Serious threat

drdelisleworrellgesturesBarbados’ foreign exchange problems are so bad that unless urgent action is taken the island will have reserves equivalent to less than four months of imports by year-end.

After raising the alarm in a presentation at last week’s National Consultation On The Economy, the Central Bank of Barbados today publicised what its Governor, Dr. DeLisle Worrell told Prime Minister Freundel Stuart and other officials during the day long discussions, including that the island was on course to lose $450 million in international reserves this year.

Although asserting in the 28-page presentation that “the Barbadian economy is well placed to meet the economic challenges the country faces”, the financial institution said the major problem was foreign exchange.

It is predicting foreign exchange inflows of $5.2 billion this year, but noted this would be negated by the $5.7 billion expected to go out of the country, meaning there will be a projected international reserves loss of $450 million this year.

This therefore mandated a $370 million fiscal adjustment to “maintain adequate foreign exchange reserves and protect the exchange rate”.

“Given the current trajectory, foreign exchange reserves are expected to be equivalent to around 13.8 weeks of imports at end-2013,” the bank said.

“A fiscal adjustment of $370 million is required to reduce imports and preserve the reserve import cover of at least 17.4 weeks.”

The bank added that “in order to grow the economy, we must increase the availability of foreign exchange, because a growing economy will need additional foreign exchange to supply the goods that will be purchased with the extra income”, and that “growth will therefore be led by the sectors that earn and save foreign exchange”.

It attributed a major portion of the challenges to the fact that “the fiscal position has deteriorated since financial year 2011/12, as a shrinking tax base and reduced revenue performance were exacerbated by a slower pace of expenditure adjustment than was originally projected”.

Like Worrell did in a Barbados TODAY interview following the consultation, his presentation to the meeting also emphasised the important of successfully maintaining the current exchange rate, noting that it “lends credibility to economic policy”.

The bank said the advantage of such a policy included protecting the real value of national savings, providing “a strong incentive for investment, and currency fluctuations discourage long term investment”.

It also said a stable currency, protected by adequate foreign exchange reserves, “is evidence of Government’s commitment to necessary fiscal consolidation”.

Central Bank economists said there would also be opportunities to grow the economy and that this would be led by the foreign exchange earning sectors of tourism, international business and financial services, agriculture and agro-processing, and alternative energy production.

The banks formula for economic growth included projects and investment sufficient to attain a targeted of $2.3 billion in investment between now and 2018 period, the near $400 million deficit reduction equivalent to about 4.4 per cent GDP), $1.1 billion in projects and infrastructure over five years, and support services to provide adequate incentives for the private sector.

It also saw a need to improve the availability of equity and long term financing, and the intensification of programmes “to improve work ethic earn Barbados an excellent rating for service”.

To achieve this, however, the island would have to overcome some big stumbling blocks to doing business in Barbados, such as inefficient Government bureaucracy, access to financing, poor work ethic in national labour force, insufficient capacity to innovate, tax rates, and inflation. (SC)

One Response to Serious threat

  1. Chantell July 5, 2013 at 12:06 pm

    I think the Central Bank Governor as well as all Prime & other Ministers should tell the truth and really let us know what we are really dealing with. Then we could adjust too suit.


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