Slumping reserves a concern for ICAB

The governing body of professional accountants here is warning that the rapidly slumping foreign exchange reserves will expose the country to external economic shocks.

The Institute of Chartered Accountants of Barbados (ICAB) said it was critical that the country maintains reserves of at least 12 weeks of import cover in order to protect the exchange rate of BDS$2 to US$1 and engender investor confidence.

However, Executive Director Reginald Farley said the announcement on Wednesday by Central Bank Governor Cleviston Haynes that the reserves had fallen to 6.6 weeks of import cover, or $410 million at the end of December, was worrying because it meant the economy was at further risk of collapsing.

“An adequate foreign reserve buffer, estimated at 12 weeks of imports, is a key component in Barbados’ economic stability, maintenance of the fixed exchange rate, and investor confidence,” Farley said in a statement.

“The fact that reserves have declined every year since 2012 from 20.2 weeks of imports to 6.6 weeks of imports is a worrying trend. The low level of foreign reserves places Barbados in an increasingly vulnerable position to external economic shocks such as increases in the price of oil.”

In his economic report, the Central Bank Governor had told reporters that private sector capital flows, net public sector outflows, the delay in completing the sale of some state assets, and higher oil prices had contributed to slumping reserves.

Haynes also reported a decline in the worrying deficit to 3.7 per cent of gross domestic product (GDP), a significant drop in Central Bank financing of Government, and a rise in total expenditure by $9.9 million for the April to December 2017 period.

Despite the gains, Farley said “the state of public finances remains a cause for concern”, and he urged Government to pay outstanding tax refunds, arguing that the holdup was creating cash flow challenges for some businesses and individuals.

The former politician said given the current situation there was even greater need for the implementation of major investment projects, and for Government to implement measures that would increase investor confidence, boost productivity and service levels in both the public and private sectors, and implement structural reforms “to make Barbados more efficient and business friendly”.

He also echoed a call by the Barbados Private Sector Association for Government to negotiate a loan with a multi-lateral lending agency to provide cover for the foreign exchange reserves and a possible short-term reduction in interest payments.

“ICAB is of the view that such an arrangement would be more attractive if it has the additional benefit of supporting the required fiscal discipline and Government reforms across the public sector,” Farley stressed.

Meanwhile, President of the Barbados Economic Society Shane Lowe told Barbados TODAY he was worried that the reserves would continue to fall, and that Government would increase its debt “to facilitate investment in much-needed upgrades to infrastructure”, or continue to sell state assets “to avoid incurring substantially more debt to accommodate this likely increase in spending”.   

Therefore, Lowe said, foreign funding was required to fill this gap, as investments in hotels, renewable energy, the creative sector and other foreign exchange earning sectors would take time to yield additional revenues.

In light of the delays in completion of planned asset sales and falling direct
foreign investment, the economist recommended that Government seeks loans at concessional rates from multilateral lending agencies to provide the necessary buffer for the reserves.

With the International Monetary Fund predicting economic growth of 0.5 per cent this year – the Central Bank’s forecast is for 0.5 to one per cent – Lowe said the economic slowdown “is somewhat worrying, as the decline in GDP growth from 2.2 per cent during the first six months of 2017 to one per cent for the entire year implies that the economy did not grow at all during the second half of the year.

“While Government has collected more revenue thus far for the fiscal year from additional and higher taxes, this stagnation in economic activity, and the Central Bank’s projection for weak growth this year may continue to constrain substantial growth in revenues during 2018/19,” Lowe stressed.

One Response to Slumping reserves a concern for ICAB

  1. David Hall February 5, 2018 at 7:28 pm

    This current government is not in the business of taking advice from anyone except those who clearly dont know what to do. Its like buying insurance from


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