One of the country’s most successful leaders is warning that a monumental effort is needed to raise $1.2 billion in foreign exchange to halt the economic slide revealed this week by Central Bank Governor Cleviston Haynes.
Former Prime Minister Owen Arthur said it was clear from Haynes’ economic report of a 0.7 per cent decline in the first quarter and debt of 151 per cent of gross domestic product (GDP), that the economy is on the brink of a recession, or could even already be there.
Equally troubling, he said, was the fact that the downturn was happening at a time when other countries were performing well.
“The review told us that the Barbados economy is in a recession or about to go into a recession, but significantly that we are going into a recession when the rest of the world is not in a recession. Therefore, it commands us to begin seriously to discuss the significant aspects of our own domestic circumstances and explain why Barbados is in a recession when the rest of the world is not,” Arthur told Barbados TODAY in an interview.
In his economic report delivered on Wednesday, the Central Bank Governor indicated that while there were slight decreases in Government spending, as well as the fiscal deficit as a result of higher and new taxes introduced in May last year, the administration failed to meet its targets for the fiscal deficit or revenues from the taxes.
Haynes also said the international reserves stood at $423 million or 6.9 weeks of import cover, and while there was a 5.8 per cent increase in tourist arrivals last year, overall tourism receipts were down slightly by about one per cent.
The economy, he said, would likely record negative growth this year, predicting 0.25 per cent growth at best.
Arthur today suggested the new administration elected on May 24 would have to undertake “significant adjustments” in order to prevent further deterioration.
“We can begin to state categorically that the next Government of Barbados assuming office in June will find that it will have to face a situation in June, July, August, which constitutes the toughest period of the year for the economy, that it will not be in a position to go on an economic and financial gallop or indulge in things other than to mount a significant resolute for the Barbados economy,” he warned.
The former Prime Minister said $500 million in capital inflows was needed to return the reserves to comfortable levels, between seven and eight times more than the $60 million to $70 million Haynes had said the Central Bank was considering seeking from the local private sector.
Arthur said the economy was in such dire straits that the next administration would have to seek funding from international sources, describing the Bank’s possible approach to the private sector for a bailout as a “desperate measure”.
“If you have to increase the reserves by at least $500 million with an import content for capital expenditures of 60 per cent, it would mean that Barbados would have to attract $1.2 billion of foreign capital as soon as possible in order to bring back stability to the economy,” he said, explaining that raising this much money would be a monumental task which would likely demand an approach to the International Monetary Fund (IMF) as a last resort.
However, he warned that turning to the IMF at this point would mean more stringent adjustments than the country would have had to endure had it gone “at a sufficiently early time”.
“Barbados has put itself in a position where it is like an aircraft that is flying too low. There has to be a national consensus about the very difficult things that the Fund may ask you to do now that you are coming at this late stage . . . and it could lead to social disorder if the Government does not talk the country through it in a very empathetic way,” he said.
Arthur stressed that additional measures were also needed to drive down the fiscal deficit and spur sustainable growth, insisting that those issues ought to be raised during the election campaign.
“Significant adjustments will have to be made by the next administration that can significantly affect the extent of the services provided by the Government to which the public has become accustomed and could even affect the level of employment in the public sector,” he stressed, while cautioning that measures to stabilize the economy would not yield overnight results, with signs of measureable improvement possibly taking a minimum of three years.