Economist: Nothing to celebrate in IMF report
Barbados should take no comfort in the just released International Monetary Fund (IMF) report on the island’s economic performance, University of the West Indies (UWI) economist Dr Troy Lorde has warned.
In fact, he debunked the Fund’s conclusion that the “economy appears to have turned the corner . . .” insisting that indicators cited by the international financial body and local officials merely showed that the ailing economy was still a long way from recovery.
“We haven’t really turned the corner in my mind and gotten on the straight. It is like going around a roundabout, we have turned and we keep turning and turning,” Lorde told Barbados TODAY in an interview.
Moreover, he said, the introduction of more austerity measures, specifically the introduction of the National Social Responsibility Levy and the hike in the Bank Asset Tax, were also glaring contradictions of the purported turnaround.
“My point is that we have had austerity measures for a long time now and we have some more. In my mind right around the corner to me says, if you are turning the corner you would maintain what you are currently doing in terms of measures, you wouldn’t need to introduce any more; and that’s why these words are inconsistent.
“You can’t say you are turning the corner and you increase the Bank Asset Tax, you introduce a Social Responsibility Levy . . . you have the Central Bank governor in his half year review showing issues in the foreign reserves, saying we have to do things to shore them up more. You can’t say we are turning the corner, it is inconsistent.”
The Senior Lecturer in Economics at the UWI Cave Hill Campus contended that Barbadians could however be consoled that the Barbados dollar had not been devalued, though he suggested there was little else to be happy about.
He said at the crux of the problem was the fact that the economy was not growing, insisting that the 0.8 per cent quoted by the IMF would “not cut it”.
“Really what is missing here is that the economy has not grown. The growth is nowhere nearly enough to start to pull us out of where we are.
“Any numbers that are less than one per cent fall within a margin of error, which means that sure we have had some activity but it is not any activity that any Barbadian will notice.”
While noting the robust performance in the tourism sector, Lorde cautioned that the sector would not “be the tide that can lift all boats”.
He pointed out that even though there was a record increase in tourist arrivals and the island was enjoying a reduction in world oil prices, foreign reserves levels had still fallen.
The economist said this was not only worrying but, like the IMF and former Prime Minister Owen Arthur, he chided the Central Bank for shoring up the falling reserves and financing Government’s operations by printing money.
“If we continue doing things as we are doing them we are going to become increasingly close to a situation where we can no longer defend our exchange rate against the United States dollar,” he warned.
The economist said the authorities needed to take action to grow the economy, suggesting that construction should be a main driver.
“We haven’t done anything we need to do on the growth side . We have talked about various projects particularly in construction but I mean these projects have not gotten off the ground . . . when this economy hums it is really construction that drives the economy,” the UWI economist said.
Turning his attention to the deficit which the IMF reported remained unchanged at seven per cent of Gross Domestic Product, Lorde saw no short-term relief, saying the problem required fundamental structural changes which could only be done over the long term.
In a further analysis of the report generated from the IMF’s Article IV consultation which wrapped up on Monday, he also disagreed with the Washington-based financial body, which welcomed the revenue measures in the budget, insisting that continually adding taxes to a shrinking economy would not generate much needed revenue.
“Simply because the base has shrunk so the tax itself does not yield as much,” he explained.