Worrell rubbishes dollar threat
Curb your debt, or be faced with devaluation.
This is the latest caution issued by international ratings agencies to the Freundel Stuart Government during meetings this week in New York with a high-level team led by Central Bank Governor Dr DeLisle Worrell.
However, addressing a town hall meeting in Brooklyn last night, Dr Worrell rubbished the financial advice, in much the same way he, the Prime Minister and the Minister of Finance Chris Sinckler have done over the past two years, even in the face of negative downgrades by both Moody’s Investor Services and Standard and Poor’s that have had the effect of reducing the country’s credit rating to the level of junk.
After slapping the island with a triple notch downgrade in 2014, Moody’s had suggested that the Barbados dollar, which trades at US$0.50, was facing increasing pressure due, in part, to Government’s borrowing, which, it said, was affecting the country’s currency peg to the US dollar.
In response, Sinckler had said devaluation was not even being considered, and he was firm that Government would not allow any ratings agency to dictate its policies.
“The Government is committed to the fixed exchange regime and will do what needs to be done to protect the Barbados dollar. Neither the Government nor people of Barbados want a devaluation of the Barbados dollar, and as the Government, we are determined to do what is required to maintain the fixed exchange rate and honour our financial commitments.”
He was strongly backed by the Prime Minister, who, in a subsequent address to the local business community was totally dismissive of suggestions that the Barbados dollar was under threat, while stating that he was well aware that “this will serve neither as a deterrent nor a discouragement to that small coterie of alarmists who continue to believe in economic witchcraft and are therefore preoccupied with, and intrigued by, this brand of necromancy”.
However, arguing that the country has defended its exchange rate for 40 years, “in good times and in bad”, Stuart said then that “those who blithely and glibly argue that our currency is over-valued have not been able to show us how devaluation has improved spectacularly the situation of those neighbours who pursued that course”.
Speaking during last night’s town hall meeting in Brooklyn, which was coordinated by the Barbados Consulate and with Ambassador Tony Marshall in attendance, the Central Bank Governor struck a similar tone as he assured his audience, made up largely of members of the Barbadian diaspora, that devaluation was still not on the cards.
However, the governor acknowledged that Government’s borrowing remained an issue.
“They [ratings agencies] worry about our tied exchange rate. They say as long as you are borrowing all this money, your peg rate is under threat [but] our peg is not under threat,” said Worrell, who revealed that he had met with three ratings agencies, including one that did not actually rate Barbados.
“I know what our reserves are every day [and] we do the things whenever it comes under threat,” he assured the gathering.
However, the country’s chief monetary adviser said the position taken by the rating agencies was that “we heard you, we understand you, but we will not stop worrying until you get the debt ratio down.
“[Therefore], if you want to impress the rating agencies, you have to get the debt ratio down below the growth rate of GDP,” he acknowledged.
He stressed that Barbados’ credit was good “for anybody looking for yield and solid investment” and the country has never defaulted on its debt.
Worrell also argued that given the nature of the country’s debt, such restructuring was unattractive.
“You would have to rob Peter to pay Paul. Also, debt restructuring raises issues with your credibility,” he said, explaining that the current fiscal deficit really has to do with weak revenues and administration and public service and sector issues.
“So once you have restructured the debt, you still have to fix all the things that will reduce the deficit permanently. There are certain policies for consolidation within the public sector which the Government has announced, but as yet, not completed – fundamentals you have to do.”
Earlier this week, the Minister of Finance laid the Estimates of Expenditure and Revenue for Financial Year 2016-2017 in Parliament, making provision for debt repayment in the order of $1.7 billion, up from $1.6 billion in the current fiscal year, which ends on March 31.
And while the island’s debt to GDP ratio currently hovers above 100 per cent, Worrell told the gathering that the economy had shown solid growth.
However, other than to say that he and his team had given it their best shot, he did not speak to whether or not Barbados faced further downgrades.