Economist Stephen warns of a rising threat

With global oil prices on the rise again, economist Jeremy Stephen is raising fresh alarm that the country’s dwindling foreign reserves are about to take a “nasty hit”, putting the stability of the Barbados dollar in further jeopardy.

“The reserves [are] about to take a huge hit, and we have to acknowledge that this hit is coming,” Stephen said in a video on his Facebook page.

He explained that while low oil prices had been Barbados’ “saving grace” in recent years, the global market was changing and  “the knock on effect would mean a stronger case for devaluation.

“You can do all the monetary policies you want, but as long as the price of oil [was] below US$100, that gave Barbados a fighting chance . . . but [with oil prices again on the rise], I figure we need to have this serious conversation now about what we are going to do,” he said, while describing the situation as “freaky”.

Over the past five years there has been some fluctuation in oil prices, from a high of US$125 per barrel in early 2012 to as low as US$30 per barrel in 2015/2016.

Government spent about $300 million on the importation of oil, gasoline and diesel last year, compared to $452.4 million in fuel costs in 2015, according to official estimates.

So far this year, oil prices have fluctuated between US$55.50 at the beginning of this year and over $60 per barrel at the beginning of this month.

Officials are now predicting a “fair price” of between US$70 and US$80 per barrel, and Stephen warned that if the price goes up above the current rate of between US$50 – US$60 per barrel, this is “literally going to drag reserves down”.

He explained that there was a “deep link” between the price of energy and the country’s foreign exchange reserves, which plummeted to a low of 8.6 weeks of import cover or $549.7 million at the end of September.

“We need to seriously have this conversation. Things are definitely about to get interesting. For the better part they have been bad for some time . . . [but] the reserves are about to take a nasty hit,” he cautioned.

“This makes the NSRL [National Social Responsibility Levy] even worse . . .  the cost of driving our cars even more expensive
. . .  the cost of energy even more expensive for us . . . the cost of imports way more expensive for us . . . the cost of travel worldwide way more expensive . . .  the cost of tourists coming in the country, although most of these people bought tickets already, more expensive for us,” he further cautioned, adding that if the reserves were to dip to as low as six weeks of imports this would essentially mean devaluation of the Barbados dollar, currently pegged at two to one against the United States currency.

“I know it does not inspire confidence when the reserves is at six weeks, [but] this has to be top of mind,” Stephen said, while acknowledging that the price of oil has a major impact on domestic reserves, so too Government’s debt payment and the national food import bill.

Just last week Minister of Finance Chris Sinckler sought to reassure the nation that the Barbados dollar was not in danger of devaluation.

However, addressing the annual conference of the Institute of Chartered Accountants of Barbados, Sinckler said Government was looking forward to the “expeditious conclusion” of the sale of the Hilton Barbados Resort and the Barbados National Terminal Company Ltd, valued at US$100 million each, “to give the country the breathing space it needed to address the medium and longer-term challenges with foreign exchange earnings and retention for the island as a whole”.

“It is true that a healthy reserves position is the bedrock of maintaining the desired peg against the US dollar and, as I highlighted before, our reserves have declined to a less than comfortable level. However, reserves of just above eight weeks of imports are yet enough to defend the local currency,” Sinckler stated at the time.

He also explained that Barbados still had access to second-tier reserves held by other financial and commercial institutions, that could be tapped into if necessary.

“We do not anticipate that such a move would be necessary and to ensure that this will not be the case, we, the Government that is, are working with the Central Bank on a number of fronts to boost the reserves in the short term as we move forward,” he added.

12 Responses to Economist Stephen warns of a rising threat

  1. Lisa Moore
    Lisa Moore November 13, 2017 at 10:58 pm

    Psychics are now out in their numbers

    Reply
  2. Duane Burke
    Duane Burke November 13, 2017 at 11:09 pm

    On point as usual.

    Reply
  3. luther thorne November 14, 2017 at 3:05 am

    The Minister of Finance is in Control. Have no fear !

    Reply
  4. archy perch November 14, 2017 at 8:29 am

    Go Jeremy! You’re battling hard for that promised big job in a BLP Administration I see.
    Trying to follow Anthony Wood – another joker – who also came from your ECON university department. But Wood was an MP and became in Minister. You Jeremy only running your mouth. It’s like playing Russian roulette Jeremy, but you may regard yourself as a big gambler I don’t know.
    But this effort by you to demonstrate you are a prophet of doom and gloom will not work Jeremy.
    The DLP will win again if only by one vote the same as in 2013.

    Reply
  5. bradg November 14, 2017 at 8:44 am

    An administration could “F” up a country and it would still have party faithful……..well, well, well.

    Reply
    • Concerned Man November 14, 2017 at 11:00 am

      After all Hitler had his Himmler till the bitter end…….

      Reply
    • The Gatekeeper November 14, 2017 at 4:42 pm

      LMAO…my sentiments exactly. Even the devil has his followers…as misguided as they are.

      Reply
  6. archy perch November 14, 2017 at 9:19 am

    bradg ….open our mind like you do your eyes and count your blessings. The supermarket shelves are fulll ful ful in Barbados.’The BLP memchants continue to up the ting(prices) while stroking your BLP fancy.
    Demonizing the present government will not breed political success at the polls for the opposition party my friend. The Trump/Russian tatics being employed will make people like you laugh, but detrimental.I refer to all kinds of WhatsApp images of the DLP Mps doing all sorts of things along with numerous allegatons, but I see nothing of the same about the BLP rascals.I guess they are washed in the blood.

    Reply
    • Bajan November 14, 2017 at 3:54 pm

      Good day, archy perch, you sound just like the slave masters who used to tell our enslaved fore-parents, “You have it good on this plantation.We feed you, put a roof over your head and take care of you. You never had it so good before we brought you here from Africa. Now stop complaining and work!”

      The point is the government bragged in 2013 on the political platform that the economy was the best it has ever been and that they were the ones who brought it back to health. However, Jermy Stephens and others experts in the economic discipline were advising the government to consider and even choose other economic policies that could actually work for Barbados. They told the government where its economic policies would lead Barbados. The government ignored EVERY one of these visionary economists and finance experts and said that its economic policies are working.

      EVERY single economic outcome Mr.Jermy Stephens predicted occurred. Every single outcome the government promised, failed.

      I challenge you archy perch, why should we not believe what we have seen happen to Barbados during the last 6 years? We are living it. We cry it and fear it every minute.

      Reply
  7. Lee November 14, 2017 at 10:35 am

    Raise Excise Tax on fuel prices by a dollar and we will see the reserves stop falling. Barbadian drivers burn gasoline as if they produced it !!

    Reply
  8. Sheron Inniss November 14, 2017 at 5:37 pm

    Those coconut shells will no longer be an eyesore. The vendors will be selling empty shells for fuel.

    Reply
  9. Darson November 17, 2017 at 7:44 am

    Did he posit: The price of Oil is the reason for the possible Hit?
    what else is new ? do we really need him to tell us that ?
    my question for him is this ,when the NSRL was coming on stream the merchant had months of reserve goods on hold ,are the oil merchants holding any reserves from the low $30-50 ,and if they are, can you see why the 10 % up front is the right way to go, if you don’t know I would be glad to explain it to you .and while you are at it look carefully at how the merchants apply the Value Added Tax even when they have not added and value: maybe a Cap and Trade would be the way to go , and if needed a Ration , Some form of Discipline is Badly needed by all .

    Reply

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