Economist warns of a foreign exchange crisis

A well-known local economist is warning Barbadians that unless Government comes up with a growth strategy during this period of austerity, the country will be in for a “foreign exchange” crisis soon.

According to Michael Howard, Professor Emeritus in Economics at the University of the West Indies, Cave Hill Campus, “In the context of a serious foreign exchange constraint on growth, Barbados will continue to be a low growth economy and will experience future foreign exchange crises.”

Howard did not go into detail about the nature of the foreign exchange crisis but his prediction flies in the face of Government’s best assurances that the Barbados dollar is safe.

The retired economics professor is concerned by what he sees as a lack of Government strategy for structural transformation and economic growth. Howard told Barbados TODAY in a recent interview that it was simply impossible for growth to occur under the International
Monetary Fund (IMF) approved Barbados Economic Recovery Transformation (BERT) programme.

“Sustainable growth is important for the future. However, it is almost impossible for Barbados to experience severe austerity under the present IMF/BERT programme and sustainable economic growth simultaneously, in the present recessionary context. Even though Jamaica has done well under recent IMF programmes, and had a private sector-supported growth strategy, Jamaica’s average growth rate has been a low 0.9 per cent for many years,” he explained.

He added, “The fundamental problem of restructuring the Barbadian economy is that we lack internationally competitive export growth engines other than tourism, which can earn foreign exchange.”

As if this was not ominous enough, the economist told Barbadians to brace for more belt-tightening when Prime Minister Mia Mottley delivers her first budget next week.

He predicted that Barbadians could expect some new taxes, pointing out that despite being asked on several occasions, Government is yet to show a credible alternative to taxation that would bring the country in line with the ambitious goals of the IMF.

“I believe that the Barbados Government will have to bring more austerity measures particularly in the form of taxation in 2019, on top of the mini-budget measures of 2018,” he said.

The economist argued that with more layoffs certainly on the horizon, resulting in a further dampening of Government’s tax revenues, it was difficult to see Government meeting the IMF target of six per cent primary surplus of GDP.

“Moving the public finances from a three per cent surplus to a six per cent surplus is a big task requiring further cuts in public expenditure and increases in revenue.