Fair Trading Commission, while the proposed Hyatt hotel on Bay Street, The City remained the subject of judicial review.
He however noted that Government was still moving full steam ahead the sale of the Hilton Barbados Resort, although he would not say how close they were to completing the negotiations.
The minister also stated that the Central Bank Governor’s report clearly showed that Government had curbed its appetite for printing money, a practice for which the administration had come in for heavy criticism.
“Everyone has been saying that the Government has been relying on the Central Bank too much for printing money, but now because of the tax measures that we have implemented and because of the monetary stance that we have adopted the Central Bank is now providing substantially less financing of Government’s deficit than in previous years,” Sinckler stressed.