Governor Delisle Worrell Delivers Half Year Review Of The Economy

Governor of the Central Bank, Delisle Worrell - Click image to read PDF report

Governor, Dr. DeLilse Worrell’s Review of the Barbados Economy for the first six months of 2010Click link to watch video


  • Gosh its hard to use the central bank website. So many of the pdf files dont download on my computer for some reason – maybe its my computer that is the problem.

    However, there is some useful data on the commercial banks in the Governor’s package of report, charts and tables.

    One of the problems of interpreting lending behaviour is that in the beginning of a recession you actually get a surge of borrowing as companies use of previously negotiated credit facilities. This is called “distress borrowing” as it is not really a measure of commercial bank willingness to lend.

    So, you will see in the data a surge of lending between 2007 and 2008. Since 2008 however, there has effectively been no new lending to the private sector. Lending to the private sector by the commercial banks was at $5011m in 2008, $5074m in 2009, and in June 2010 it was $5036m. Lending today was less than at the end of last year and hardly higher than it was at the end of 2008.

    The banks are quite liquid however. The total amount of domestic deposits have not grown since 2008 either, but they stand at $7614m.

    Over this period, the commercial banks have increased their holdings of Government Treasury Bills by $120m.

    So it is hard to get the full picture from this data, but we know a few things. The Government is borrowing substantially more than before, (plus $1bn since 2008 and $1.5bn since 2007) the commercial banks are liquid, (more deposits than private loans) but they are not increasing their lending to the private sector.

    What does all this mean, comes back to something that someone else said. The first “budget constraint” we are going to hit is to do with our foreign exchange reserves, which relates to our current account deficit and credit rating.

    The government will be able to borrow domestically for its domestic debt, in part because the commerical banks are liquid. But this borrowing merely postpones higher taxes or lower spending and, most probably, “crowds out” private investment in our future growth, by allowing the banks to make decent money simply by ignoring the private sector and lending to the best credit in the country, the government.


  • Dear Brutus,

    Although lending to the private sector appears more attractive, with private borrowing rates of 10% compared with Government borrowing rates of 7.5% or less, it is not, as you know as simple as that. The banks have to put aside capital (dead money that earns no interest and therefore represents a sort of tax to them) against the risk of a private loan, but they put aside no risk for lending to the Government. Lending to the Government is attractive then from a capital perspective. It is also attractive from other perspectives – not alot of time and money has to be spent on originating and monitoring the loan compared with a private sector loan – and because it is government, there are better changes of a foreign bail out than a private loan, so a low risk, low cost 7.5% is competitive with a high risk, high cost 10%.

    To be honest Brutus, I dont think I will be able to prove “crowding out” with the available data, though it is possible to prove the opposite is not happening – banks are not lending happily to the private sector and shunning government debt. It would be worth asking people on the blog what their experience of “credit conditions” has been and their experience of trying to get new loans from banks at this point.


  • @Black Business,

    No, I disagree with you – I think it is indeed as simple as that. No bank is going to be profitable by lending only or primarily to government unless they are getting an unusually high return from the government lending.

    The bank is restrained by capital requirements, but most of the banks have regulatory capital well in excess of the required ratio so there is no capital benefit in accumulating further government debt.

    I would also think that there is no automatic link between the experience of bloggers in obtaining credit and the question of government crowding out private sector borrowing. However for what it is worth, my own experience is that the banks are falling over each other trying to lend money (both business and personal), especially to good credit risks (which is not limited to government).


  • Dear Brutus,

    So why has lending to the private sector not gone up if they are falling over themselves to lend, but lending to government has?

    My experience of trying to get loans has clearly been different from yours, you must have a vastly superior credit, for which I am respectful and envious, but I do not think it is common.


  • In terms of bank profitability, for lending to Government where they do not need to put aside capital it is the difference between what they have to pay on deposits and what they can charge for the lending. This is a very profitable spread today. Even at the best of times it is hard to get the Barbadian commercial banks to take commercial risks, so if they are being offered with a supply of easy profit, they will go for that.


  • VOB will have a talk show on the economy this morning, here is the line up expected to be on air:

    Achal Moorjani – Construction –
    Keith Miller – Miller Publishing
    Andy Armstrong – BCCI – Armstrong Agencies
    David Neilands – Super Centre Group – BCCI –
    Joel Richards – BMA – Trade Officer
    Judy Lorne –BARVEN – PRO –
    Lynette Holder – BSBA – CEO

    Hal Austin –Financial Analyst
    Ronnie Yearwood – Political Science
    George Brathwaite-Political Science
    Randolph Sandiford –Manufacturer
    Lindsay Holder – Economist


  • @ Brutus
    Black Business is correct in pointing out that our GDP is underestimated .According to the IMF Article 1V Consultation on Barbados,the CARTAC study (not yet released)estimates that our GDP is underestimated by about 15%. This is significant as with a higher GDP our Debt/ GDP ratio would be seen as less unfavorable by bankers. The main sectors that are underestimated are financial services and tourism according to the IMF.

    In reading the IMF Article 1V consultation I realized that generally our statistics are not up to scratch. Maybe it is time to set up a professional independent statistical department that can produce better quality statistics.
    The IMF Article 1V consultation also contains information on the DEBT/ GDP ratio that notes the high proportion of government borrowing from the NIS. The problem is that the information is in percentages. Some simple work would have to be done to get information into a form that Joe Public can readily understand but all the information that is required is there. The data cover the period up to 2008.All that would be left would be to update for 2009.

    I am confident that you can do this yourself. For consistency you should not adjust the 2009 data to reflect the underestimation of GDP. Use the information that is currently provided by the Central Bank and the Statistical Department.




    The banks prefer lending to gov’t at this time because with the crisis they will hedge against default on loans in the private sector. With gov’t, the rate is lower and so is the risk, as the economic climate is uncertain with no real end in sight. They banks have all been experiencing greater difficulties in loan repayments since late last year into this one. Mortgages, business loans, etc. The private sector has been trying to hold on to employment but have delayed further spending and investment so demand will have dropped as well.

    This is why I have such a difficulty with the gov’t plan, it is not a cogent plan that makes sense nor has a reasoned strategy behind it. If you ask the private sector to hold strain and maintain employment which they have done even if they had to resort to short hours in some cases, why the hell do you raise their cost of business and cost of living to defeat the purpose – water rates, electricity, fuel, phone licenses and other feesetc.. Fuel problem increases the cost of inputs and services as all sectors respond to increase cost of business. Threaten them with competition when they are holding your employment figures, but you do not correct your own mistakes that contribute to price increases.

    How does it make sense to say to people we want to encourage small business formation but you have cut funds to the institutions that lend to them and give technical assistance; you have to channelled more business to them from your gov’t spending, you have diverted business away from some small businesses such as- construction and by extesnion the people making doors and windows, tilers, electricians, plumbers, furniture manifaturers, food vendors, sell bed linens and stoves. Good grief!

    This plan only seems to be about correcting their fiscal deficit without a parallel strategy to focus on you will support key sectors that will balance off the lash in tourism and financial services. As they get desperate they scatter shot – Brazil and China as a tourism market not metioned before not in the medium term plan. I can see Brazil if you must pursue a new marekt but China. New markets take time to develop, you cut the tourism budget, are you diverting money from existing markets to these areas. Please it is madness. They do not know what they are doing. Still keeping up the cosmetic activities that take away funds from areas urgently needing support to keep real jobs.


  • @Bajan Truth

    The banks prefer lending to gov’t at this time because with the crisis they will hedge against default on loans in the private sector. With gov’t, the rate is lower and so is the risk, as the economic climate is uncertain with no real end in sight.

    In theory the above quote makes sense but have you established this to be the case in Barbados?


  • @Bajan Truth,

    All I am saying is that I do not think that any increase in lending to government is at the expense of lending to private businesses. The banks have surplus cash which is earning nothing for them.,Even though they are lending more to government (if this is indeed the case) they still have ample funds available for lending to the private sector. If they are not doing so then perhaps we need to look at other reasons.

    For example, isn’t it possible that since the economy has slowed down there are fewer new projects for which businesses are trying to get finance? Many businesses would have postponed new capital projects until there is greater certainty about the timing of economic recovery.

    Furthermore, isn’t it likely that a higher proportion of businesses seeking loans at this time are doing so for debt consolidation or because they are already having cash flow problems, which makes it less likely that they will get the loan?


  • Does anyone have an opinion of Hal Austin’s columns in the Nation? I find them usually to be quite outlandish and I see no evidence that he knows anything about finance or the economy. However he is billed as an award winning financial journalist so perhaps I am missing something.


  • @Brutus

    Don’t let Bajan Truth confuse you. Have you read the local newspapers in recent days and weeks? Have you watch the local TV in recent days and weeks? There is a bank currently offering mortgages at 5.75%. Why do you think this is the case? On the local TV did you see a couple banks pushing loans at some low rate? All this add up to confirm what you are saying, the banks want to lend. Commonsense does indicate that in a recessionary period consumer confidence will be low hence we are where we are presently i.e.banks being liquid.


  • I have just finished listening to the Brass Tacks programme on VOB. If ever there was doubt about the lack of expertise on fiscal and macro-economic matters on the part of the DLP, the intervention by Senator Ince left no doubt.

    Mr Mascoll was too arrogant, but Senator Ince was bold and certain but obviously very ignorant about the interpretation of government financial statistics.


  • @ David & Brutus

    I said: The banks prefer lending to gov’t at this time because with the crisis they will hedge against default on loans in the private sector. With gov’t, the rate is lower and so is the risk, as the economic climate is uncertain with no real end in sight. They banks have all been experiencing greater difficulties in loan repayments since late last year into this one. Mortgages, business loans, etc. The private sector has been trying to hold on to employment but have delayed further spending and investment so demand will have dropped as well.
    The banks prefer to lend to gov’t than private sector in a crisis – this is the traditional position or normal response in crisis. As opposed to the banks in B’dos right now have said they will not lend to private sector. Your point David. If there is excessive gov’t borrowing it limits available funds. What is happening in b’dos today is that banks have said they are having repayment problems from existing loans. So greater care and scrutiny is being done of new loans, and I should add, business loans. This does not mean they will not advertise, but their may be more discards of applications, but happily they will buy gov’t debt unless there is a downgrade to junk status. But my caveat to this position was in the statement that companies were holding on to employment, and therefore may be limiting new spending and investment etc and so DEMAND from the sector might be low, hence liquidity which was your point Brutus.


  • @ Anonymous

    I was flabbergasted Jepta Ince did not even know the size of the economy he manages in the ministry of Finance. The old figure was 9b, since remeasuring based on your info it could be 11b. He does not know that it is a fiscal deficit not a physical deficit. He did not know the real deficit of B’dos over the years, he should have read this blog before he went on the programme. He did not understand the accounts of the gov’t unless he was trying to be disingenous to suggest that the gov’ts ‘s budget overruns included the off budget spending. This is a person Thompson added to the Ministry of Finance to help him in the management of the economy, a person he believes knows more than he does and the rest of his DLP team about managing the finances of the economy and just as much as Darcy; the person who came out and spoke on behalf of the gov’t.

    Dear God we are in deep shite not doo doo. I am going to have to join Bonny in prayer for this nation.


  • @ Anonymous cont’d

    I forgot to mention. David Ellis tried to give the goodly senator (Ince) a way out to save his face, but the ecstasy of his verbosity that he uses to the DEms that he knows more than he does, it fell apart on the programme. When pressed for facts, analysis and strategies, failed miserably. He was drunkened with his ignorance, and of the worst variety because he does not know that he does not know or he would not have called the programme. He tumbled down in the Paradise of his foolishness and probably left none the wiser.


  • @Bajan Truth

    Your observation about Senator Ince not inspiring confidence is accepted. To be honest his performance was embarrassing unless he was labouring under some stricture from on high.


  • It boggles the mind that the government would chose/allow Jepter Ince to defend/explain its handling of the economy on today’s Brass Tacks program. His ineptitude and lack of understanding of the issues were brutally exposed for the world to hear. He was a disaster, an absolute embarassment. As Mascoll said sotto voce at one point: No wonder we are in such trouble, if Ince is the kind of intellect now influencing policy in the Ministry of Finance. Seriously, the government needs to muzzle the jackass.

    What is even more frightening is that the national debt increased by $1.5billion in the last 2 1/2 years, with nothing to show for it, as Prof. Persaud pointed out and it seemed that Ince didn’t know what he was talking about, avoided the question and continued trying to blame the last administration for spending done by the present administration. It was surreal.

    What is instructive is that Persaud agreed with Mascoll on every issue. Mascoll goes up a few notches in my book, because I have a lot of respect for the professor.

    We are in worse trouble than we thought and the ship of state has no rudder.


  • Senator Ince, called in to help the the Government manage the economy said on today’s call-in that the size of the economy was $2.5bn. The danger is that by the time he is finished with it, it will be $2.5bn but the current estimates are that it is close to $9bn, so he is wrong not by +/-5%, 10% or 15% but over 300%.

    Did you notice how the Prof was silent. I bet he was flabbergasted. Embarrassing man. Embarrassing.


  • Ince’s complete statement was ‘productive economy’.


  • Dear David,

    Gross Domestic Product (GDP) is the measure of the productive economy.

    It is a measure of the valued added product in the economy from one year to the next. It does not include for example an unproductive piece of land even if it is highly valued.

    So, Ince thinks the productive part of the economy is $2.5bn, when it is $9bn. I wonder what he thinks the debt is. The debt level is $7.8bn, having risen by $1.5bn since end-2007.

    The best that can be said is that he is a little confused and perhaps not batting in the right position – more no. 7 than an opener and perhaps a different game altogether. He seems to like political football.


  • Thanks Conrad, even David of BU could have delived a conversation on the size of the economy and the exercise by CARTAC to restate it. Didn’t Arthur deal with this matter in his speech at UWI?


  • Perhaps. I dont follow Owen so closely.

    My worry about the restatement from a debt perspective is that it is only real if, at the end of the day, if forced to, we could tax it. If there are revenues there that can be taxed and we are under-recording it, then we should record it, but I thought the new numbers presented by the Governor includes all these restatements, its why the debt level left by the BLP is now at 77% odd, rather than the previous estimate of 85%. It means that under the old numbers, the current debt level would be around 114%, not far off Greece……

    Anyway the point is we have a fiscal problem – whoever caused it – that we have to deal with. Given that we are a high cost economy, it is probably not best dealt with through higher VAT, levies or taxes as in the 2008 budget but expenditure cuts. It is probably best not to be capital expenditure which, if wisely spent would be an investment in the future, but current expenditure.

    There has been a huge increase in current expenditure off-radar and this should be rolled back. It is probably too big to do this by chipping here and there so we need to be radical and reconsider how we pay and how we deliver for the services we want the state to provide. This is the kind of conversation the Government should be having with us. They should be out there speaking to us and listening to us about these choices. They should be on the call-ins and blogs explaining the real choices and suggesting some options. Can we afford to educate our lawyers from well-to-do families or those who go to work and pay tax abroad? How do we make the buses run with out such large subsidies? How do we make QEH serve people better without costing an arm and a leg.

    Instead we have Senator Confused on the call-in, Senator Boyce in hiding and we are told, we just have to wait until America recovers as if we might as well never having become independent because there is nothing our government can do, except it seems add to our national debt by $1500m in just two and a half year years.


  • Dr Dooos perspective may be important in the economics of the situation.


  • @ Bajan Truth

    ‘He does not know that it is a fiscal deficit not a physical deficit. ‘

    I thought I heard physical too but was willing to give the goodly Senator the benefit of the doubt, but you have confirmed that my hearing still intact.


  • The next one up should be Kellman. In political fora he speaks as if he knows accounting and economics. Let him be part of a panel involving qualified accountants and economists and I am sure the public will find out that at a technical level he actually knows very little.


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