Submitted by Kemar J.D, Banking & Finance Student, University of the West Indies, Cave Hill Campus
Barbados is currently under the BERT program funded by the IMF to undertake structural adjustment in the political economy. With the domestic debt profile of the economy being restructured to the detriment of local investors this gave the Government of Barbados a reduction in Debt to GDP ratio from approximately 175% to 123% which some in parliament referenced as Fiscal Space and the GOB continues to focus on government expenditure reduction hence workers still being layed off, cuts to SOE’S and making government more efficient. What the Minister of Finance didn’t speak on was the Balance of Payment and the constructs of Investment, export, imports and that of National Income accounting. Our national income can be directly linked towards our net foreign asset position
Contrary to popular belief income is not primarily governed by investment alone but by rises in exports evidence suggests Barbados receives a plausible level of FDI but still experiences slides in foreign reserves habitually. This may be attributed to the fact that Barbados does not achieve trade surpluses constantly or significant enough to have any major increases of Income on the balance of payments. One other pattern of foreign capital into developing countries is through a FDI channel when there is a general upswing in the world economy which will give rise to imports more than exports and therefore increase reserves. Case Barbados the current reserves in Barbados are artificially high due to up swings in lending from the IMF, CDB and World Bank, on this premise is where investment is powerful in determining national income in developing countries if there’s Governmental planning to mobilize investment into income generating ventures.
Currently the MOF expressed no planning policy to generate income into the domestic economy but sought to increase domestic taxes with no significant real wage increase or capital inflows which will further contract the economy also the world economy is expected to contract with predictions of a recession, BREXIT looms , de-dollarization, The Economic Partnership Agreement with the EU which will force Barbados into removing or significantly lowering import duties and tariffs from European goods and services which threatens our domestic sectors further. Lastly but most importantly absent is an economic policy to make available the savings from FDI available for domestic output as there is no incentive to do so in current climate and these excess savings will continue to drive up inflationary pressure in Barbados as soon as attempts are made to significantly increase employment
This is evident that Barbados cant sustain the level of reserves when international payments resume, without further borrowing, entering another debt restructuring as it extra-ordinary for a country the size of Barbados to maintain investment levels above export without a trade surplus policy in place to reduce the heavy burden on income sources of the GOB which are direct and indirect tax incomes in its majority. The GOB may embark on a drive to increase Net international investment position which brings Foreign Asset to more than Foreign liabilities achieving National Income increases which provides fiscal space needed to reduce domestic taxation which will bring generated growth to the GDP if managed properly
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