Former Central Bank Governor Dr DeLisle Worrell is again warning Government of the need to urgently cut its spending.
In his just-released April 2018 Economic Letter, Worrell suggested that this was the only way to stop the current drain on the island’s foreign reserves, which, according to another regional economist Marla Dukharan, fell to just 6.1 week of import cover or US$237 million at the end of January – well below the standard 12 weeks of import cover.
With the situation as it stands, Worrell suggested that the printing of money by Government was not really an issue at this stage, since “Barbados currency notes are printed by the firm of De La Rue in the UK, and stored in the vaults of the Central Bank until commercial banks request an additional supply to meet customer needs”.
However, the ex-governor, who was fired a year ago at the height of economic policy disagreement with Minister of Finance Chris Sinckler, cautioned that on account of insufficient revenues, Government could not afford to be continuously operating outside of its overdraft limit with the Central Bank, which by law, has been set at ten per cent of the estimated revenue for the fiscal year.
“Over the past several years there have been many months when Government was already at its overdraft limit as civil servants’ payday approached, and revenues accumulated at the Treasury were insufficient to cover the wages bill.
“In these circumstances the Central Bank buys Treasury Bills in order to provide the additional funds needed to ensure that all Government expenditures can be covered. This does create a problem, because the Central Bank lends to Government for payments in Barbados dollars. However, when these dollars are spent, to buy groceries, to pay electricity bills, to pay for gasoline, and other necessities, they generate a demand for imports. Imports must be paid for in foreign exchange, so ultimately banks will return to Central Bank to obtain foreign exchange from the country’s store of reserves, so they can meet the additional import demand.
“It is this process which leads inevitably from Government overspending to the loss of foreign reserves,” the economist explained, adding that “the only solution is a reduction in Government spending, sufficient to bring Government’s current account into balance, in the first instance”.
In keeping with his earlier advice contained in his economic paper The Barbados Economy: The Road to Prosperity, Worrell also suggested that the spending cuts should be sustained for about three years.
“That is because of the need to generate savings on the Government’s current account and rebuild an adequate store of foreign reserves,” he said, adding that “in my paper I show how this policy could lead to a healthy three per cent growth rate by 2021, the achievement of reserves adequacy, and a gradual reduction of the ratio of Government debt to GDP.
He maintained that despite its current challenges, “the Barbados economy has great potential for growth and future prosperity.
“Our country is among the world’s most desirable tropical resort destinations; Barbados is an attractive location for international business services; and a full commitment to renewable sources of power could pitchfork the economy into the first rank of economic development. However, it all starts with fiscal rectitude and a public service that gets the job done.
“Ensuring Government savings on the current account, and renewing the public sector to provide efficient delivery of services, will remove the twin roadblocks in the way of economic prosperity and improved livelihoods for all Barbadians,” the economist stressed.