Barbadians have been put on notice to brace for more belt-tightening while at the same time seeing the country boosted by additional foreign direct investment, according to the leader of the nation’s economists group.
Responding to today’s formal International Monetary Fund endorsement of the Barbados Economic Recovery and Transformation (BERT) plan, president of the Barbados Economics Society Shane Lowe, said this afternoon that renewed confidence in the island would not be clear-cut for all types of investors.
“For the private sector investor who is going to build a hotel or some physical infrastructure, who has not been affected by the debt restructuring, I think most certainly, the IMF endorsement is always a positive one for any investor. So I think for those type of investors, they would definitely feel more confident… and to the extent that the increase in the reserves reduces the perception that the currency is under pressure, then people would feel more willing to bring their foreign currency from overseas and invest in Barbados,” Lowe told Barbados TODAY.
But the economist suggested that he would wait and see what happens to the Government’s plan to restructure all its domestic and external debt.
Depending on how this process panned out, he said, it could result in improved or reduced confidence for persons investing in Government paper, whether local currency or US dollars is used.
“So I think for the foreign direct investor, this is a positive – the IMF programme being approved – [but] for an investor in Government paper who is currently being affected, I think it will still be a positive, but we would have to wait and see what the outcome of the debt restructuring is,” Lowe said.
As far as other financial institutions coming on board to back the BERT plan, he was equally cautious.
He said on the one hand, while everyone was generally happy that the IMF was supporting the Barbados initiative, on the other hand, there were still some issues left to be resolved.
“If the Government is able to meet the targets it says it’s going to meet, that would suggest to [institutions] that the Government is returning to a position of fiscal responsibility and a more sustainable path for the Government finances. So if the economy is improving, I think the domestic financial institutions would see that as a positive. Again, they are also going through the debt restructuring. That is a separate issue, but it’s also an issue that needs to be resolved,” Lowe said.
“But again, we have to wait and see the outcome of that. But from the perspective of an IMF programme, that would be seen as a positive as well.”
As far as economic growth was concerned, Lowe did not expect to see any in the near future, echoing comments by one of the Government’s top economic advisors, Professor Avinash Persaud.
Owing to the kind of fiscal contraction that has to occur, there would be some slow or negative growth in the first couple years, which Lowe suggested, was almost inevitable because more money was being taken out of the economy through taxation and budget cuts.
The economic fraternity’s leader told Barbados TODAY that austerity was also inevitable with additional taxes imposed from July and today, along with some that had been delayed.
“So, there will be further belt-tightening and then, depending on what the cuts are to certain state-owned entities and other expenditures within the Government, those would also require further belt-tightening… because, if there are imposition of user-fees, the persons who use those services have to spend more and so they would have to adjust their expenditure in other areas to suit,” Lowe said.
He also said that if there was a cut in direct payments due some citizens, they would also need to find alternative funds elsewhere or pay more to get money from another source.