Stuart worried about state of country’s economy

A local economist says that if Barbados’ revenues continue to be hard hit by the prolonged uncertainty of the COVID-19 pandemic, the country will need to run additional deficits and borrow even more to finance the shortfalls to come in 2021.

Kemar Stuart, Director of Business Development, Finance and Investment with Stuart & Perkins Caribbean made the comments in his analysis of the recently released Central Bank Report.

“Coming out of the report issued by the Governor of the Central Bank, the main pillar of survival for the Barbados economy is the ability to mobilise debt support from the IMF [International Monetary Fund] through the BERT [Barbados Economic Recovery and Transformation] programme. This support filled the massive shortfalls in revenue collected by Government due to the imposition of restrictions of economic activity. Economic activity dropped 18 per cent or approximately 1.8 billion dollars,” he said.

Stuart added, “The Governor constantly made the point of weak revenues. Weak revenue is an important factor in a decision to allow the Government to run a $100 million deficit, which needed to be financed by borrowing from an international financial institution. To date Government has borrowed 980 million dollars in foreign debt, driving the debt to GDP ratio up to 144 per cent”.

The economist is suggesting that the remedy is in fact just as bad as the ailment. He said that regulatory failure, including slow and inefficient public sector processes; lack of financial guarantees and adequate support from the Government; no new investment and lack of reform to investment laws, continue to delay critical progress in this country.

While agreeing with the Central Bank Governor that capital works programmes are a way to revive the “dire economy” and facilitate growth over the medium term, Stuart maintained that the government has not been pulling its weight. In this respect, the economist referred to the BERT programme, which he argued was in itself hindering some development.

‘An albatross’

In fact, he described the BERT programme as an albatross, noting that one of the conditions of the IMF sanctioned plan is a restrictive clause on spend as it relates to capital works programmes. He said that unless that condition was renegotiated at recent meetings with the IMF, that spending ceiling will inhibit government's ability to do major expansions of spending in the economy for 2021.

“The amendments to the Central Bank Act Cap 323C to limit the Bank's role in financing government's roles in the economy, the inability to borrow from an over leveraged NIS [National Insurance Scheme], a dampened bond market, an ineffective stock market, an inability to borrow from any private capital market in any substantial way – all highlight the life support the IMF and the other international financial institutions has created around Barbados' finances,” he added.

With that in mind, he said there is a need to get the other pillars of the economy, apart from tourism, working. But, he acknowledged this is a challenge.

“...Given the uncertainty of the pandemic and a pending rollout of a vaccine programme, Government may continue to waver on a policy direction to build out and drive the local economy,” he stated.

Stuart contended that the country could not afford such hesitation as that drive could help to wean Barbados off the worrying trend of IMF life support.