Barbados: Debt Warning, Foreign Reserves Watch

The latest chatter on the local newsfeed is about Barbados’ scheduled repayment of $928 million dollars by end of 2029. To avoid attracting the wrath of government’s senior economic advisor Dr. Kevin Greenidge, Barbados borrowed $870 million since 2018, the difference of $58 million is interest due supporting Greenidge’s argument that IMF money is the cheapest in town if compared to what is available on the open capital market. 

The blogmaster is happy to observe the concern being expressed by all and sundry about the accumulation of the public debt- foreign and local- by the BLP government since 2018. However, we should not forget how we got here.

Successive governments have been responsible for our current debt level which is reported to be about $13 billion. Barbadians have been reassured by Greenidge the $870 millions borrowed from the IMF represents a small 6.4% of total debt. Wonderful. The government has stoutly defended the borrowing by reminding the debt level was 18 billion when the Mottley government took office in 2018. Ideally if the pay down was from earnings, we could be satisfied the country was positively addressing repayment BUT it was largely due to a debt restructure.

We read retired professor UWI Michael Howard skepticism presented in the press this week and Dr. Robinson had his say in today’s Nation. The debt is too high. However given the design and current state of the local economy it is a problem we will have to tolerate for a generation or two IF corrective measures are taken now. 

A more immediate concern is protecting the health of the foreign reserves. The longer the conflict between Ukraine and Russia continues and serves to undermine the global financial market and disrupt global supplies to small island developing states, there is a chance of foreign reserves being compromised. It was reported the increase in import cost of fuel for Q1’22 compared to last year was significant. The the root of the debt accumulated is successive governments lazily satisfying the conspicuous consumption behaviour of citizens. Citizens have skin in this game.

The crisis that is unfolding in Sri Lanka should remind small developing countries like Barbados what is possible. This week the government of Sri Lanka banned the sale of fuel for two weeks. A person does not have to be ‘smart’ to understand the implications of making such a drastic decision. 

Sri Lanka suspends fuel sales for two weeks as economic crisis worsens

Ban on sales to everything except essential services comes as nation tries to conserve fuel supplies that are barely enough to last a single day

A Sri Lankan security official stands guard outside a fuel station that ran out of petrol in Colombo, Sri Lanka on Monday.

A Sri Lankan security official stands guard outside a fuel station that ran out of petrol in Colombo, Sri Lanka on Monday. Photograph: AFP/Getty Images

Agence France-PresseTue 28 Jun 2022 01.30 BSTLast modified on Wed 29 Jun 2022 05.10 BST

Cash-strapped Sri Lanka has announced a two-week halt to all fuel sales except for essential services and called for a partial shutdown as its unprecedented economic crisis deepened.

The south Asian nation is facing its worst economic meltdown since gaining independence from Britain in 1948, and has been unable to finance even the imports of essentials since late last year.

As fuel reserves hit rock bottom with supplies barely enough for just one more day, government spokesperson Bandula Gunawardana said the sales ban was to save petrol and diesel for emergencies.

Long queues at the Department of Immigration and Emigration in Battaramulla, Sri Lanka.

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He urged the private sector to let employees work from home as public transport ground to a halt.

“From midnight today, no fuel will be sold except for essential services like the health sector, because we want to conserve the little reserves we have,” Gunawardana said in a prerecorded statement.

He apologised to consumers for the shortages: “We regret the inconvenience caused to the people.”

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 


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”.

Phased out

“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


Reserves boosted

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.

Hobson’s Choice | Debt Default or …

The following was posted as a comment by Northern Observer to the Congratulations to Ambassador David Comissiong blog. It is a comment that resonates with the blogmaster for the commonsense perspective it shares about the huge challenge facing the country given the diminishing forex reserves and inadequate foreign inflows – David, blogmaster   

“Mia unilateral decision to default on debt”

This is a horse you need to dismount. When a doctor tells you somebody has stage 4 cancer, and their life expectancy is 4 weeks, do you expect them to live for a year? Or you display anger towards the doctor, because you felt he didn’t consult with others? You haven’t heard it from 5 doctors, and they told you some weeks before the ‘patient was doing better’. So wha happen?

The continued decline in the Barbadian Sovereign Credit rating, told all of us in the financial world that a death was imminent. Junk status, is a polite term for saying, default is not official but imminent. The lower the junk rating, the more imminent the default. If you hold debt instruments, do not expect a full and timely settlement.

While I am all for transparency, I am unsure what you wanted the GoB to ‘discuss with the people’? Skinning local bond holders (which may still happen), does not solve the Fx problem of repaying monies in Fx, when your Fx reserves are perilously low. Rather than an official default you can try negotiating with each party, it takes time and can create animosity (and legal recourse) if one debtor feels treatment has been unequal. Default places all of them into the same basket. And buys time, and lowers expectations.
Default is a result of 13 consecutive years of accumulating Debt, and when the servicing costs exceed your ability to meet them.

So what would you like the GoB to discuss? That they will sell the Hilton and BNTCL for rock bottom prices and use the funds to pay down foreign loans. That the GoB will actively seek buyers for the BWA and any other asset of value, which can be used to bolster the Fx account. For what? Foreign lenders are not lending us money, whether we meet current loan terms or not. Foreign lenders have no collateral claims.

Defaulting was not a choice. The only choice was whether it happened now or at a later date. This way we get to keep (at least for now) the few meaningful public assets we have left. I can never ‘support a default’, but for the people of Barbados this was the “best” decision.

The challenge is, you choose not to accept, the Barbados public financial condition was as bad as it is, because you felt all the less-than-positive comments were coming from people you labelled as ‘the enemy’. They were B supporters. Many were, not B as in BLP, but B as in Barbados. They saw the bandages, they heard the prescriptions, and each time the bandage got changed, the wound was worse than before.

The 2018 Barbados Election: Love on a Two Way Street?

Submitted by Doc Martin

Barbadians go to the polls on May 24, the date grudgingly given by incumbent Prime Minister, Freudel Stuart just a few weeks ago (April 26). This was after increasingly vociferous calls for a date from different sections of the country.

In this context of this election, it is interesting to hear professor emeritus Michael Howard state something that I argued elsewhere as far back as 2015:

I believe that Barbados’ principal economic problem at this time is the precariously low level of foreign reserves and a remedy must be found after the election. Economic growth, though important, is a secondary consideration at this time.

Some three years have gone by and the Barbados foreign exchange problem has become worse. I hope that “a remedy…after the election” will not be too late!

My purpose in writing this current article is to comment on the upcoming elections of May 24 and plead for some “studiation” from the so-called ordinary, man-in-the street at this time of national elections.

I am pleading for “studiation” rather than common sense because common sense (whatever it is) appears to be in very short supply at critical moments in Barbados. Indeed, sometimes I wonder if someone, somewhere, has issued a decree to ration this essential ingredient in Barbados! Those who want to confuse education with common sense and cite the high literacy rates in Barbados etc. can have their say…again. To my mind, one of our local poets, Bruce St. John, settled the distinction long ago when he declared in one of his poems: “Studiation beat education”.

So I am writing to ask…no, plead with Barbadians to do some studiation about the upcoming election. By studiation I mean thinking about something very carefully; considering the known facts, asking relevant questions, demanding clear answers and, in the absence of clear answers, making reasonable assumptions. I am fearful that the level of “true education” in Barbados is so limited that many (the masses, as politicians like to call them) will be unable to do this studiation I am calling for. But one can hope.

The rationale for this studiation exercise is the high stakes in this election. The stakes are so high that the writer of the editorial of the Sunday Sun of 6 May was moved to pen:
No party should be worthy of serious consideration in this election, unless it has a clear statement of how it will tackle the fiscal deficit and the declining pattern of foreign reserves. (Sunday Sun, May 06 p.12A)
This “studiation” we need to do will have to take into consideration the parties to the election and the idiosyncrasies of Barbadians.

The Old Parties
The DLP and BLP are the old, so-called, established parties. The DLP has had ten years (two terms) in power and, key metrics considered, it is leaving Barbados worse off than it found it in 2008. In its first term (and some of its second term) it lay blame on its inability to get traction in the economy on two factors: the container-load of foreign debt left by the former BLP administration and the global recession. Subsequently, the Freundel Stuart government, in order to regain power in the 2013 election, essentially lied about the state of the Barbados economy. After the election, the truth began to emerge and the economy started to unravel in earnest as Standard and Poor has well documented.

Mr. Stuart, in the Friday May 11 edition of the Nation News now has the unmitigated gall to ask the electorate to give his party another chance. Unbelievable!

Love on the Rebound
While the rejection of Mr. Stuart and his DLP may seem imminent, the electorate should be reminded about love on the rebound! By this I mean that the impending “break up” with the DLP should not lead us to fall into the arms of the BLP! This calls for some studiation.

As noted above, the BLP left Barbados in heavy debt in 2008. This was the end of fifteen years of rule in which the old economics of public spending and the courting of foreign investment were practised as usual. Also practised – as usual – were reliance on tourism and services, the strategic neglect of agriculture, the failure to develop a viable export sector beyond the traditional exports of sugar and condiments (pepper sauce etc) as well as the general failure of not making the country more competitive by reducing costs and increasing productivity; in other words, the strategic restructuring of the economy.

The BLP’s has now launched its official, extravagant manifesto that has, literally, promised pie in the sky and everything else under the sun. Mr. Owen Arthur, the former leader of that party – and perhaps, half of Barbados – is asking the 64 million dollar question: From where will the BLP get the money to finance these extravagant promises?

It is either that BLP has learnt nothing from its ten-year sojourn in the opposition or that it has solicited a silent partner with very, very deep pockets. If it is the former, the thinking electorate would do well to “run like hell” away from the “spendstress of Roebuck Street! If it is the latter, we need to be told what ransom that invisible backer or backers will require of us down the road!

No Longer a Two Way Street
It is no longer necessary to find, “love on a two way street”. Barbadians have now come of age and, for the first time, there are at least four parties to consider. Space does not allow us to spend time on the “micro parties” such as the BFP (Bajan Free Party) and KGB (Kingdom Government of Barbados). They are just too small at this time to make any meaningful impact and cannot seem to get themselves properly organized. But I would like to see them develop into meaningful alternatives in the future.

From our studiation we know that the UPP is an offshoot of the BLP we spoke about earlier. Its leadership is fundamentally BLP/electoral rejects, BLP discontents and political hopefuls. If you can figure out whether the party leader, Lynette Eastmond, is awaking or falling to sleep when she is speaking AND, if… big “if”… the party can come up with something…anything, new and imaginative, the party might be worth a second thought. But you may find yourself “dozing off” as you try to “study that out”.

Solutions Barbados
Solutions Barbados (SB) is a faith-based party that has been analyzing the situation in Barbados since 2015 and proposing what they deem as appropriate solutions. While those of faith understand the critical importance of integrity and the notion that “righteousness exalts a nation”, we still need clarity from them about what can be done to fix the burning foreign exchange problem alluded to at the beginning of this article as well as several other issues.

We have heard their proposals on integrity in government and quality control. Some of them are radical and counter intuitive (some might say “counter-productive”); for example, forgiving us our (unpaid) taxes and lowering taxation in general! These initiatives cannot be discounted but what we need to hear is the concurrent policies that will be put in place to channel “freed up” spending in the right direction or replace lost revenue.

In 1986, Dr. Richie Haynes gave Barbadians a very “cool” tax break ($15,000 if I remember correctly) that helped the DLP win a landslide victory. However, the government failed to implement concurrent policies to channel the freed up money into investment or productive activities. Much of the “freed up” money would have undoubtedly burnt up some of our foreign exchange reserves.

This tinkering with the economy for short-term fiscal and political gain, while failing to do the surgery necessary to rectify the diseased areas of the economy, is just what successive DLP and BLP administrations have been doing for as long as we can remember. And it is what has got us into this present mess.

If the handling of the recent issue with Solutions Barbados candidates who did not want to sign the party’s contract is anything to go by, it would seem, that in Grenville Phillips, we have a strong leader who is prepared to stick to his word and let “yea be yea and nay be nay”. Such integrity is needed in this country in large measure, “pressed down…shaken together and running over”. The enforceability/ legality of the SB contract is another matter. We should be prepared to give Mr. Phillips some elbow room to fine tune his solutions.

The idea of the Speaker of the House being able to keep that position after perpetrating a major malfeasance on an ordinary citizen is the epitome of corruption. Right thinking people should make this an election issue and reject the DLP and the moral leadership of Freudel Stuart for this reason alone because it has sent a very terrible signal to the population in general and to our youth in particular.

I will be pleasantly surprised if Solutions Barbados wins the election outright, but I hope they garner enough seats to break the duopoly of the two older parties and make it necessary for a coalition for the first time in this country.

Coalition in Sight
Studiation suggests that we cannot go back to the two-party seesaw that we have had in this country since independence. This has worked for us up to a point but now, strategically speaking, we are stuck in a rut. The Barrows and the Adamses came, saw and conquered. Except as historical notes, they are no longer relevant!

There are other persons with managerial and technical training and competence who can make valuable contributions to this country and they should be given a chance. It is time to dismantle the “lawyertocracy” represented by the two major parties.

In spite of the hype that status quo naysayers may whip up on the drawbacks of political coalitions, such an event in Barbados will cause the parties (pun intended) to come to the drawing board and really think hard about: (a) who will lead the country out of the economic quicksand in which it finds itself and (b) what is best for the future of ALL Barbadians. The quibbling that will most likely ensue should be treated as part of the learning process and as a family squabble; we should think of ourselves as one big family in this country.

Time to Vote
Those who are disaffected with the current crop of politicians from the two parties and who have declared that they will not vote should now reconsider their position and do some serious studiation. The only persons who will benefit from your abstention from the May 24 elections will be the very parties who have serially disappointed us. Make no mistake about it, these parties do have their die-hards; and they WILL mobilize them on election day!

Your vote is now more important than it ever was. Don’t sell it to the highest…or any bidder! Offer it freely to whom it will help to make the biggest difference for all of us in this country!

Governor DeLisle Worrell Warns Foreign Reserves Continue to Fall

The Barbados private sector agency has raised the alarm that their members have had to wait for foreign exchange to be released from commercial banks to honour purchase requests. This is not good news for Barbadians who have had to tighten their belts for eight long years. Have we not been boasting of record arrivals for the last two years? What is happening!

The Governor of the Central Bank warned Barbadians in a document posted to the Central Bank website last week that the country has failed to manage the balance in foreign exchange inflows and outflows since 2013. Based on the Governor’s concern it is safe to assume that our international reserves have fallen from 900.3 million or 14 weeks of imports at the end of the 3rd quarter -to what?

With tourism booming by all account YET foreign reserves falling the solution is to increase tourist arrivals, foreign direct investment AND decrease demand for imports. If the reserves continue to fall we will not be able to defend our peg to the US dollar. The price of oil which has started to increase will not help our cause. Wait a minute -why do we pontificate about tourist arrivals? Should we not heed the advice of the official from Singapore who indicated at a conference in Barbados a couple years ago we must measure the success of tourism by revenue receipts and NOT number of tourists.

With sinking foreign reserves so too will investor confidence on the local and international markets. Several huge investment projects like Sam Lord’s Hotel, Hyatt Hotel, Beaches Hotel, Four Seasons, Marina and others have not started as promised by the government. Whether we agree if the projects should be implemented or not, the inability of the government to mobilize them has affected the plan to inject activity in the economy.

The obvious question is -what next? With a year to go before the next general election one thing we know for sure -the Democratic Labour Party will not have a strong economy to support a campaign message to win votes. BU’s prediction is that this will be one of the ‘nastiness’ general elections since Independence.

Notes From a Native Son: Before Voting, think with your heads and not your hearts

Hal Austin

Hal Austin

When the voters of Barbados enter the polling booths on Thursday, it will be an enormous challenge for them to abandon old political tribal loyalties and objectively put the nation, future generations and their own futures before irrationally supporting a party or candidate they have always supported, while suspending reason. The harsh truth is that this is the most testing general election, not only since November 30, 1966, but since the early 1950s and the introduction of internal self-government.

In the new globalised world, there is no turning back for small nation states such as Barbados. New global organisations, such as the World Trade Organisation and the newly re-energised International Monetary Fund, now have power over small states, mostly wrapped up in international treaties, that they have never had before. At the same time, rich and powerful nations are subsidising their farmers and industrialists, such as car manufacturing and farming in the US, farming in the EU, and a long list of state-owned or controlled industries in China, which put further pressure on small states. But we are not just economic people, as a nation we are rounded with equal value given to our social relations, our civic and moral responsibilities and our cultural and creative environment.

Increasing Government Productivity:
One of the biggest drags on growth in Barbados is public sector efficiency, from improvements in technology, competent management to output per person. One only has to read the annual report of the auditor-general to see the extent of public sector incompetence. Take a simple, but important example, uncollected VAT. Value added tax is a sales tax paid by consumers and collected by trades and service people. For convenience, that money is paid to the government at pre-set dates – monthly, quarterly etc. However, in Barbados, there is a huge backlog of payments, of business people failing to handover to government monies collected on its behalf.

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