The Barbados Economic Society (BES) is warning the Mia Mottley-led Government that its current dependency on the Central Bank of Barbados for financing is unsustainable.
The warning came in a statement issued in response to this week’s Central Bank review of the island’s economic performance for the first half of the year.
The BES pointed out that a major concern over the last five years has been the persistent decline in the country’s stock of foreign exchange reserves, which fell from 20 weeks of import cover at the end of 2012 to about seven weeks of cover during the first quarter of 2018.
“Since then, the Government’s decision to suspend interest and principal payments on foreign Government debt has stabilized reserves at seven weeks of import cover, pending the completion of comprehensive debt restructuring negotiations and access to International Monetary Fund (IMF) and other development banks’ financing,” it noted.
However, the BES cautioned that in the interim, Government has lost complete access to most private sources of financing and was therefore primarily dependent upon Central Bank financing to fund its deficit during the second quarter of the year.
“This source of funding is unsustainable. Thus, the Government should match expenditures with tax revenues to eliminate the need for additional domestic borrowing in the medium-term,” the BES advised.
It further warned that even though the Prime Minister’s June 11 mini Budget aims to achieve this objective, additional expenditure cuts were necessary to reduce the country’s 155 per cent of GDP debt burden over time.
The BES also cautioned Government of the need for an “amicable completion” to its debt restructuring negotiations with creditors, as well as prioritized cuts in its recurring, non-interest expenditure.
“If executed correctly and in conjunction with entry into an IMF programme, these measures should begin to restore investor confidence in Barbados and reverse the upward trend in the Government’s debt.
“Any subsequent rebound in economic growth will depend on a
reversal of downward trends in domestic and foreign investment since austerity measures will likely keep household consumption subdued in the short-term.
“Access to foreign financing should also boost foreign reserve levels in the near- to medium-term and therefore provide some
buffer against external shocks,” the BES suggested.
In its latest report, the Central Bank said the economy contracted by 0.6 per cent during the first half of the year, despite a 3.4 per cent increase in long-stay visitors.
During the six-month review period, total spending by tourists increased by a mere 1.4 per cent.
Several indicators also point to a reduction in both domestic and foreign direct investment. In particular, construction output fell by four per cent with Government spending 16 per cent less on capital projects between April and June 2018.
However, spending on fuel imports increased while capital and intermediate imports fell by 7.3 per cent and 4.7 per cent respectively.
Private capital inflows, which capture physical investment by non-residents, also fell by ten per cent between January and June 2018 and have continued on a steady downward trajectory since 2014.
Consistent with weaker economic activity, the average unemployment rate increased marginally to ten per cent by March 2018. This coincided with a modest increase in commercial banks’ ratio of nonperforming
loans to total loans relative to the end of 2017.
Further, despite low deposit rates and falling lending rates, commercial banks’ holdings of excess funds increased over the past two years on account of faster growth in domestic deposits relative to lending to the private sector.
“Commercial banks’ profitability has therefore declined over this period, and this trend will likely continue for the foreseeable future given the Central Bank’s negative projection of economic growth for 2018 and the planned restructuring of commercial banks’ holdings of Government securities,” the BES said.
This is all very good in a way. But it is not going to help very much.
The Barbados private sector is nothing more than a “buy and sell” private sector. In other words, glorified shop keepers. The run on our foreign reserves by these people will continue and more than likely get worse.
Barbados” focus needs to be export oriented. However the private sector of Barbados does not know how to get that done. Manufacturing and agriculture need a boost. These sectors can be income generating for the country. Building up the foreign reserves of the country.
Barbados can not continue believing that it can borrow its way to prosperity. That is what this stupid Govt. seem to believe. So the emphasis is on do every thing quickly so that we can get back to borrowing some more, and fool our selves that things are good, then in ten to fifteen we are back where we are again.
The economy of Barbados needs to be taken out of the hands of the white Bajan Plantation class and the Indian Muslims as they dont know what they are doing.
When you borrow you have to pay back, dont forget that. The Barbados economy needs a retooling.
Barbados would not have the capacity to scale the two industries you mentioned in a way that would have a meaningful impact of out FX position. How would we be able to grow and expand proportionally in terms of production and profits while building a large market position that is sustainable?
I would like to see the empirical data on the level of aggregation, in terms of dollars, in the industries input/output and price expectations before reaching a conclusion. We maybe able to produce margins that is likely to satisfy domestic consumption
and save some fx, but never to the point where we can became a reliable exporting nation.
Yup, CCC, I agree with your first 2 paragraphs only. I’ve heard those arguments before. The private sector here is mostly a mercantile buy and resell system which does little for this country. Manufacturing needs to be revamped and hastened in this country and more money needs to go towards agriculture even if it means importing labour. The move in the last 2 decades has been has been towards a service oriented-economy however I do believe that manufacturing/agriculture can still play a significant part in this country’s development.
We need to focus on domestic out along with exports including tourism and international business. Let’s take for instance the three hotels that are to be built in Bridgetown, Speightstown and Sam Lord’s Castle. How much of the produce that will be consumed there will be locally grown? When these properties need to be furnished, how much of the business will go to local manufacturers? If the bulk of that businees is to be provided locally, then someone needs to be planning the output so that when it is needed is is ready. If such planning not done someone will say that they cannot get what they need locally. Then it will be imports, imports, imports.
Another are needs forward planning is the type of human resource skills that will be needed for these hotels. Has anyone determined what categories of workers will be needed and whether we will have the requisite type and numbers initially and ongoing? This is the type of forward thinking and planning that we need.
A new offshore medical school is coming. Housing is needed. Furnishings for the houses and the School itself will be needed. Will local manufacturers get this work? Uniforms have to be made. Will local manufacturers get this work?
Agricultural output can be increased substatially if every householder is facilitated in planting some food crop for personal use and possibly to market commercially. Goats and goat cheese, sheep, chickens, rabbits, are but a few of the food items that children can be encouraged to get involved in.
All I see here is more taxation.
It is called printing money, the same thing the ruling Barbados Labour Party constantly criticized the former Democratic Labour Party government about.
Get rid of the NSRL which ensured that all business houses paid their taxes, and place it somewhere else.
Add more taxes while demonizing the DLP in a sophisticated public relations campaign which the people have bought into.
This way the masses have made it easer for the ruling BLP to slip through higher and higher taxes by saying it was the DLP’s fault.
This massive scheme of politricks will backfire.
It deserves a Grammy.
@Carson C. Cadogan – now u said a lot in a little. U not seeing some thing. The robber got the economic pocket-book. I will deal with ur post in a minute.
JC, I agree with you that local farmers should be feeding the tourist, but because of the lack of planning and organizing on they part the hotels cannot be convinced that the supply of their produce would meet the demand at a sustainable level without disruption.
To Johnny Crow. Macroeconomic solutions and fiscal policy takes a little time to kick in. The policy may be implemented overnight but the impact and outcome do not, will not ,and cannot be felt immediately, so the economic turn around is a process.
The printing of money was a bedrock policy of the DLP for 10 long years, and it will not be until the new fiscal and monetary polices of this 3 months old government kicks in that that we can stop the Central Bank from “breast feeding” (Fruendel, 2017) the economy
@JENNIFER –
That is a long minute.
@DT – Sorry, went to give my 2 dogs fluffy and Tarzan some breakfast.
@Kevin – why do u not agree with the last part of Carson’s post?
@Carson C. Cadogan – I hope u ain’t gone to church.
“glorified shop keepers” – good one. Carson, can u tell me at least 5 black SUCCESSFUL/PROMINENT manufacturers in Bim aka little England. I coming to a point.
I am not talking about the pigeonhole book people eg Shane Lowe, and CEO, General Managers etc.
@CCC – One of my favorite commenters on BT. Now Carson the fact that u did not answer my question means u do not know or there is none (probably one and the same). U and some others keep on here keep talking about these political tourniquets, which will not produce any fruits. Do u know that the whole of Europe was build from the plantation produce. Why did the planter-class tourniquet ditch such.
Why was a cotton gin not built in Bim aka little England? Back then. We want to get into innovation and cannot even realize we still are at square one = “ground” level/ embryonic stage, as a majority people. Just as world technology has moved on and up so has the mind of the planter-class. The major money earners back then for the white capitalist/colonialist were coffee, cotton, rum, sugar, and tobacco, brass pans and guns….etc. It is not that the private sector does not know how to get things done. This group (planter people) r way ahead in their game Carson. They know the SUBSTANCE HAS BEEN TAKEN OUT just like after u grind cane (remember u r now independent also). So why not be glorified shop keepers as u call them. If any people who can get things done will be the white planter-class here in LE aka bim. Remember Carson them (abroad also) is who u get ur Hanes, trainers, meats, bread, clothing, glasses, food, religion, education>>> look EVERYTHING from. Our politicians over the years have been weat at building this people as bread makers, instead they produced bread consumers giving way to Trinidad, Jamaica etc as the leaders in Manufacturing leaving this majority people saddled in academia as a cat lodged in a corner. The Economic model and education curriculum of Barbados needs to change and fast. We also got another problem called INTEGRATION which automatically means back seat, and piggy back riding for our politicians.
As I have said on many occasions we need a rat approach to the development of Bim aka little England without any droppings.
@MIKE:”The printing of money was a bedrock policy of the DLP for 10 long years, and it will not be until the new fiscal and monetary polices of this 3 months old government kicks in that that we can stop the Central Bank from “breast feeding” (Fruendel, 2017) the economy”
How will this be avoided?
That above Barbados Today article could not have come at a better time than now.
For, this BLP when it was in parliamentary opposition severely criticized, esp. between 2013 to 2018, the last DLP government over the matter of the so-called printing of money.
Indeed, Dr. Clyde Mascoll who was an advisor to Mottley
was the severest of
such BLP critics
when it came to such
a matter.
For, he took not only
issue with the
amount of so-called
printing that was being done and the
effects such was having on the
foreign reserves (fallacy), but
also with the lack of
parliamentary
approval.
But with the recent
amendment by this BLP government to the Central Bank Act – speaking to a limitation of the amount of so-called
printing that can be
done from here
onwards (for a given year and or an accumulated amount in excess of one year??) – without
parliamentary
approval, the issue
of so-called printing
must therefore
revolve around
parliamentary
approval being given
to such a practice.
So, now that this
BLP has become at
the helm of
government and has
been seen to have
been continuing to
do so, the
resignation of this BLP government and Dr. Mascoll must be demanded if only because they have terribly mislead the
people into believing
that the policy of
so-called printing of
money was so dastard and henious (it imperils the functioning of the political economy of Barbados),
that such was one of
the reasons why they (BLP) argued for last DLP government to have been voted out by the majority voters of this country.
Yet to realize that they are still doing
so must therefore
call for the
immediate resignation of both Mascoll and the BLP from government over such troubling deceit and
hypocrisy.
Mark Adamson.
@RIC. The correct term is Quantitative Easing (QE) instead of printing money., and it is just a stop gap monetary measure that a Central Bank may use to stimulate the economy and increase liquidity. It was adopted as a policy decision of the former government, never intended to be long-term. However, it became a convenience that would in turn damage the economy.
Debt, when managed properly, is an efficient tool that ensures access to other peoples capital/resources and infrastructure on the cheapest possible terms, when let uncontrolled it can be dangerous. In order to get out of the habit of “printing” we would have to undergo a regime of structural adjustment with a progressive normalization of monetary policies.
Thanks Mike. That’s a bit over my head so I will ask this: wasn’t the DLP doing it to primarily satisfy expenditures?
RIC you are smarter that you pretend to be. The DLP was printing money to meet public sector payroll, and using the public sector as the main function of economic growth, and it was done for a prolonged and continuous period.They don’t have the capacity to fill that role effective and should have let the private sector be the drivers of the economy. They could have look to other means to “satisfy expenditures” but for them this was the most convenient way out.
MIKE
It would be best if you keep quite.
The more you talk the more you show your ignorance. For people like you it would seem that Barbados cant do anything at all other than to import everything and put a 1000% mark up on them. Then do a run on our foreign exchange reserves to pay for them. Thats why we are where we are and we will continue to be here. You speak just like the White Bajan plantation class. You are Visionless.
If the crooked Barbados Labour Party is dependent on yardfowls like you then your Govt. is doomed.
When I lived in Antigua, the Antiguans would import copious amounts of Agricultural products from Trinidad, St. Vincent, Dominica, Guyana. The farmers in these countries not only produced agricultural products for home consumption, but vigorously pursued export markets thus assisting their home economies with foreign exchange.
But “Mike” is telling all and sundry that Bajans are so dumb and stupid that they cant get that done.
“Mike” may also not be aware that Barbados imports agricultural products by the ton from St. Vincent on a weekly basis.
Other countries in the Caribbean can so develop their agricultural sector and seek and find export markets for their products with great success but Barbados cant.??
Again the wrong the wrong people is in control of our economy and the sooner we realised this the better. All over Barbados we lots of idle lands being own by plantations. These lands need to be cut up and sold to Black people to let them farm them.
I am tired seeing large tracts of land in Barbados with only race horses running around on the.
Shaw outlines plans to push youth in agriculture
The youth in agriculture were on full display as the opening day of the annual three-day Denbigh Agricultural, Industrial and Food Show got underway in Clarendon yesterday.
Minister of Agriculture, Industry, Commerce and Fisheries Audley Shaw disclosed plans by the ministry to develop a modern agro-processing factory for young farmers and entrepreneurs at the 66th staging of the event.
Addressing the opening ceremony of the Youth in Agriculture Village, under the theme ‘Youth in Agri-Business: Sustaining The Environment’, Shaw said, “you see that AMC complex on Spanish Town Road, we are going to convert that into a modern agro-processing centre, where a lot of those young people who went to Expo 2018 to demonstrate their skills in designing products, new sauces, new wines…Yet the cry is no factory space. We’re gonna find factory space for them. We’re gonna create a modern, factory export centre for them,” he stated.
I see your point but not sure that the private sector could adequately fill the role, the public sector’s size is very impactful not only in terms of salary but job security as well.
So this brings me back to the statement from BES – In the short term if the Govt is to stop receiving funding from the CB what is the way out? More taxes? I hope not.
@ ric
1.more taxes is one way. in order to make up for the lack of printing money the government would have to bring in revenue from some place else. increasing tax is probably the best way right now.
2.growing the economy would also bring in more money to the government
3. reducing expenditure (spending) is another way. this may be by reducing the workforce/salaries but can also be done by cutting back spending in government own businesses
Increasing taxes is always the fall back position of most Bajans. How about attracting foreign investors to the island, that would increase the tax base; there are hundreds of millions of dollars lost annually through poor management and inefficient operations that can be recoup and put to good uses; uncollected taxes.
Encourage agriculture and local manufacturing to satisfy our domestic needs this reducing our food import bill. And I can go on and on.
We would also have to embark on a large scale education program to change the mind set of the people.
To all the posters. Have a safe and enjoyable Kadooment Day
@ mike
Foreign and local investment will return as the economy and credit ratings improve.
Every one is talking about agriculture and manufacturing as being our savior.
agriculture has/had it problems with thieving, monkeys, African snails. plus the young people has moved away from agriculture and has acquired the north american taste in most things
what are we going to manufacture to satisfy our local needs?
when to manufacture, most input has to be imported. then the final cost in more expensive the if we just import the final product.
change in mindset of people would probably solve all our problems but the American mindset is dominant now and will be very very hard to replace.
@MIKE. The scale of manufacturing and agriculture that everyone likes to tout will have little impact on reducing our food import bill if we continue on the current path.
To realize significant changes we will have to do similar to what we have done with tourism — grant deep concessions to external mega entities and provide incentives for smaller local projects. This will be good for employment, foreign exchange and economic growth.
We cannot keep fooling ourselves that Barbados can resuscitate agriculture and manufacturing on our own to the magnitude that would have a huge economic impact. Barbados has been beating these two industries to death, in the same manner, for the past four decades without success.
Intel was probably our brightest foreign investment within the past half century. We were way ahead of any other Caribbean country in bringing tech companies to our shores. We wasted the opportunity to have the St George’s Medical School in Barbados, all because of nonsense over cadavers. Both of these entities left Barbados because of vision-less leadership.
Even if Government give local farmers duty-free access to purchase equipment and inputs for agriculture, how many acres will really be opened up into large-scale production? A case in point is sugar cane. From over 100,000 tonnes of sugar in the 1970s to some 11,000 tonnes in 2018, and the experts at BAMC are smarting over a 15% increase this year. Come on, gimme a break!
Former agriculture minister, Dr. David Estwick, barked hard over his plans for a revitalize sugar cane industry. Needless to say, we are packaging no specialty sugars, even though Dr Frances Chandler said the machine is at Fairy Valley catching dust. The new multipurpose sugar factory is now a “white elephant” rusting out. Where is the promised renewable energy output and ethanol production? No wonder they called Estwick a “Pitbull” without teeth.
People continue to think of traditional approaches which, in a highly technological and scientific world, will reap little reward if we do not adapt to change. We must re-position our thinking and educational system to maximize on available opportunities in both agriculture and manufacturing.
Lord have mercy: I taught “printing money done with”. What a thing!!!.
Like that breadfruit. Electric cars, green hoax, renewable energy, etc is the way to go for the few. Maybe the gov should import the food, cars, etc instead…….
@ Carl Harper. I agree with your sentiments on the subject at hand. Carson must understand that using Jamaica’s investment in agro-processing as a benchmark for Barbados is way off mark. Jamaica has 2.7 million acres of living space, Barbados 106,000 and most of it is concrete. Agriculture will not develop beyond decentralized farming and a collection of cottage industries that are just enough to feed our people and reduce food imports and lowering the current account deficit. The impetus is just not there.
The focus should primarily be on our key performing economic drivers, tourism, international business and foreign direct investment. They can all have a postive impact on the current account if manage properly.
What r some of the crops that should to be planted to aid the current food import bill? hearing from a farmer would be nice. We staying on food for now.
@ mike
thumbs up at ur last paragraph
As you guts know, I support one of the smaller parties. The older mornmentse mature parties either have no idea how to restructure our manufacturing,or agricultural sectors or they simply don’t want to.
We’ve seen mergers in the retail sectors, encouraged by our governments with all the sweetheart deals and incentives, yet none of these parties while in government seem to realize that they need to become investment, and operational control partners with the manufacturing and farming community. They don’t realize that there needs to be alternative energy, natural and treated water resource input, with the business owners merging at the manufacturing stage. So what we lack in local sales capacity, we can earn in export competitiveness once we apply the principles mentioned above.
If any of us has to depend on our neighbor for food, water and electricity we will be considered a beggar, becoming the laughing stock of our community. So will a country. That sums it up. This administration is currently relying on the said Central Bank for it’s financing, but the social partnership is totally silent, the operatives (Charles Herbert apart with his recent pressure conference) has gone mute. The chickens will soon roost then we will all know the true score.
It’s time the social partnership consist of the private transportation, Fishing, manufacturing, and agricultural sector representatives. We need these sectors functioning efficiently if we are to succeed on the ground. We can no longer have the current structure of the so called social partnership (anti social partnership) with the unions, retailers, hoteliers and government. Even the N G O’s, and artists should be on board.
@ jenny
like what?
green energy and it technologies – thumbs up
electric/solar powered everything- not just water heaters.
When I say that there must be a monumental effort to change the mind set and the way we conduct our business that also applies to government. Gov’t must encourage real estate developers to maximize vertical space because there is very little horizontal space left for farming.
It would be nice to hear from the farming community on what plans they have to reduce the $500 million food import bill. If they can knock $200 million off that bill, that is is money that will be distributed locally in their community and beyond.
Wait wuh gine on here, I just catch muhself. today is wuk up day and alla wunna home behind a keyboard.
We all will get to find out Barbados’s problems are deeper than any political party can resolve by itself.
All the talk about foreign investment is a thing of the past. The developed countries have plugged all the loopholes in their legislation that allowed their companies to invest offshore.
Tourism similarly is challenged by tightness at home and competition from elsewhere. Also the amount of concessions demanded by hoteliers and airlines is an issue.
Manufacturing and agriculture cannot generate the capacity to make a difference. As someone said the best bet is import substitution but people’s taste have to change.
@Jade – well observed. Knowledgeable first sentence. Similar to cat stuck in corner, huh. Them concessionaires intend to keep the majority of the hog too.
@Carl Harper – “We cannot keep fooling ourselves that Barbados can resuscitate agriculture and manufacturing on our own to the magnitude that would have a huge economic impact”.
Good observation.
The thing is that the said land owners in Little England are those notable companies who have merged to set their sites on bigger, sweeter more futuristic and technological pieces of cake. Of course get their usual concessions for the low interest ailing one i.e agriculture while sweets come in from their subsidiaries. I know of recently agriculture graduates who now gone to Canada to pick strawberries etc. The more things change…………………………..