Governor stresses importance of foreign reserves
Economic policy in Barbados is about keeping the economy stable while providing incentives and support for activities that contribute to the growth of output, income and employment.
That is the word from Central Bank of Barbados Governor Dr DeLisle Worrell following a recent discussion with members of the media on How We Keep The Economy Stable.
“Ours is an economy that depends on foreign exchange. We need about $5.5 billion in foreign currency each year to buy from abroad the goods and services we need to maintain our quality of life. The economy remains stable so long as approximately that amount comes in – from tourism, the sale of other goods and services that are paid for in foreign exchange – and prudent foreign borrowing,” Worrell pointed.
“To grow the economy, we must invest in activities that will increase the inflow of foreign exchange, because as soon as income is spent there is a need for additional foreign exchange.”
He added: “That is because everything we buy has an element of imports: either the item itself is imported, or the seller uses electricity which is generated with imported fuel, or the purchaser has driven to the place of sale in an imported car, or there is some other call on foreign exchange.”
He stressed that the Central Bank’s main responsibility was to keep the economy stable, and work very closely with the Ministries of Finance and Economic Affairs in doing so.
“The process begins with the setting of a target for foreign exchange reserves. If the foreign exchange accounts are in perfect balance, the CBB’s foreign reserves will remain unchanged because the foreign reserves are used to make up any deficit in foreign currency inflows, compared with what we need to pay out,” he added.
The economist said that was why, “in times of plenty, we build up reserves to dip into to help to carry us through the lean times”.
“It follows that the considerations that go into setting the foreign reserve target are
(1) what inflow of foreign exchange is expected,
(2) what level of outflow is projected, and
(3) how long are these lean times going to last.”
The Governor explained how the foreign reserve target was monitored, what economic levers were available to keep the country on track to achieve the target, and the process of corrective action taken in case of significant deviation from the target.