Barbados Today: The Barbados economy, which grew by an estimated 2.2 per cent during the first half of this year, is expected to slow by the end of 2017.
Acting Central Bank Governor Cleviston Haynes gave the revised projection today as he addressed a meeting of the Social Partnership at the Barbados Hilton Resort.
While suggesting that growth would be “in the region of 1.3 per cent to 1.8 per cent, compared to earlier estimates of 1.5 to 2 per cent”, Haynes explained that the economy remained very challenged with the international reserves plummeting to $635.5 million or just 9.7 weeks of import at the end of June.
This is even further below the 12-weeks benchmark, from the $705.4 million or about 10.7 weeks of import as at the end of March.
Making a presentation to Government, private sector and trade union leaders that was also nationally televised, Haynes said the drop in reserves was due mainly to Government’s expected external debt service obligations and the ongoing delays in securing planned foreign investment inflows.
He said while the foreign exchange reserves were “still manageable” the situation still offered no comfort as it could put further strain on the island’s ability to maintain its 2-to-1 peg to the US dollar.
Haynes warned that even if the reserves should rise in the third quarter, they were expected to dip again at the end of the year due mainly to debt servicing and should therefore be dealt with as a matter of priority.
“From a comfort perspective we want to see our reserves at a much higher level. One of the key policy objectives for us is to maintain the exchange rate stability and that has been one of the bulwarks of the strength of this economy over the years and therefore as part of the effort to maintain that exchange rate stability you need to ensure you have an adequate reserve buffer at all times. Therefore, at 9.7 weeks, although it is manageable it is still a situation which we need to address as a priority going forward,” said Haynes.
“While we have balance of payment issues and we need to build our reserves, a lot of the fiscal adjustment right now is being driven by financing issues and therefore we need to find a way of addressing the financing issues,” the acting Governor candidly said.
Explaining that there was now a lack of fiscal space to drive the economy, Haynes further warned that it was “very important for us to be able to restore some sort of rectitude to our public finances”.
He also reported that even though Government’s expenditure, especially on wages and transfers, had declined somewhat, it was still too high, while cautioning that improved efficiency was needed within state-owned enterprises.
Further highlighting the challenges, Haynes said receipts from tourism, which is the mainstay of the island’s economy, were simply not keeping pace with arrival numbers. He also pointed to increasing oil prices and the island’s food import bill.
In terms of Government’s revenue, Haynes said that continued to be challenged due to lower collection of Value Added Tax, corporation and other taxes.
At the same time, he acknowledged that Government was also guilty of not paying what it owed because of its own financial difficulties.
And while the Freundel Stuart administration has managed to rake in some additional revenue from the recently increased National Social Responsibility Levy, there was a reduction in the PAYE, something which the acting Governor said needed to be investigated given that unemployment figures had gone down.
On the expenditure side, he said interest expenditure had gone up while non-interest expenditure had fallen.
Though supporting the sale of assets, Haynes acknowledged that Government assets could only be sold once. Therefore, he said a strong medium-term strategy remained relevant.
“At some point we have to make decisions which reflect our capacity at this point. There are some medium term structural issues that clearly need to be addressed. We talk about asset sales, the asset sales are very critical to both to the fiscal outturn as well as the international reserves outturn,” said Haynes.
While acknowledging that he was in no position to tell Government exactly how to close its fiscal deficit, he suggested there were a number of options available while pointing out that “we face significant challenges, we continue to have low growth, our reserves are not where we want them to be, the fiscal deficit has to be addressed and in so doing that will help to slow the rate of debt accumulation”.