Government’s decision to default on external debt would likely restrict Barbados’ ability to borrow internationally at commercial rates in the coming years.
This stern warning today from President of the Barbados Economic Society (BES) Shane Lowe as he reflected on the Mia Mottley-led administration’s first 100 days in office.
As a result, he said Government must now rely on multilateral sources, increased foreign direct investment and greater net earnings from the exports of goods and services to sustainably grow its foreign exchange reserves over the medium-term, even as he acknowledged that the country had experienced some short term relief from the suspension of debt payments, as evidenced by the halt in the steady decline in the international reserves.
Lowe also welcomed commitments from the Inter-American Development Bank and Caribbean Development Bank to support the island’s economic recovery, in light of its decision to enter into a balance of payments support programme with the International Monetary Fund (IMF).
Another positive development, Lowe said, was Government’s facilitation of the Ross University School of Medicine’s planned relocation to Barbados from Dominica in early 2019.
Lowe reasoned that the learning institution would likely add over 1,500 new consumers to the local economy and provide opportunities for persons who own apartments, houses or additional rooms to rent accommodation to faculty officials and students.
“Additionally, the university will likely generate substantial foreign exchange for the island as parents or guardians abroad wire funds to students to facilitate their monthly expenditures,” he added.
Mottley was sworn in as this island’s eighth Prime Minister on May 25, a day after the general election in which she led her party to a remarkable 30-nil victory against the Democratic Labour Party (DLP) which was seen at the time as the major challenger to the Barbados Labour Party, but failed to hold on to a single seat.
Almost immediately after assuming office, Mottley announced she would suspend debt payments due to external commercial creditors and ask domestic creditors to roll over principal maturities while making only scheduled domestic interest payments, all in an effort to restructure the island’s public debt.
The Prime Minister also announced she would enter into formal negotiations with the IMF.
Moving at almost lightning speed, Mottley then presented on June 11, day 15 of taking office, a mini-Budget, which sought to earn more revenue to fund new and existing expenditure.
Also of note, the Prime Minister, whose administration officially marked its 100th day in office on September 2, amended several pieces of legislation, including laws governing the Central Bank’s ability to finance Government.
All of this formed phase one of a three-phase Barbados Economic Recovery Transformation (BERT) plan.
“The new Government’s first 100 days in office have been characterized by tough decisions, many of which the country has seen the initial benefits of, some whose benefits will materialize over some time, and others whose potentially negative effects must be appropriately mitigated,” Lowe said.
Phases two and three of the BERT plan will include restructuring of state-owned enterprises. And while it is still early days yet in terms of analyzing the precise impact of the economic plan, Lowe warned it “may substantially alter the way Barbadians do business and access certain social services”.
“It is therefore imperative that Government continues to engage the public now more than ever, especially at a constituency level as most of the population needs to buy into proposed changes and have the opportunity to provide feedback if the programme is to be successful,” Lowe said.
“Additionally, Government has implemented a new levy to finance public sanitation services and maintenance of the country’s sewage systems. While the benefits of these measures will likely not materialize immediately, the current practice of collecting garbage once every two weeks in some neighbourhoods poses environmental concerns. Until enough garbage trucks can be sourced, purchased and put into operation, an interim solution should be contemplated to ensure that those concerns do not materialize,” he added.
The economist recommended that Government’s immediate concern should be to restore investor confidence and rebuild buffers to external shocks.
Quickly securing a financing package with the IMF, he said, was essential to boosting the island’s foreign reserves. He also suggested that the programme would help to restore investor confidence in the island.
“Also central to this objective is concluding debt restructuring negotiations with domestic and external creditors to reduce debt service requirements whilst maintaining the viability and stability of the local financial system,” he said.
“Finally, fiscal adjustment inclusive of expenditure cuts to state-owned entities, may further slow economic growth in the near term. Thus, it is important that the Government begins the process of reengineering the way business is done in Barbados to encourage both foreign and domestically financed investment and at least partially offset any potential fallout from job losses in the public sector,” he added.