While Barbados has been able to hold its economy together so far despite the severe strain posed by the COVID-19 pandemic, a leading economist says Government should keep an eye on how banks and financial institutions are coping.
Senior regional economist Dr Justin Ram says Barbados cannot afford to have its financial institutions under “stress” because the consequences for the financial sector could be severe.
In his assessment, citizens are likely to feel the full impact of the crisis at the end of the moratoriums offered by financial institutions, if large numbers of customers are unable to service their loans and mortgages.
The former director of economics at the Caribbean Development Bank said: “One of the indicators that I am looking at very carefully is that the banks, having been providing moratoriums to persons who have had loans and this has certainly provided a cushion to many individuals during this time, given that they don’t have to pay their mortgages or they don’t have to pay other loans. It has meant that [customers] can concentrate their expenditure on their essentials such as food.
“Now one of the challenges that we are going to have is that banks cannot continue to maintain these moratoriums forever. . . . At the same time, we don’t want a situation whereby our financial institutions are going into stress because that would bring a whole range of other challenges that you don’t want to start to deal with.”
Speaking Sunday on a Voice of Barbados call-in programme, the economist was responding to concern that things appeared to be “normal” in Barbados despite a high level business closures, increasing unemployment and a collapsed tourism sector.
Ram reflected on the September 11, 2001 crisis brought about by attacks on the World Trade Centre in New York, and the impact it had on global tourism and travel.
Predicting a very long recovery for economies like Barbados and others in the region, Ram said: “It took about 14 months for these economies to get back to where they were before. When we had the financial crisis in 2007/2008, it took about 55 months. With the September 11 attacks . . . . People were fearful of travel for obvious reasons. With respect to the financial crisis towards the end of the last decade, people had damaged balance sheets because they didn’t have money. They had loses and house prices were falling.
“With this particular challenge we are going through now with COVID 19, we have both of those things occurring. People are fearful of travel for obvious reasons and we have damaged balance sheets . . . .
“We can probably expect a slow recovery. What we have to hope for is that either we have vaccines becoming available fairly soon or that we have treatments that can help people recovery quickly from COVID 19.”
According to the economist, recovery of tourism will also depend on how the major source markets manage the infectious disease in the coming winter months when a major spike in COVID-19 is expected.
Also on the programme was Government’s senior economic advisor Dr Kevin Greenidge, who is on secondment from the International Monetary Fund.
While admitting that there was great pain in many households due to rising unemployment levels, Greenidge did not share Ram’s view that things will get significantly harder for Barbadians. In fact, he said there was no need to push the panic button.
According to the former central banker, Government’s response to the crisis is what has made a difference and will continue to do so in the coming months.
“In the beginning people thought the pain would be so much but then Government responded with various programmes to try to mitigate the effects. And Government is not static in its policies. We have to think about how we continue because tourism is not back yet.”
“[You have to address] how do we keep persons who have lost jobs to be still viable and government is thinking about ways to respond because the unemployment numbers are rising,” Greenidge noted. (IMC1)