Governor of the Central Bank of Barbados Cleviston Haynes has thrown out a challenge to the banking sector to play a greater role in helping grow the Barbados economy and sustaining that growth.
Stating that there has been “significant improvement” in the overall macroeconomic outlook over the past 17 months, and that the prospects “for modest economic recovery are more favourable than last year”, Haynes said public finances are “much stronger”.
“Major reforms of existing taxes, the introduction of new tax measures, increased services charges for some public enterprises and general expenditure restraint have contributed to this performance,” he pointed out as he addressed the monthly meeting of the Barbados Association of Insurance and Financial Advisors at the Lloyd Erskine Sandiford Centre on Friday.
Haynes added that the restructuring of the island’s domestic and international debt, lower debt servicing costs and access to external funding have substantially eased domestic financing pressures and the international reserves were restored.
However, he said while these developments have also contributed to the recent upgrade in the sovereign credit rating, some challenges remained.
“Economic activity has remained subdued due to the low levels of investment, caused in part by deficiencies in the doing business framework and the lack of fiscal space to accelerate public sectoral developments,” the Central Bank Governor said.
“Weak private sector consumption has affected the corporate sector, including small and medium-sized enterprises. Financial institutions whose profitability has been impacted by increased provisions against bad debt in recent years and by the 2018 debt restructuring, remain cautious and selective in their lending.”
He said now that the Barbados economy has been stabilized the next challenge was to achieve growth and sustain and accelerate it over the medium-term.
“Herein lies a critical role for the financial sector. For as the economic recovery gathers momentum, we will be challenged to ensure growth is both sustainable and inclusive benefiting everyone. It is my belief that the sector has the capacity to undertake this role,” said Haynes.
“Despite the accounting losses resulting from the debt restructuring, the banking sector remains well capitalized and is awash with excess liquidity. This provides the opportunity for banks to support emerging firms and industry that can help to diversify economic activity and aide in enhancing competitiveness of traditional sectors.”
Singling out the renewable energy industry as one of the sectors that could do with more support from banks, Haynes said expanding that area meant protecting the environment, eliminating the use of fossil fuel and, therefore, reducing the island’s fossil fuel import bill.
“Achieving this goal clearly requires a policy framework together with the appropriate private sector engagement. The corporate sector will need capital to grow, expand and innovate, and given the investment cost households will also need financing,” he said.
“The financial sector also has the opportunity to help drive innovation and improve productivity and efficiency,” he added, while suggesting there was need for more online and digital transactions.
The economic advisor also pointed out that for Barbados to have sustained economic growth and increased confidence among the investor community, Government would need to manage its finances in such a way that what led to the debt restructuring does not recur again.
He said several domestic and external factors, including those relating to the tourism sector and the speed with which the large private sector investments start, would determine “how strong the impetus for renewed growth in the current year will be”.
The Central Bank is forecasting economic growth of between 1.25 per cent and 1.75 per cent this year.