Danger sign

Reserves fall to 22-year low of $410 million

A thick cloud of gloom continues to hang over the economy with the Central Bank reporting that the island’s foreign exchange reserves have reached dangerously low levels.

The bank’s Governor Cleviston Haynes today revealed that as of the end of December last year, the reserves stood at a 22-year low of $410 million, or 6.6 weeks of import cover, well below the recommended 12 weeks.

The situation is even more dire than indicated two days ago by economist Marla Dukharan, who reported at the time that international reserves had fallen to $482 million, or just under eight weeks of import cover, as at November last year.

Therefore, the latest numbers released today by the Central Bank suggested that in just one month the reserves fell by $72 million.

Still, Hayes urged Barbadians not to panic, insisting that “panic won’t get us anywhere”.

“We have challenges which we have to face, but it does not require panic. It requires us to address the issues which confront us, to do so frontally and do so quickly. I think that is what is within our powers to do. Panic won’t get us anywhere,” Haynes said this morning as he delivered his economic review at the Central Bank.

Government’s top economic adviser explained that weak private sector capital flows, net public sector outflows and the delay in the sale of some state assets contributed to the low levels of reserves.

However, he was “optimistic that we will have adequate levels of reserves to meet our payments during the year”.

Despite his optimism, Haynes reported that unlike the customary practice, commercial banks were no longer selling as much surplus funds to the Central Bank “because the market is tight”.

In fact, he said, “in some cases they have actually come to us to buy foreign exchange”.

The struggle to maintain the reserves notwithstanding, there were a few gains, with the fiscal deficit falling to just below four per cent due to increased revenue intake, along with one per cent economic growth, a rise in tourist arrivals and a fall in spending in some areas.

Still, overall expenditure grew by an estimated $9.9 million and there was lower than expected tax revenues from the austerity measures introduced last year, as the Freundel Stuart administration struggled to bring economic balance.

The controversial National Social Responsibility Levy generated only about $115 million  – $84.9 million from the tax itself and an additional $30 million from Value Added Tax (VAT) generated by the levy, a long way from the $218 million it was expected to bring in from July 1, 2017 when it was raised from two per cent to ten per cent of the customs duty on imported and locally produced goods, to the end of the fiscal year in March.

Import duties also declined, with the new foreign exchange tax earning the Treasury just $30.4 million as at the end of December, $22 million below the $52.5 million target for the remainder of the fiscal year. Over a full financial year, it was projected to generate $140 million.

Haynes reported that Government reduced its overall debt to 145.9  per cent of GDP during the April to December period, from 147.5  per cent of GDP the previous year, although interest on debt payment increased, which also contributed to the declining reserves.

He urged the administration to “continue to build on the gains it has made on reducing the fiscal imbalance” for fiscal year 2018/2019.

“The fiscal deficit for 2017/2018 is anticipated to be lower than for the previous year, but it is unlikely to achieve its target because of the non-receipt of divestment proceeds and the lower than anticipated revenue yield.

“Further consolidation, particularly through structural expenditure reforms and improved tax administration, is now required. Effective implementation of these measures would help to prevent further accumulation of arrears which will aid in restoring confidence and facilitating private sector activity,” he advised.

There were marginal increases in revenue from corporation, personal, financial institutions asset, and excise taxes, which, coupled with “stabilization of non-interest expenditure”, were primarily responsible for the reduced deficit, which stood at $399.5 million for the April to December period, a decline of $196.6 million.

The Central Bank also slashed its funding of Government to a mere $96.8 million between April and December, compared to $714.5 million for the corresponding period for fiscal year 2016/2017.

Despite the economic maelstrom – made worse today by the announcement by the International Monetary Fund that real growth for 2018 would be at 0.5 per cent and inflation would be expected to rise by 5.5 per cent – Haynes dismissed the idea of a devaluation of the Barbados dollar, saying this would not help the island achieve is economic targets.

At the same time, he recommended two key priorities for 2018, including strengthening of the adjustment efforts “to reduce the fiscal balance to a sustainable level, facilitate a reduction in the debt to gross domestic product ratio over time and engender the investor confidence required for promoting acceleration in economic activity over the medium term”.

He also said “significant public and private capital inflows” were needed to restore the reserves, “at least in line with the twelve week benchmark”.

The Central Bank is forecasting economic growth of between 0.5 per cent and one per cent for this year, as a result of continued dampened domestic demand due to the austerity measures announced at the end of May last year.

marlonmadden@barbadostoday.bb

7 Responses to Danger sign

  1. Roverp February 1, 2018 at 6:02 am

    Tried to tell the last Central Bank Governor that there was something called tourism leakage rate that affects tourism dependent countries.

    Reply
  2. Tony Webster February 1, 2018 at 6:25 am

    @Roverp: “me too”. My feeble A-levels tryst with economics, didn’t actually deal with the small matter of public confidence…at all…but there’s a LOT of work to do re-writing all tomes on the subject- which seems to be in a constant flux anyhow.
    You live…and you learn…or at least…one is SUPPOSED to learn from one’s mistakes.

    Reply
  3. jrsmith February 1, 2018 at 7:15 am

    All the rubbish we are hearing from the experts , pages of nothing really which adds up to nothing….. Please explain why don’t our government try to recover parts of the 900 plus millions which is suppose to be owed to our treasury….. or is this something else other than that ……Or they cannot account for the money………………………
    My take the government is playing the bajan people as like fools, they have come now to realize no way in hell they have a chance to win the next election, so they are making sure who wins the next election is going to find things very tough……………Bat and ball politics…………………

    Reply
  4. Kim Marshall February 1, 2018 at 8:06 am

    I agree with the Central Bank Governor when he says, “Panic won’t get us anywhere”. This is not the time for us to give up and think our fate as a nation is set but he commented…like so many have done, that “It requires us to address the issues which confront us, to do so frontally and do so quickly.”

    This is something our current Government has never done on any issue in almost 10 years!!! He also stated, “Significant public and private capital inflows” were needed to restore the reserves, “at least in line with the twelve week benchmark.”

    The current Government has not said in ten years what is their plan to earn or facilitate earning foreign exchange. The fact is that the Governor has suggested things be done that this Government has proven they are incapable of doing for 2 terms.

    This is why calling an election now rather going to the full time is so important. We are down to less than 7 weeks of import cover and I think this is the best time to get the campaign folly out of the way and start to do what is necessary so we can buy medication for the nation, food for the nation and other items we require the CANNOT and will never be able to be bought with Barbadian money.

    Call the date of the election and let the BLP, DLP and all new parties hold their meetings, insult each other, talk about mistakes each party made, tell jokes about each other and do all that crap as soon as possible so the people can select who we want to move forward and do just that as a nation…move forward as quickly and efficiently as possible.

    It is my sincerest hope that somewhere in all the folly we can make all parties provide the people in writing and verbally their plan for what what they will do to address the current state we are in as that is all I want to hear but understand that politics = folly so let the folly occur as quickly as possible.

    We have lost a lot of time and can afford to lose anymore. Our way of life is at state here and that includes all members of the BLP, DLP and all other citizens of Barbados.

    Reply
  5. Walmark John F February 1, 2018 at 11:12 am

    Well,,,, as a regular visitor for the past 20 years,,,, our $10,000 us we have spent annually won’t be coming in for many years until this sewage crisis is fixed….. we have always spent our hard earned vacation dollars locally and never stayed at all inclusive…money given to all inclusive resorts never ever seee its way into economy,,, especially when this government does long term no tax deals ,,,,
    Former Tourist Ambassor to Barbados which is unfortunate……

    Reply
  6. Helicopter(8P) February 1, 2018 at 12:07 pm

    Mr Walmark I regret the situation on the small portion of our south coast. Barbados has an Atlantic coast which is located to the eastern seaboard of the island and there is a western coastal area leading northward which has fantastic beachfront and coastline. Accomodation at these locations should be seeked as the Barbados Goverment and environmental engineers progress a plan and design of an upgraded sewerage system compatable to any other city’s system; particularly Hollands. Britton experiences from time to time malfunctions due to heavy rainfall so many measures and fail-safes are being employed into our new system. We regret your unfortunate circumstances and wish you a much more gratifing stay in the future.

    Reply
  7. milli watt February 1, 2018 at 5:55 pm

    DON’T PANIC………just worry! I should be a song writer don’t worry be happy now.

    Reply

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