Foreign Exchange Delays with Banks
The blogmaster received a report that some banks in Barbados have forced customers to submit requests for international wire transfers online and as a consequence Barbados importers are being frustrated by delays in processing. The reason for the delays is that in the case of one bank the blogmaster was able to confirm processing of the wire transfers is being done in Trinidad.
The question being asked is whether the transfers are being delayed because of an unavailability of foreign exchange by local banks or a case of the processing office in Trinidad playing ‘god’ or simply inefficient.
The developing situation comes at a time when the IMF has advised government to remove the 2% foreign exchange fee former minister of finance implemented to defend dangerously low foreign exchange reserves in 2017. The fee obviously will impact the high cost of living because Barbados is a net importer. As a first step the government should add key items to an import list that should not attract the 2% fee. The Mottley government boast of high level of international reserves which is mainly a result of borrowing.
IF there is a low level of foreign exchange held by local banks it means the Central Bank of Barbados as is the customer will sell to the banks to satisfy consumer demand? It would allay fears if those responsible address the situation.
Today’s Nation’s story:
IMF: Drop 2% fee
by SHAWN CUMBERBATCHshawncumberbatch@nationnews.com
THE INTERNATIONAL MONETARY FUND’s (IMF) staff wants Government to phase out the two per cent fee Barbadians have been paying for foreign currency transactions since 2017.
Then Minister of Finance Christopher Sinckler introduced the measure in his last Budget more than four years ago as the country’s international reserves plummeted below the accepted benchmark of 12 weeks of import cover.
It was intended to reduce the demand for foreign exchange and allow the foreign reserves to stabilise. With the reserves at $440 million (five to six weeks of import cover) when the Mia Amor Mottley administration was elected in May 2018, the measure was maintained and remains in place.
With Barbados’ reserves reaching $2.86 billion (42 weeks of import cover) at the end of the September, the IMF’s Barbados mission thinks Government should consider “gradually phasing” out the capitalflow measure “as the pandemic dissipates, and reserves build up”.
This was outlined in the IMF’s latest staff report recently submitted to its executive board as it approved the sixth review of Barbados’ IMF programme and the annual Article IV consultation. The assessment was that Barbados’ authorities “will consider removing the foreign exchange fee as the pandemic dissipates”.
“The two per cent fee introduced in 2017 remains in place. This was assessed by the IMF as a capital flow measure and should be phased out as reserves build up,” said the Barbados team led by Dr Bert van Selm.
“However, the authorities plan to maintain the fee until alternative revenue sources, including through an economic and revenue recovery, can compensate for the potential losses from its discontinuation. Staff stressed that foreign exchange fees should not substitute for fiscal and other macroeconomic policies to improve fiscal position.”
In the Central Bank’s review ofBarbados’ economic performance between January and September, it reported that non-tax revenue, including the foreign exchange fee, was $64.1 million between April 1 and September 30, the first half of Government’s financial year. This was an increase over the $47.4 million earned in the same period last year.
Governor Cleviston Haynes said: “With the increase in foreign exchange transactions, revenue collected via the foreign exchange fee accounted for almost half of the enhanced uptake from non-tax revenues which expanded by $17
Barbados’ foreign reserves were boosted by $249 million in loans from multilateral lending agencies, “and an injection of $261.6 million from the IMF via its allocation of [Special Drawing Rights] to members boosted reserves over the nine-month period”.
Haynes added that “despite these inflows, the reserve increase for the nine-month period was only $204 million, a result of the steepreduction in travel credits during the first quarter, and the pick-up in import demand over the last six months that led banks to purchase foreign exchange from the Central Bank to meet customer needs”.
Additional external payments were related to debt service and other expenses on behalf of the Government, he reported.
The two per cent foreign exchange fee is charged on purchases of foreign currency and payments related to foreign currency transactions. It is applied to purchases and payments made at commercial banks and other authorised foreign exchange dealers, credit card providers and money service providers that handle outbound foreign currency transactions or loans.
This means that consumers who buy foreign cash, pay for a wire transfer or bank draft, or use their credit, debit or travel card to pay for a foreign transaction, have to pay the fee.