Minister of Finance Chris Sinckler has sought to calm nerves over yesterday’s report issued by the Central Bank of Barbados (CCB), which showed a faltering economy and international foreign exchange reserves still on shaky ground.
In his reaction today to the report, which revealed a 0.7 per cent decline in the economy during the first quarter of 2018, and stunted growth at best projected for the rest of the year, Sinckler suggested there was more to the report than doom and gloom.
The minister focused on the positive news that the reserves had improved, albeit slightly, by $14 million to reach $423 million or 6.9 weeks of import cover, stressing there were sufficient positives in the report to engender continued confidence in his management of the economy.
“The reserves are at concerning levels but it is not at dire levels. Dire is just one of those words that people like to bandy about just for the hype. There is no dire situation where people are scampering around; we don’t operate at that level. We had a wonderful winter [tourist] season, we saw commercial banks for the first time actually selling foreign exchange to the banks, which means that there is money out is the market. So people can get their money, do what they have to do. So dire is not the word I would use to describe the current situation,” Sinckler told reporters after he paid his $250 deposit into the Treasury this morning, ahead on nomination next week for the May 24 general election.
CCB Governor Cleviston Haynes, in his review of the first quarter and projections for the remainder of this year, yesterday revealed that high public sector debt service obligations restricted the growth of international reserves at the Central Bank to $14 million for the period.
As a result, the import cover of 6.9 weeks as at the end of March, which translated into a 0.3 per cent rise from last December, remained below the recommended 12-week minimum.
With the economy continuing to falter,
Haynes disclosed that the bank was contemplating calling on the private sector to voluntarily provide funding of between US$60 and US$70 million to top up the island’s dwindling foreign reserves, a strategy he said that was employed in the early 1990s and again in the early 2000s when the situation was also dire.
Without going into too much detail on the proposed strategy, the CCB boss said the bank would “allow some corporate entities, particularly the financial sector with large investment balances, to invest some of those balances abroad on the condition that should the country need them in the future that those funds would be returned to assist”, although he admitted even this injection of funds would not be enough.
But with the island due to service the US$225 Credit Suisse loan next month and in December, Haynes said the authorities could not afford to take any chances with the falling reserves.
However, this morning Sinckler said there was nothing unusual about the bank seeking second tier reserves, arguing that as the primary foreign currency manager, the Central Bank had the authority to permit private and public sector entities to invest foreign exchange earned by Barbados in external jurisdiction.
“This is done under the proviso and conditionality that those reserves called second tier reserves are the reserves of Barbados. Any time the central authority deems it necessary to have any part of, or all, to be brought back to the island to assist in the orderly management of the reserves, that such can be done.
“The Central Bank has determined, as it has done previously, that given some of the delays in sale of some of the assets as well as the impact of things such as Brexit and the fall of the British pound on the foreign exchange earnings of Barbados, that notice had to be given to some private and public entities to repatriate some Barbados’ reserves held in foreign jurisdiction. That is normal practice,” Sinckler explained.
In a stout defence of his stewardship of the economy, the minister insisted that his policies had stemmed the slide in the reserves witnessed last year, and that things were trending upwards.
Emphasizing that defaulting on the country’s foreign debt was not an option, Sinckler said Government might need to consider a restructuring programme in order to prevent any further decline in the reserves.
“We know that we have foreign debt payments coming up and we are not going to wait until the time comes to go scrambling around. We have a schedule and at the beginning of each year we see when debts are due and what inflows are coming in. If we are short in that respect we then tap other resources like the second tier reserves or we try to get a loan or roll the payment over. The Central Bank and the Ministry of Finance are actively putting measures in place and I can assure you that on the day when those payments are due, they would be paid in full,” Sinckler stressed.