BRIDGETOWN, Barbados, Thursday February 1, 2018 – Barbados’ foreign reserves are dangerously low – lower than they have been in over two decades, Central Bank Governor Cleviston Haynes has disclosed.
Days after regional economist Marla Dukharan reported that the reserves had dipped to BDS$482 million (US$241 million) or just under eight weeks of import cover, as at November last year, Haynes revealed they had dipped even further.
In his 2017 economic review yesterday, he said that as of the end of December last year, the reserves stood at a 22-year low of BDS$410 million (US$205 million), or 6.6 weeks of import cover – almost half the recommended 12 weeks.
Haynes pointed to weak private sector capital flows, net public sector outflows and the delay in the sale of some state assets as contributors to the low levels of reserves.
And he reported that because of the foreign exchange crunch, commercial banks were no longer selling as much surplus funds to the Central Bank.
“In some cases they have actually come to us to buy foreign exchange,” Haynes told journalists.
However, the Central Bank Governor urged Barbadians not to panic about the situation.
“We have challenges which we have to face, but it does not require panic. It requires us to address the issues which confront us, to do so frontally and do so quickly. I think that is what is within our powers to do. Panic won’t get us anywhere,” he said, adding that he was optimistic there would be adequate levels of reserves to meet payments during the year.
Haynes added that significant public and private capital inflows are needed to restore the reserves to “at least in line with the 12-week benchmark”.
In her monthly Caribbean economic report for January, Dukharan had reported that Barbados’ international reserves registered the “lowest level of reserves and the fastest year-on-year pace of decline in this century”.
She identified the main drivers of that precipitous drop in reserves as the extent of the Government deficit and the way in which it is financed – partly by Central Bank financing or printing of Barbados dollars.
Haynes reported yesterday that the Central Bank had cut its funding of Government to BDS$96.8 million (US$48.4 million) between April and December, a fraction of the BDS$714.5 million (US$357.25 million) for the corresponding period for fiscal year 2016/2017.
On the issue of economic growth, Haynes said the economy grew by one per cent last year and is forecast to grow between 0.5 per cent and one per cent this year. His projection matched that contained in an International Monetary Fund (IMF) report, also released yesterday, which pointed to a slowdown in economic growth.
The IMF said real growth reached 1.6 per cent in 2016, as a result of continued robust long-stay tourism arrival and spending, but slowed to 0.9 per cent in 2017 and would drop to 0.5 per cent this year, due to the ongoing fiscal adjustment and policy uncertainty related to general elections constitutionally due later this year.
Following its recent Article IV Consultation, the Washington-based financial institution emphasized the need for a stronger macroeconomic framework and bolder structural reforms “to achieve fiscal and debt sustainability, address the large financing needs, build adequate international reserves, and boost growth”.
Haynes, meantime, also reported some gains.
The fiscal deficit fell to just below four per cent, due to increased revenue intake; an increase in tourist arrivals; and a drop in spending in some areas.
“The fiscal deficit for 2017/2018 is anticipated to be lower than for the previous year, but it is unlikely to achieve its target because of the non-receipt of divestment proceeds and the lower than anticipated revenue yield.
“Further consolidation, particularly through structural expenditure reforms and improved tax administration, is now required. Effective implementation of these measures would help to prevent further accumulation of arrears which will aid in restoring confidence and facilitating private sector activity,” Haynes advised.
However, overall expenditure still grew by an estimated BDS$9.9 million (US$4.95 million) and there was much lower than expected tax revenues from the austerity measures introduced last year, including a foreign exchange tax, and the increase in the National Social Responsibility Levy from two per cent to ten per cent of the customs duty on imported and locally produced goods.
Import duties also declined.
Government reduced its overall debt slightly to BDS$145.9 million (US$72.95 million) during the April to December period, from BDS$147.5 million (US$73.75 million) the previous year, although interest on debt payment increased, which also contributed to the declining reserves.