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Central Bank warns against quick fiscal fix

Governor Dr. DeLisle Worrell

More Barbadians will lose their jobs and the economy will decline if Government moves to solve its fiscal problems too quickly.

The Central Bank of Barbados issued that warning this afternoon as it reacted to yesterday’s decision by Moody’s Investors Service to lower the island’s credit rating.

With $1.4 billion in foreign exchange reserves in the bank as of Wednesday, a “sufficiently tight fiscal stance” and what it considers a sound economic strategy, the bank said it was undaunted by the Moody’s decision.

But with the rating agency suggesting that Government could do more to control its debt and fiscal problems or risk another downgrade or recession, the bank said fixing the debt problem in this way was dangerous for the Barbados economy and employment.

“The current pace of fiscal consolidation under the (Medium Term Fiscal Strategy) has helped to constrain the growth in the fiscal imbalance and the level of debt. A tighter fiscal stance is possible but undesirable: it would slow the growth of debt because the financing needs would be lower, but it would also cause economic contraction and aggravate the loss of jobs. The ratio of debt to GDP might well turn out to be even higher than is currently projected,” it cautioned.

The financial institution shared Minister of Finance Chris Sinckler’s view that the latest ratings action was not a surprise, “as it brings Moody’s sovereign credit rating for Barbados in line with that of Standard & Poor’s rating revision in July 2012”.

Like Sinckler, the bank also said the island’s economic strategy “remains unaffected by this action, and continues to focus on conserving foreign exchange reserves and growing the foreign exchange earning sectors”.

“Barbados’ strategy for restoring sustainable growth is centred on the resurgence of tourism, international business, agriculture and agro-processing and the development of alternative energy, to ensure that there are additional foreign earnings to meet the demand for imports that will come with renewed growth,” the bank said.

“Through targeted marketing, development of new markets, productivity increases and other non-price competitive strategies, the private sector is leading the way to a sustainable growth path, with Government incentives and support, notwithstanding the impact of the protracted global recession.

“Government continues to finance its operations mainly from private domestic sources. For the fiscal year 2012/13, domestic financing is expected to contribute about 85 per cent of Government financing, sourced from the NIS, non-bank financial institutions, commercial banks and the public,” it added.

Central Bank officials, though acknowledging Moody’s observation that Government’s portfolio had a high proportion of domestic debt, said maturing debt was usually rolled over, and that with “no extraordinary peaks in the amortisation profile, there is little risk that the expected domestic financing will not materialise”.

“External debt service is only about seven per cent of the country’s earnings of foreign exchange in 2012. In addition, Government’s Medium Term Fiscal Strategy sets out a sustainable path via which the country’s debt can be reduced to comfortable levels by the fiscal year 2016/2017,” it noted.

The bank also said Barbados’ current pace of fiscal consolidation under the MTFS had “helped to constrain the growth in the fiscal imbalance and the level of debt”. (SC)

3 Responses to Central Bank warns against quick fiscal fix

  1. Don Clarke December 24, 2012 at 3:15 am

    The Parable of the Prodigal Son
    “Sinckler argued that the present strategy, to reduce Barbados’ debt-to-gross domestic product ratio over five years, had met its targets and kept the economy stable.”
    REALLY! Mr. Sinckler, which five! Your administration has not been in power for 5 years yet. Let us see how it looks in the next two years. Please tell us what that strategy is: The Government has liquidated its shares through the NIS in BL&P, BNB; all sources it would have gotten income from in fiscal years 2013 – 2015. “Annual” revenue generating streams for NIS and other government entities in order to “prop-up” 2012 Debt to GDP ratio and masks the true situation.
    As early as next year, there is going to be the start of “years of reckoning”, when there is little or no money coming in to NIS and other places that can be borrowed “to meet your targets and keep the economy stable.” When Standard & Poor’s downgraded the country in the summer, then the IMF, now with Moody’s downgrade, the country’s loans will have to be made at the highest interest rate.
    This reminds me of a story in the great book, I am such an amateur on the Bible but we all know this passage of scripture:
    “The Parable of the Prodigal Son”
    11 And he said, “There was a man who had two sons. 12 And the younger of them said to his father, ‘Father, give me the share of property that is coming to me.’ And he divided his property between them. 13 Not many days later, the younger son gathered all he had and took a journey into a far country, and there he squandered his property in reckless living. 14 And when he had spent everything, a severe famine arose in that country, and he began to be in need. 15 So he went and hired himself out to[b] one of the citizens of that country, who sent him into his fields to feed pigs. 16 And he was longing to be fed with the pods that the pigs ate, and no one gave him anything.
    Where is the income generating projects coming from in the short term? (Next 5 years!)

  2. james franks June 10, 2014 at 3:03 pm

    They should do the decent thing and just go, go now!!

  3. jr smith June 20, 2014 at 9:11 am

    I think we should all meet at midnight tonight, go to our late Priminester’s grave, pray for him dearly giving him seven days to return to office.


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