One of four worrying signs in the economy is the significant decline of $134 million in the foreign reserves over the first nine months, according to Dr Clyde Mascoll, adviser to the Opposition Barbados Labour Party (BLP).
“The economic out-turn reinforces the failure of the Government’s fiscal strategy, which is designed to protect the foreign reserves and maintain employment levels,” he said yesterday.
“The strategy continues to fail on these fronts, along with economic growth prospects declining and debt rising.”
Mascoll was responding to the Central Bank’s January to September review which showed an estimated 1.4 per cent growth, but reported the reserves declined by $133.9 million to $549.7 million, providing only 8.6 weeks of import cover.
According to the Bank: “The reserve loss was greater than that of 2016, principally due to a decline in net short-term private inflows that offset a modest improvement in net public sector flows.”
Mascoll was also concerned about the fall in tourism output during the third quarter, mainly a drop in length of stay and hurricane-related disruptions in September; rise in the cost of living triggered by the tax measures in the May Budget; and the expected increase in the unemployment rate (9.7 per cent at March) as the private sector feels the pressure of stagflation, that is, rising prices accompanied by increasing unemployment.
The foreign reserves always declined in October, the economist pointed out, in preparation for the Christmas season. But he added that the period of October to November did not inspire hope for a “bounce-back” in tourism output for the rest of the year.
He predicted the cost of living would continue to rise, with the rate peaking in the winter tourist season, especially between December and January, and given the downward trend in the third quarter, the likelihood was for a rise in seasonal unemployment.
Mascoll was also worried that the percentage boost in revenue caused by the National Social Responsibility Levy and excise on fuels would not be sustained over the second half of this fiscal year.
“It is hoped that the belated switch to making commercial banks hold more required reserves is accompanied by a corresponding fall in the Central Bank’s holding of Government paper,” he said.
“Unfortunately, I do not share that optimism, as Government has put $100 million in securities on the market at the same time that the required reserves ratio is being increased at the commercial banks.”
On Monday, Government floated $50 million in treasury notes at 6.375 per cent (2024) and $50 million in debentures at 7.25 per cent (2030). (AB)