“I think the most important number to watch right now is foreign reserves. Central Bank of Barbados (CBB) online data to February 2017 show that reserves declined by 29% year-over-year (y/y) to USD 329 million, which I estimate at roughly two months of imports. (2) that USD inflows raised from debt (from the development banks or otherwise) have to be repaid with even more USD over time, and the Barbados Government is already running a primary fiscal deficit. This means they are borrowing to pay interest on existing debt – and further debt will drive total debt servicing costs even higher (already 26% of total revenues), (3) that in light of chronically weaker USD inflows, borrowing more USD now, could make things worse in the medium-long term, (4) and finally, USD inflows for projects are largely temporary – they flow back out as materials and equipment are imported for the execution of the project.” – Marla Dukharan, Group Economist of RBC
Marla Dukharan has been criticised in the past by Minister Chris Sinckler regarding her analysis of the state of the Barbados economy. However, based on every economic indicator she has been proven to be correct. In light of her recent review of the economy many will want to contrast it with the first quarter economic review due from the Central Bank of Barbados. The review will be presented by the acting Governor of the Central Bank who was elevated to the job when DeLisle Worrell was fired by Minister Sinckler in a controversial affair that required intervention from the court.
Dukharan has expressed concerns about Barbados’ capacity to defend the peg of 2:1 with a monetary base of 2.34 billion and foreign reserves of 329 million as at February 2017 – a result of massive printing of money by the Central Bank of Barbados. She also mentioned the 74% holdings of government securities by NIS which exceeds the prudential limit of 54% and NIS target of 60%. The lack of transparency by this government of the NIS fund and the management by successive governments has been discussed many times in this forum.
The big economic challenges for Barbados are 1) reduce the public sector debt significantly and 2) earn foreign exchange to pay our bills. The government if it wants to win the next general election due in the next 12 months will be hard pressed to position the interest of the country above the goal of the party, FACT. The foreign exchange earnings projected from the sale of BNTCL and the Hyatt hotel are stuck in the pipeline because of litigation brought by David Comissiong and RUBIS respectively (it must be noted the BNTCL deal is pending FTC approval). Even if the two projects are released in quarter three or four, it is unrealistic to expect the economy to benefit in the current financial year from the Hyatt hotel deal given the time required to mobilize a project of that size. Marla Dukharan has echoed the view of local commentators that a significant percentage of the foreign inflows for the Hyatt project will have to be be expense in imports therefore the net benefit to the foreign exchange account will be a lot less than 100 million dollars. The assumption BU is making is that the developer has sourced funding for the project from outside of Barbados. At the time of writing Barbadians have not been apprised about the financial arrangement by Vision Development Inc for the project.
Unfortunately Duhkaran has recommended that the Barbados government MUST find a way to reduce the deficit by 600 million dollars. The three areas that afford the opportunity to do so are wages, interest and transfers and subsidies. Further, that Barbados enters an IMF program, FACT!
Read the Marla Duhkaran’s INTERVIEW with Caribbean Strategic Research