EDITORIAL: Gov’t must fix economy

JUST how much lower Barbados will sink in terms of its credit rating depends on the Minister of Finance and Economic Affairs,  the Honourable Christopher Sinckler, taking action to fix the country’s economic fundamentals.

 

Last week Standard and Poor’s issued a release lowering the country’s rating to “B-” from B. It also gave the country a negative outlook. 

 

Last April this Moody’s slapped a downgrade on the Government’s bond rating to Caa1 and changed the country’s outlook from negative to stable.

 

Both Moody’s and Standard and Poor’s have said that their  decisions were based on the slow progress towards fiscal consolidation consistent with a sustainable debt trajectory, low levels of foreign exchange reserves and weak funding conditions.

 

 What is very significant about this latest action by Standard and Poor’s is that it said there is every likelihood that another downgrade could be coming once the Government does not improve the areas which have contributed to the action.

 

Coming just a month after Mr. Sinckler presented his Budget in Parliament, aimed at growing the economy, stabilising the debt and the deficit, he now has to get cracking with policies to put a halt to the slide.

 

There have been calls for Government to restructure the country’s high debt to demonstrate that something is being done about it. However, both the Government and the Central Bank of Barbados said there will be no restructuring of the island’s national debt. In the Budget the Minister said that economic growth of 2.7 per cent next year along with expenditure cuts and higher taxation are the means through which the Government intends dealing with the debt.

 

The status of a number of the state-owned enterprises is also contributing to the present state of affairs in Government’s fiscal position. It was thought that after receiving technical assistance from CARTAC – Caribbean Technical Assistance Centre – on how to reform those state enterprises, over a year ago, that programme would have been well underway, thereby putting a dent in the fiscal deficit. 

 

To his credit the Minister had said in the Budget that making provisions for the Barbados Water Authority and the Barbados Agricultural Management Company, while not concluding the sale of the Barbados National Terminals Inc., contributed to a higher deficit.   

 

The declining foreign reserves also cited by the rating agencies as being responsible for the downgrades, were highlighted in the  Budget. They fell $43 million this year and at June 2016 stood at  $884 million. The Minister said that there was no crisis with the reserves and went on to indicate that inflows were expected from the sale of the Four Seasons Project; for the financing of the redevelopment of Sam Lords Castle; and from the Inter-American Development Bank, and the Latin American Bank.

 

By year end the reserves would be back to well over $900 million, according to the Central Bank of Barbados.

 

There is a consensus that the Barbados economy is gradually turning the corner on account of the growth being seen. However, there are a lot of things to to be fixed including those the rating agencies have pointed to. Those in charge have to get more serious in dealing with the issues so that Barbados can keep the rating agencies at bay.