Try it my way

Estwick tells govt give serious consideration to UAE plan

Don’t write off my sinking fund proposal with the United Arab Emirates (UAE) just yet!

That’s the latest appeal from outspoken Government Minister Dr David Estwick to the Freundel Stuart administration in the wake of two recent economic downgrades and the laying of the 2017/2018 Estimates of Revenue and Expenditure in Parliament this week by Minister of Finance Chris Sinckler.

Estwick noted that Government was due to spend a whopping $1.8 billion in debt servicing this year, telling Barbados TODAY this was all the more reason for serious consideration to be given to the UAE refinancing plan.

For one, he said, it would save the cash-strapped Democratic Labour Party (DLP) administration at least $1 billion in debt servicing per year, and would essentially mean that the country would only have to worry about a $700 million annual repayment package.

Just Thursday, the international ratings agency Moody’s downgraded Barbados’ bond and issuer ratings to Caa3, after Standard & Poor’s last Friday reduced the country to ‘CCC+/C’, on account of its limited financing alternatives and low international reserves.

While calling into serious question Government’s ability to meet its loan obligations, Moody’s highlighted its ballooning debt, which stood at 111 per cent of its gross domestic product (GDP) at the end of last year.

The international credit rating agency also noted that the Freundel Stuart administration currently has on the books, accumulated arrears to the private sector and the National Insurance Scheme to the tune of 11 per cent of GDP, as well as large refinancing requirements and a high interest burden, which consume about 27 per cent of its total revenues.

And given the recent reluctance of the Central Bank to meet Government’s money demands, Moody’s said there was “a high probability” of a credit default by the island within the next two to three years.

With the ratings agency also upholding his view that the Sinckler-led economic strategy has been a failure, Estwick was further insistent that the time had come for Government to try it his way.

In fact, he told Barbados TODAY he had already done all the required calculations to be certain that the plan was economically viable.

In response to concerns that the sinking fund proposal would put additional pressure on the island’s dwindling foreign reserves, Estwick, a former Minister of Economic Affairs, argued that the increase would be tolerable given the $1 billion savings on Government’s overall debt service.

He also said that by converting the entire national debt to foreign debt by way of the sinking fund arrangement, Government would essentially be paying back $687 million a year, compared to the current external debt service projection of $292.5 million.

“The increase in foreign exchange is US$197 million (BDS$394.5 million), while a savings of over $1 billion is realized on the National Budget,” he told Barbados TODAY.

And as if to suggest that the plan should have been implemented long ago, the Minister of Agriculture, Food, Fisheries and Water Resource Management reminded that the sinking fund proposal, which was first presented two years ago, was based on a national debt of $12 billion and an annual debt service of $1.7 billion, with interest on repayments on the proposed US$5 billion loan set at four per cent over 30 years.

Back then, Estwick said Barbados could have negotiated a two per cent interest rate, which means that its external debt service would have been much lower than what presently obtains.

He also argued that the move would also impact positively on the country’s deficit position, while reiterating the position he had taken during the 2016 Budget debate.

“Using financial data for the fiscal year 2013/2014, I showed that if we assume an interest rate of four per cent on the sinking fund that the current expenditure, inclusive of amortization, will be reduced to $2.9 billion from $3.4 billion [or a 15 per cent fall],” he said, adding that the current account deficit was projected to fall to $593 million or seven per cent of GDP.

“On the IFI or cash basis (less amortization, bad debts and depreciation), the current expenditure and the current account deficit would have fallen even further to $2.7 billion and $415 million respectively, resulting in a deficit ratio of 4.85 per cent,” the former Minister of Economic Affairs contended.

He said even though the deficit figure was higher than the often-recommended three per cent of GDP, the country as a whole would be “breathing” a lot easier today.

“The current account deficit, inclusive of amortization, would be reduced to $461 million, while the current account deficit, as a percentage of GDP, would be reduced to 5.4 per cent,” Estwick said, adding that when amortization is factored, the country would be left with a deficit of $128 million or 1.5 per cent GDP.

Earlier, former Prime Minister Owen Arthur and economic advisor to the Opposition Barbados Labour Party (BLP) Clyde Mascoll had expressed strong reservation over the proposal on the grounds that there would be serious ramifications for transferring all of the island’s debt abroad. They also suggested that the plan, which would essentially cut off Government’s commercial relationship with entities such as the National Insurance Scheme, would do more economic harm than good.

However, Estwick rejected those criticisms out of hand.
emmanueljoseph@barbadostoday.bb

6 Responses to Try it my way

  1. Mack March 10, 2017 at 11:13 pm

    Don’t worry minister Estwick. We will get a bailout from our friends in China, They are much nicer to us than the friends in the middle east.

    Reply
  2. Leroy March 11, 2017 at 2:12 am

    Where is the incentive if we borrowing so much cash in cutting expenditure and waste?

    30% of the national debt is in foreign, lets not increase it

    Any plan government implements must have an equal amount of expenditure cuts to go with borrowing. Not a wholesale grab at $ from UAE just because you can or you just be kicking the can down the road.

    Reply
  3. Tony Webster March 11, 2017 at 6:55 am

    Sir, we wind shift….long-time. Start bailing dat sinking boat. @Leroy comment (above) provides a simple, unavoidable answer as to why your efforts came to naught. The time for accomodating jokers and “posers”, Sir….is over. It’s “lights out time”, Sir. Sleep well…Sir.

    Reply
  4. Harry March 11, 2017 at 7:27 am

    This Govt has over its tenure not had the testicular fortitude to do what was required i.e. reduce work force etc. We keeping hearing phrases like ” very shortly I will announce, “in the next few weeks ” “the paradise project will recommence construction over the next few weeks” etc. etc.All of which have not materialized, I was amazed to hear the GS of the DLP state that the DLP would list its achievements over the past 8 years, will he included 19 downgrades, doubling of the National debt, transport woes, sewerage issues, garbage collection, and the list goes on? But I forgot that is the fault of the previous Govt which after 9 years in Govt this lot couldn’t fix.

    Reply
  5. Peter March 11, 2017 at 10:34 am

    Dr. David Estwick. I openly declare you have the best plan for Barbados to date.

    Reply
  6. sunshinecanada March 11, 2017 at 2:31 pm

    China and Chinese going to take over, one way or the other,

    Reply

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