COLUMN – A review of Central Bank report
The Governor of the Central Bank of Barbados, in his usual style, presented the first review of our economic performance for 2015, looking at the first three months of the calendar year, which correspond to the final three months of Government’s fiscal year. With the Minister of Finance promising a Statement Of Budgetary Proposals subsequent to the fiscal year-end, I am sure many focused on the economic review as a potential barometer of what a Budget Speech could likely reveal.
I have no intent of being psychic, especially when it comes to political or economic matters, as such attempts could prove very risky and even futile. Rather, I will leave the forecasting to the pundits and focus on the gains and losses we have realized since the last review.
Key sector performance. There has much been much ado about tourism in the media throughout the tourist season to date, and the economic review shows the United States market providing the largest increase in person arrivals, while the largest percentage change was attributed to Canadian arrivals where we would have had one of the bigger increases in airlift capacity for that period.
The consistency in arrivals from Trinidad is encouraging to me, along with the increase in arrivals from other CARICOM islands, as I believe these are prime markets for the development of our sports tourism and entertainment tourism niches. We are currently in the midst of our annual reggae festival and also cricket and other sporting events that have created a peak in air travel across the region.
While tourist arrivals increase due to improved or increased airlift, it is the tourist spend at our hotels, restaurants and attractions that we continue to battle with in the current environment, and so an increase in this area is notable. The path to sustaining these trends is where our focus must now be, but we must mindful of the current domestic environments in the source markets.
The construction sector continued to be weak and, in addition to the public and private sector lay-offs, this would have accounted for a large chunk of the continuing unemployment rate of 13 per cent on average.
Other economic performance. The estimated deficit is 7.2 per cent of GDP, which, as I alluded to previously, in absolute terms is off the stated target of about 6.5 per cent of GDP, but relatively represents an accomplishment on the part of the Government to rein in the deficit. We may continue to debate the methodologies to achieve this outcome, but moderate progress is seen there.
My continued concern is the level of overall debt as reflected in the interest payments to financing institutions which increased by $62 million in the past fiscal year, accounting for 27 per cent of total revenue earned, and remains one of the key factors to retard any savings we obtain from the adjustment measures. However, this is a fixed and committed cost and can only be remedied from superior performance and any option for earlier than usual pay-off.
Removal of minimum savings rate. In my last column, I addressed the approved merger of LIME/Flow –– for which I got some licks, but my skin is thick –– and in agreeing with the merger stated that the regulator would need to step up its oversight and become a more visible force to be reckoned with. Now enters the Central Bank with the removal of the minimum savings rate contingent on its market-based rate policy that, hinged on the current loan portfolios of the commercial banks and the level of non-performing loans, will see these institutions grasp the opportunity to reduce our savings rates, as they are under pressure.
Like the telecommunications regulator, I also now believe that the Central Bank as a regulator will have to heavily depend on that often unspoken technique in banking regulation of moral suasion on the commercial banks to have them set savings rates that are not disadvantageous to the whole. That being said, however, in the short term I see no real threat, as there are no alternatives to savings at more attractive rates.
In the long run, though, Government could push the attractiveness of its debt instruments and Government paper, possibly with tax or other incentives, which may then create a move of savings to the Central Bank, and even provide cheaper capital for the Government to access when compared to the current scenario.
I do not believe there is cause for alarm, but definitely a situation to be carefully monitored by all stakeholders.
Whither our course?
With still sluggish activity in respect of construction and the approach of what I refer to as the non-traditional tourist season, prospects of job growth and reducing unemployment remain at risks. The environment of low fuel costs and resulting lower inflation rates are useful scenarios for stimulating economic growth, but I fear that any growth in tourism and construction will be restricted by external pressures and as the Governor suggested will be a “spillover”.
Is it time for us to return from whence we came –– agriculture? Even manufacturing? Could we devise a plan that would see us able to generate the scale required to make these sectors profitable both domestically and internationally through export, while earning and/or saving foreign exchange?
The Barbados Industrial & Development Corporation has stated that it will sell off non-utilized assets to raise finance, and I am cognizant of the fact that we are all in dire need of cash. However, even in the context of the Governor’s review, I must ask the question where our developmental focus is.
The estates lying in waste must be made productive again. We have small and micro businesses in the manufacturing sector, in the automotive sector that could utilize these spaces to be more viable and create export opportunities. Let us imagine five small manufacturers of condiments in their home production areas, being able to join together and share a common production space to produce in larger quantities, even on a 24-hour basis.
Imagine that they could create outputs on an economic scale that could be exported under a common label, even though produced by three separate entities?
Imagine a mechanic, a body repairman, an auto electrician all housed under the same complex and pooling resources where possible. And of course BIDC earns its revenue through rent while fulfilling its total mandate.
This is what it takes to increase the productivity Governor Dr DeLisle Worrell refers to; this is what it takes to create revenue, create economic activity and make us more sustainable –– just a thought.
Our current focus at the public and private must be one of sustainability –– the Central Bank Governor highlights in this regard that the approved fiscal deficit in the recent Estimates laid in Parliament is above what we can ably sustain in the future. Interestingly, he states that “the immediate objective of reducing the ratio of debt to GDP will be attained only when the deficit falls below the growth rate of GDP”. Governor, I agree in principle, but we are right back to growth strategies and finding ways to implement them through incentives, new markets and legislative reform. With current growth of less of two per cent any deficit level below the growth rate of GDP would call for a balanced Budget, and maybe that wouldn’t be a bad thing –– developing country or not.
(David Simpson is managing director of Prestige Accounting Inc. and a director of the Barbados Entrepreneurial Foundation.)