After six months of Government’s implementation of a homegrown economic rescue plan it is still too early to tell if the measures will work, says economist Jeremy Stephen.
The University of the West Indies lecturer and former president of the Barbados Economics Society says he is concerned that while the Mia Mottley administration has made a good start to tackling economic woes, it may be trying to fix too many critical things at the same time.
“For the first six months the Government made rapid reforms but it is my feeling that it is too early to tell if is definitively bad or good. It is my view that they [Government] could have done a bit better if they had focused on fewer things that were critical as opposed to trying to be everything to everybody,” Stephen told Barbados TODAY in an interview Thursday morning.
Stephen warned Barbadians against thinking that the worst had past under the International Monetary Fund-approved economic prescription.
“There is no way that we are out of the woods yet. There are two things that still must happen no matter how we wish to dress it up. The IMF bailout has topped reserves but the problem in Barbados has always been productivity and foreign direct investment as well as growth and export potential. If we continue thinking that the IMF bailout is a formula for sustainable success then we won’t go anywhere,” he said.
He noted that over the years, successive governments, via the Central Bank, have drawn down on SDRs [special drawing rights with the IMF] in order to replenish reserves.
“Essentially you could have always borrowed from the IMF based on the amount of shares you have or you can sell those shares on the open market or cash them in at the IMF. So for a long time we have either been drawing or borrowing small loans from the IMF. I remember the Barbados Labour Party (BLP) under former Prime Minister Owen Arthur did it twice and so too did the Democratic Labour Party and they were all linked to the reserves,” he said suggesting that history has shown that loans to bolster foreign reserves did not in themselves solve balance-of-payment issues.
But the outspoken economist noted that a number of actions taken by Government in the last six months should give Barbadians some measure of hope that things could turn around should all of the stars align with regards to debt restructuring.
Stephen pointed out that progress in 2019 would also depend on the private sector changing the way it does business from being locally-driven to export orientation, following the Prime Minister’s recent decision to lower corporation tax from 30 per cent to a sliding scale of one to five per cent.
“Government has ensured that external creditors have to come to fairer terms considering the impact it would have on the foreign reserves,” Stephen told Barbados TODAY. “We still don’t know where this debacle will go but they don’t make up a large portion of the debt. My biggest worry is how the commercial banks will respond, even though at the moment they seem to be playing ball.
“In addition, we must watch how the private sector utilizes these new favourable tax cuts. They need to move towards being more export driven while Government must ramp up efforts to attract foreign direct investment.”