THERE ARE some things that play well in the local political environment but invite suspicion among international economic and financial analysts. The recent reaction of the CIBC First Caribbean International Bank (FCIB) to Moody’s downgrade is one such thing. It seems inspired by self-interest and/or duty.
According to the SUNDAY SUN, the downgrade did not come as a surprise to FCIB. It was noted that “following Moody’s previous negative outlook for Barbados, and insufficient progress to date in stabilising debt ratios, the rating action did not come as a complete surprise, however, although the level was exceedingly low for a country that had never defaulted on its debt.”
So FCIB is concerned about the magnitude of the downgrade and not the downgrade itself. So why did commercial banks express little appetite for further investment in Government long-term instruments as long ago as mid-2011? The answer to this question is important because the economic fundamentals have actually worsened. The follow-up question is: has the appetite changed since then?
Since 2012, Barbados’ international credit rating declined to below investment grade. Certainly the intervention of FCIB would have been far more meaningful and understandable at that time. To have waited this long to intervene invites suspicion. The proverbial horse has left the stable.
It is fair to say that the commercial banks have benefited most from the monetary policy of the Government in recent times. No other sector has witnessed a dramatic fall in the cost of its major business inputs like the banks. The Government now allows the banks to fix the cost of money to them at 0.5 from 2.5 percentage points or better still, a reduction of 80 per cent. Is this to offset the impact and incidence of the tax on the banks’ assets?
The financial sector is the only other sector apart from the Government that has grown over the last eight years. The evidence is available in the national income or GDP data for Barbados. In spite of this performance and the abundance of excess liquidity, commercial banks have shown little appetite to lend to small businesses in this country.
In the midst of the economic free fall in Barbados, the Government’s spokesmen preached that small businesses needed to be part of the solution. Yet, the policies of the Government were at variance with its sermons. No meaningful attempt was made to encourage lending to the small business sector from a banking sector flushed with excess money.
The lack of appetite to lend to small businesses comes as no surprise to some of us who know of a Government minister who could not qualify for a car loan from the FCIB. The notion that a highly qualified professional is a risk, incapable of earning income outside of being a minister/politician, speaks to a major deficiency in the political system in this fair land of ours.
The FCIB report went on to note that “though the International Monetary Fund (IMF) had forecast that Barbados’ prospects of short-to-medium term economic improvement was weaker than both those countries, the projected debt-to-GDP ratios and external current account balances were on par, even when taking into account that both Jamaica and Belize were coming off significant debt restructurings”.
Given what the Barbadian public has been hearing over the last few years, one would never have thought that Barbados’ debt ratios are on par with Jamaica and Belize. There has been a persistent denial of the condition of the country’s debt profile. Attempts are made to define our debt in several ways, simply to mask the reality. Our saving grace is the low proportion of local debt to total debt.
Is it not ironic that the FCIB report should indicate that Jamaica and Belize were coming off significant debt restructuring? Let me say upfront that I am not in favour of converting all of Barbados’ debt to foreign debt, but there must be some scope for looking at the maturity structure of the domestic debt. The unfortunate mismanagement of the country’s fiscal affairs that is responsible for the series of credit downgrades does not allow for any restructuring of our foreign debt.
The mismanagement has also resulted in the printing of substantial amounts of money that continue to hurt the foreign reserves. Attempts to mask the printing may fool some Barbadians, but they cannot fool international analysts.
It is fascinating how good men remained silent while Bridgetown has been burning for years. And only now that the good men stand to lose they speak.
Email: clyde_mascoll@hotmail.com