One of the recurring themes of the post-2008 economic environment has been the need for both Government and individuals to live within their means.
No matter on which side of the political fence one sits, it is generally accepted that Government has been spending more than it should.
As it relates to individuals, however, the evidence is little more than anecdotal. We have all heard of someone who seems unable to pay utility bills or buy groceries yet can afford expensive clothing or non-essentials.
While most banking and non-banking financial institutions have reported some increase in delinquency, it is difficult to determine how many cases result from misplaced priorities and how many individuals are simply struggling to make ends meet despite their best efforts.
The July 15, 2011 WEEKEND NATION reported that Bajans, both the Government and consumers, were living above their means and needed to put the brakes on their spending habits.
Two prominent economists, Sir Courtney Blackman and Charlie Skeete, contended that this was the central message being sent in the Central Bank of Barbados’ second quarterly report for 2011.
Using almost identical language in separate interviews, Sir Courtney, the Central Bank’s first governor, and Skeete, a retired senior economic adviser at the Inter-American Development Bank in Washington, said that decisive action was needed by the Government and people to cut spending, eliminate wastage and heighten efficiency in the public sector.
“The report confirms that the economy is weak, very weak, and I am concerned about the foreign exchange position, as the Central Bank report states at the end of six months our foreign exchange position is at the same level as three months before,” said Sir Courtney.
“We must seriously look at areas where foreign exchange can be saved or be earned. I would make a big push in agriculture and I would save in areas which lead to saving foreign exchange. There should be a freeze on public sector wages. That freeze should have happened six months ago, but better late than never”.
Skeete pointed to a Central Bank statement: “Government will need to reduce its expenditure in order to dampen total spending in the country, and hence imports in order to maintain foreign exchange reserves near the levels at the beginning of the year.”
Prior to this, the June 16, 2011 DAILY NATION editorial noted that if there was one underscored message from Moody’s Investors Service’s downgrading of Barbados’ domestic currency rating, “it was that we are not out of the woods by a longshot, and we just must stop living above our means”.
“And though Minister of Finance Chris Sinckler would rather take heart in the seemingly opposite prognostication of Standard & Poor’s (S&P) and its maintained BBB-investment grade rating for Barbados, we urge strongly cautious optimism.
“We would want nothing more than that S&P credit analyst Olga Kalinina is right that the Barbados “economy has bottomed out and that economic activity is now accelerating”. But taking nothing for granted, the Government’s continuing effort must be to stunt the national debt growth,” it stated.
Turning our attention to consumers, the November 04, 2011 WEEKEND NATION reported that although Barbadians seem to have stopped racking up high credit card debt, they continue to struggle with mortgage payments in light of the current financial situation.
This assessment came from Barbados Bankers’ Association president Horace Cobham, who said credit card debt was neither extraordinary nor worrisome. According to the experienced banker, after “the initial wave of the financial crisis, delinquencies in credit cards went up quite significantly for most banks but interestingly enough, over time they’ve come down”.
Cobham, who is country head of RBC Ltd and RBTT Barbados Limited, said he did not have industry-wide statistics but noted that his bank was still seeing a demand for credit cards.
“Where delinquency is somewhat worrisome is in the area of mortgage portfolios. Delinquency in mortgages is higher than normal and it is higher than what we typically would expect. That is so because we know that Barbadians cherish their homes and they would do virtually anything to ensure that their debts and obligations for their homes are paid first,” he said.
Cobham noted that this delinquency was therefore indicative of the “deeper financial struggle” of Barbadians.
He noted that individuals have been “slow” to make “big” decisions like purchasing new vehicles and land or taking out significant mortgages.
Instead, he said, Barbadians have been concentrating on smaller amounts,“$5 000 to $10 000 to do important things”, and debt consolidation.
Furthermore, just five days before Christmas last year, Cobham said it seemed Barbadians had demonstrated prudent borrowing from commercial banks.
In the December 20, 2011 DAILY NATION he said there had been no dramatic increase in loan applications. He said that demand for loans remained “steady” with an uptick from late November into early December.
“I think what Barbadians have demonstrated for the last year to year and a half is that they will make the decisions they have to make thoughtfully,” he said.
If the experience of commercial banks is any indication, Barbadians have not been taking on extra debt to keep up with the Joneses. We hear often of consumers shopping around for the best deals and forgoing major purchases and while some may indeed be biting off more than they can chew, there is not much concrete evidence.
