BARBADOS’ ECONOMY HAS BEEN anchored on a fixed exchange parity with the United States dollar of 2:1 since the early 1970s and that situation has allowed the country, including its private sector, Government and citizens, to plan with some certainty based on the stability of the Barbados dollar.
This comfort, however, is tied to our ability to maintain adequate levels of foreign reserves to support the current fixed exchange rate.
And if there is one thing that makes Barbadians jittery, it is the idea that the support systems around their prized dollar might be undermined. They know that without this strong anchor, everything they have built could collapse.
They have witnessed too many examples around the Caribbean of once prosperous economies buckling under the strain of devaluation and the attendant social and economic problems.
So when Prime Minister Freundel Stuart, in his administration’s April consultations with members of the private sector and labour unions at Hilton Barbados, conceded that Barbados’ dollar could be threatened unless there was a fix for the half-billion deficit situation, the economy became the game-changer for 2013.
But members of the Opposition Barbados Labour Party, some stalwarts of the private sector, and groups such as the Barbados Economics Society would justifiably argue that the economy has been the game-changer for a very long time.
They and many other individuals have been warning of worst-case scenarios, calling on Government to take urgent steps and in some cases offering their own remedies to the country’s financial problems.
Respected Barbadian economist Charlie Skeete pointed out some unavoidable facts recently. He told this newspaper: “Initially, deficits can finance job creation and have a beneficial effect on employment levels. There comes a point, however, when a high debt to GDP ratio can undermine investor confidence and spook creditors.”
Writing on the wall
He warned too that high debt to GDP ratios – particularly around 90 per cent or higher – are frequently associated with low growth.
“In any event, spending on unproductive or unprofitable activities leads to reserve level difficulties and to increased consumer demand for imports, with no net benefit or growth,” said the former Permanent Secretary in the Ministry Finance and retired senior economic advisor of the Inter-American Development Bank in Washington.
When Governor of the Central Bank Dr DeLisle Worrell announced in his third-quarter review of the Barbados economy that the island’s key economic indicators had worsened, the writing was on the wall.
In his assessment of where the economy was situated at the end of September, Worrell a former International Monetary Fund (IMF) economist, reported: “Foreign exchange reserves declined to $1 billion, a fall of $447 million since December 2012.”
This was despite the much vaunted Medium Term Fiscal Strategy which has now been abandoned for an approach that places greater emphasis on economic growth.
He explained: “The main contributing factor to the foreign exchange weakness has been the decline in private foreign investment, from $473 million at September 2012 to $147 million at September this year. In addition, there were declines in foreign earnings from tourism, other services, sugar, beverages and chemicals.
“Retained imports rose by eight per cent, primarily the result of increases in the imports of consumer and some capital goods.”
At that time the island had 13 weeks of import cover. It is unclear now just how many weeks of imports our foreign reserves can cover as we prepare to enter 2014.
For good reason many Barbadians are increasingly worried and anxious about the future, particularly as they were hit with the news that 3 500 workers in the Civil Service and statutory corporations will go on the breadline starting in another two weeks.
Clear confirmation
The official news came Friday, December 13, with just 11 shopping days to go before Christmas. The “Black Friday” confirmation of news that was broken a week earlier by the SUNDAY SUN was clear confirmation that the economy was the issue of 2013 and it is going to overshadow almost every decision that is made at the national and individual level next year.
Stunned by successive downgrades from rating agencies Standard & Poor’s, CariCRIS, and most recently from Moody’s with a negative outlook, the administration is going to face a tough time securing valuable foreign funding as the island’s image as a well-managed economy has taken blow after blow.
There is no argument that the debt situation has become like a virtual albatross around our collective necks. According to Central Bank data, the gross public sector debt has moved from $4.65 billion at the end of 2005 to $5.84 billion in 2008, to $8.24 billion in 2011 and then approaching $9 billion at the end of September this year.
The Caribbean Centre for Money and Finance in Trinidad, an economic watchdog for the region once headed by Dr DeLisle Worrell before he returned to Barbados to become governor of the Central Bank, had a “worse-off” prediction reserved for Barbados when it examined all the economies of the region.
Now headed by Guyanese Dr Compton Bourne, the former president of the Barbados-based Caribbean Development Bank, it said the picture for us was not bright.
Apart from highlighting what we already know about underperforming sectors, its Caribbean Economic Performance Report spoke to declining profitability of banks here and falling credit quality of customers.
“Credit quality continued to decline, as indicated by an increase in the ratio of non-performing loans to total loans from 12.31 per cent at the end of June 2012 to 13.9 per cent at the end of June 2013. This also compromised bank profitability,” the report noted.
Faced with the mountain of bad news, Barbadians will have to dig deep in 2014, develop a new approach to how they value material acquisitions, accept that the quality of life to which they have become accustomed has been weakened and that they will have to stay true to the qualities that have helped them overcome difficulties and troubles in the past. The road is going to be a long one.
