Debt burden still a fiscal drag –– Forte
No need for wild celebrations!
That was the immediate reaction of an overseas-based Barbadian economic expert to the latest Central Bank of Barbados (CBB) report which predicts a revised 1.4 per cent growth in the economy for 2016, down from the previously forecasted 1.8 per cent.
Senior economist in the Ministry of Finance in Ontario, Canada, Carlos Forte, in an emailed response to Barbados TODAY, said it was pleasing that growth in the island’s overall economic activity surpassed one per cent.
This, he said, was an indication that the economy was beginning to trend upwards.
However, Forte warned this was no time for jubilation.
“Real GDP [gross domestic product] growth in excess of one per cent, though modest, is a welcome development that signals that the economy may be finally on a genuine uptick,” the former CCB and Barbados Ministry of Finance employee stated in an email to Barbados TODAY.
“Nevertheless, I would recommend cautious optimism and not euphoria given that it is clear that the lower oil prices has been a boon for the economy in terms of the growth rate, current account position of the balance of payments and the foreign exchange reserves cover. This is borne out by the negative inflation during the last nine months.”
Forte also identified several “bright spots” in the bank’s report, including a fall in the current account deficit of the balance of payments to 2.5 per cent compared with 6.1 per cent a year ago; steady net capital inflows and rising tourist spend.
In its review of the first nine months of 2016, the Central Bank said the Barbados economy grew by 1.3 per cent during the period, mainly due to a three per cent increase in tourist arrivals, a three per cent rise in business and other services and five per cent growth in construction.
However, it said while the average unemployment rate fell to 10.2 per cent for the nine months ending June, inflation remained in negative territory, with the price index declining by 1.2 per cent.
The CCB also said the gross public sector debt at the end of September stood at 108 per cent of GDP, while the net public sector debt ratio was 57 per cent.
Forte found the high fiscal deficit and debt levels troubling, and questioned the absence of numbers linking the deficit and domestic activity.
“[The] most recent fiscal deficit as a percentage of GDP [has been] omitted. That is [a] red flag – a glaring omission. What is clear . . . is that the fiscal deficit so far this calendar year is higher than it was during the same period last year – $241.9M this year compared to $151.5M,” the Commonwealth scholar observed.
He also listed as areas of concern the “way too high and growing” public debt and “still too low” levels of foreign direct investment, recommending that the country needed annual capital inflows of between $400 million and $500 million.
“The Barbados economy still faces significant headwinds, namely the fiscal drag of a high debt burden, less than optimal foreign direct investment, high taxation and public expenditure and a slow growth external environment – primarily among its large industrial trading partners,” Forte stated.
It was in December 2015, in an interview with Barbados TODAY that Forte expressed strong concern about the continuing debt situation, although he said at the time he was beginning to see “some bright spots” in terms of tourism and other investments, and was happy to see that “the rot has stopped”.
Yet, he said then, he remained concerned that the economy was generally “stagnant” and that Government’s debt situation was out of control.
“The problem is that the Government now finds itself in a position where it has to commit about 30 per cent of its revenue to debt servicing, which doesn’t leave much resources to meet our ongoing commitments in health care, education, other social services, public infrastructure and the like.
“So the Government is really in a legitimate bind as a consequence of the accumulation of the unsustainable deficits in the post 2008 period,” the former offshore banking official said at the time.
It was then he suggested a change in approach, urging Government to seek debt restructuring, which he said was the only thing, apart from privatization, that would give the administration the fiscal space it needed.