Dwindling reserves

Government’s stock of foreign currency takes a major hit

The island’s foreign reserves have fallen to the lowest level in 14 years, according to Governor of the Central Bank of Barbados Dr DeLisle Worrell.

However, Worrell has sought to calm nerves by revealing that Government was anticipating over $250 million, including $68 million on the Sam Lord’s project, $100 million from the sale of the Barbados National Terminal Company Ltd and $40 million from the sale of Government’s interest in the Four Seasons property.

In addition, $30 million was expected for the pre-funding of scheduled projects and a further $12 million for an education loan. He did not say how much of this cash would come before the end of the current fiscal year, which ends March 31.

In delivering his latest report Tuesday, the Governor said the reserves had fallen below the benchmark 12 weeks of import, standing at about 10.3 weeks.

The $681 million in reserve at the end of December 2016 was $246 million less than the $927 million – or 14 weeks of imports – recorded at the end of 2015.

The extent of the problem was further manifested in the amount collected through foreign finance last year, which was approximately one-third of the total collected the previous year.

And while the private sector performed a lot better, its intake was also lower than in 2015.

“There was an estimated net inflow of foreign finance of $132 million, 256 million lower than in 2015. Inflows by private sector entities were $379 million, $90 million lower than in 2015, Worrell said.

“Foreign financing for the public sector was also lower because select project inflows did not materialize due to administrative delays. Government’s repayments were higher than in the previous year, exceeding the amount of inflows by $170 million,” he added.

Even in the face of an economy which was estimated to have grown by1.6 per cent, along with a fall in unemployment to ten per cent for the four quarters ending in September 2016 and a rise in receipts from Value Added Tax (VAT), Government continued to struggle to earn revenue, Worrell disclosed.

The current account deficit for April to December fell by $31 million to an estimated $510 million, while revenue declined by $6 million, mainly due to a $17 million decrease in earnings from personal income.

“VAT receipts were up $48 million and the new National Social Responsibility Levy has yielded $8.3 million so far,” he reported.

Current expenditure increased by $25 million, while transfers to state-owned enterprises fell by $17 million, although interest payments rose by $53 million. Capital expenditure fell by $36 million and the overall fiscal deficit, estimated at $665 million, was $5 million smaller, he said.

Still, the Freundel Stuart administration continued to rely on Central Bank funding to drive down the debt owed to private individuals and companies, with Worrell blaming the fact that Government had spent more on the current account than it had received in taxes and other current receipts.   

“Government’s dependence on the Central Bank to finance its deficit limits the Bank’s ability to influence interest rates appropriate for Barbados’ circumstances, as is the standard practice used by central banks everywhere,” Worrell said.

The Governor’s report revealed that the country’s debt to private individuals, companies and public entities stood at $4.9 billion, or 53 per cent of gross domestic product as at the end of December last year.

“The gross government debt, including borrowings from Central Bank was 108 per cent of GDP. The proportion of foreign currency debt was 31 per cent of GDP, and the cost of servicing that debt was $391 million or eight per cent of earnings from goods and services,” Worrell disclosed.

He said receipts from services other than tourism averaged about $1.1 billion since 2013, but the assets of international banks offering global services declined by nine per cent to
$69 billion.

The number of international business companies also declined by five per cent as at October 2016.

The island’s chief economist said exports increased by five per cent to $511 million, driven mainly by rum and other beverages, construction materials and printed labels.

Fuel imports, he said, fell by 21 per cent to $366 million, while imports of consumer and capital goods both rose by over six per cent.

The economist did not give an estimated growth rate for this year, but said the prognosis “for the next five years continues to be about two per cent”, driven by $2.6 billion in tourism, infrastructure, energy and housing projects.

Worrell said an increase in productivity in the delivery of public services was urgently needed to help accelerate the forecast rate of growth by at least one per cent, by improving business facilitation, advancing the implementation of investments, and improving the island’s attractiveness as a place to do business.

“The productivity gain would permit a reduction in the wages bill and transfers to public entities, without any reduction of the level and quantity of services offered. This reduction in wages and transfers would assist in eliminating the Government’s deficit on its current account,” Worrell said.

marlonmadden@barbadostoday.bb

17 Responses to Dwindling reserves

  1. Leroy January 25, 2017 at 12:37 am

    Noy good when ya selling you shoes, clothes and furniture to prop up your foreign reserves, why didnt this gov go to imf and leverage debt to hv some $ to invest in industry and tourism aswell as room to restructure? And they want 4 more years,,hell no.

    Reply
    • Gearbox1964 January 25, 2017 at 1:26 pm

      What makes me laugh is the DLP’s pitch these days that Mia is tearing down and destroying the country…the way they talking yuh would think that Mia was PM for the last 8 years. LOL

      Reply
  2. Tony Webster January 25, 2017 at 2:13 am

    Coulda; woulda; shoulda. Pie is the sky; good-intentions paving the road so Invading Menacing Forces would have a smooth ride “going forward”…and Jam will “definitely” be served on well-buttered toast, starting “tomorrow”.

    What value procrastination? Of recognizing reality? Or a sense of urgency? The capacity to grasp nettles?

    I think we urgently need to puncture the bubble of misinformation, or disengenousness, or worse, in which this administration blithely lives. Perhaps, we might even assign blame to one individual, by appointing him to carry the can…sorry…the accolade…of Productivity Champion?

    Lord….you really tekkin’ you sweet time to reach ’bout here, yeh!

    Reply
  3. Hal Austin January 25, 2017 at 2:46 am

    The myth of foreign reserves again. This is Bajan economic voodoo.

    Reply
  4. J. Payne January 25, 2017 at 5:23 am

    You goto the IMF you can probably expect demands for cut backs in healthcare, raise in busfares, more cuts in retirement.

    Reply
  5. Anodyne January 25, 2017 at 5:33 am

    But, of course, none of this is ever the fault of this government. It’s not their bad economic and financial stewardship. It’s always someone else who is to blame. Who would ever in their wildest dreams have thought that Barbados, historically always well managed, would come to this? It just shows you how it only takes one dysfunctional government, one group not up to the task of governing, to reduce an economy to rubble. And to think that we used to (still?) look down our noses at Guyana and Jamaica, saying their economic troubles could never happen here!

    Reply
  6. Jennifer January 25, 2017 at 5:38 am

    With all of these millions coming into the coffers, HOW MUCH IS GOING OUT AND IS BEING SPENT ON PROJECTS? It appears we ain’t got a limb to stand on. Home of the rich and land of the slave. I sticking to my bush tea to keep myself healthy.

    Reply
  7. Harry January 25, 2017 at 5:47 am

    from the mouth of Mr. Magoo….. Hal could you expand on your comment.

    Reply
  8. Tony Webster January 25, 2017 at 6:59 am

    @ Harry: Hal ( my goodly, wise and experienced buddy, mind you), has grown tired of us bellyaching, and will be forgiven for amusing himself by occasionally, twisting our tail!
    @Hal, if F/X is voo-doo…what would you-doo? For me-self, I am not invclined to applaud devaluation , or floating our currency options, but effin you got a rotten toe…and gangrene is evident and “one foot less” appears on the radar…what to do? Put mercurochrome on it, and cross fingers? Put iodine? Or do what is necessary to save the foot..and the leg?

    Indeed, standing back a distance to get some objectivity, and facing the stark reality that the several essential, structural, changes to systems of our governance; the economy; and to formal education…would be so unpalatable to the citizenry…no matter WHICH party be in power…that having a bogey-man on whom to rest the blame for all the ensuing “surgical interventions”…would be a GOD-SEND!!

    N’est-pas? (Plus kindest etc) TW

    Reply
  9. Peter January 25, 2017 at 7:59 am

    I have read this article and the subsequent responses. They are all well thought out and in my opinion, very much on the radar. Very searching.Jennifer, Hal, Tony Web, Anodyne… et al… Your comments are all so deep. One worry here is Government is “anticipating” these funds. When? Jennifer you asked an important question. That for sure drains foreign reserves. But the political game will be played and somebody will defend everything. How about someway creative to earn foreign exchange instead of expecting this and that.??? and things remain still born.

    Reply
  10. Richard Johnston January 25, 2017 at 8:18 am

    How do the funds to develop the Sam Lord’s Castle site contribute to the foreign-currency reserves?

    Reply
  11. Kevin J January 25, 2017 at 1:46 pm

    When you include the government debt held by the NIS, this brings the debt/GDP ratio to 156%. Barbados has the highest Debt/GDP ratio in the Caribbean;

    1. Barbados – 156%
    2. Jamaica – 120%
    3. The Bahamas – 85%
    4. Aruba – 80%
    5. Trinidad and Tobago – 75%

    The GDP of Barbados is around 9 billion. This means the government owes 14 billion in debt.

    Keep in mind that the government only collects around 30% of the 9 billion in GDP in taxes each year (that is, about 2.7 billion in revenue) and it takes about 2.5 billion in spending to run the country (government workers salaries, schools, hospitals, etc…). the yearly interest payment on the 14 billion is around 6% which is greater than the 0.2 billion in primary surplus (2.7 – 2.5 = 0.2). So the question is how are we ever going to repay the debt? We can’t!!!

    Reply
  12. Hal Austin January 25, 2017 at 2:15 pm

    Magoo (and others)

    I have expanded before. If government (central bank) were to play the currency futures market, hedging on a three-monthly rolling basis, the period that the central bank is obsessed over, there will be a risk-free access to foreign currencies (in fact the Greenback is what we are on about), while giving the government access to the Bds$600m in foreign reserves, which could be better used.
    A simple illustration: if you are a big food producer, you would not want to enter the market every time your warehouse runs low; you want to plan ahead.
    So you enter a futures contract to buy your produce at a future date at agreed prices; this gives you an opportunity to plan with certainty. This can be ‘insured’ through put and call options
    The same with currencies; this will protect the hedger against fluctuations in interest rates. Payment is made at the point of delivery, or, the hedger can sell on the product before the maturity date.
    Since the 1980s we have had interest rate currency swaps, that is why I say that old economists are not familiar with modern financial engineering.
    These derivatives now account for about US$780trn globally, as against about US$80trn in cash. To trade in this market calls for expert mathematicians, beyond my imagination.
    Barbados can hardly afford to tie up Bds$600m of unused money; and, since it is not broken down, we do not know what percentage of this is liquid, tied up in gilts and other low-risk bonds. We have to take the central bank governor and minister of finance on trust.
    Another alternative is Exchange Traded Funds; the central bank/government can trade passively in ETFs, tracking an index without all the risk. Foreign reserves are a substitute for the old gold standard, but irrelevant in the 21st century.
    Fundamentally, however, what we are told by the central bank is that our reserves cover a given period (40days) of imports. But nowhere do they say what these ‘imports’ are.
    In theory, they should cover a period of shock which brings the economy to its knees: an epidemic, such as bird flu; a sudden and unexpected outflow of capital; to meet any deficit in the current account, so-called leads and lags.
    This is what actuaries and insurance companies call a one in 200 year events; the last shock that qualifies as a once in a two hundred year event to take place in Barbados was on September 22, 1955 and we survived that without mot people even noticing.
    In fact, we are saving for a rainy day that is most unlikely to take place.
    I have long suggested that we can de-peg from the Greenback, peg against a basket of currencies and commodities (the so-called imports) and float against the other currencies.
    If we do not have the experts to play the futures market, we can buy in expertise. It is not rocket science.
    I suspect because we do no have a dynamic futures market in Barbados people are scared to play the markets.
    Why not use Bds$50m to establish a Post Office bank, ready-made with 18 branches, very little training will be needed and it can be rolled out across the country.

    Reply
  13. Hal Austin January 25, 2017 at 2:26 pm

    Magoo, et all

    I have just made a long submission on the question of foreign reserves, I checked that sit went through. Now it has been removed.
    I am not doing it again.

    Reply
  14. Tony Webster January 25, 2017 at 3:37 pm

    @Hal: thanks the time and effort. I for one, would much appreciate it you could kindly repeat to me, c/o the Nation team, who have on file via Disqus, my email address. Nation has my OK, and thanks in advance.

    Reply
  15. Tony Webster January 25, 2017 at 3:39 pm

    Oops! All via BT, plus my OK & thanks. TW

    Reply
  16. Jennifer January 25, 2017 at 9:55 pm

    THE NEXT TIME SOME ONE DOES A REPORT LIKE THIS. PLEASE PUT THE FIGURES ETC IN A NICE TABLE FORMAT so that all including the ignorant can see clearly what is going on with the economy.

    Reply

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