Under the microscope
A sale of public entities, more foreign borrowing and deficit reduction measures may be on Barbados’ horizon.
And with a national budget due to be presented soon to Parliament by Minister of Finance Chris Sinckler, Standard & Poor’s (S&P), Wall Street’s leading credit rating agency, is calling for “fiscal discipline” while hoping for a “favourable investment outlook”.
Both of these things may hold the key to success if Barbados is going to be able to boost its foreign reserves and support its dollar at the current exchange rate.
In a detailed analysis of Barbados’ economy in the wake of its recent decision to change the outlook on Barbados’ BB+B credit rating from stable to negative, S&P warned that the prospects for economic growth would decline if the Government “does not stabilize its debt burden or if the economic recovery in the developed countries takes longer than we expect”.
Interestingly, the Wall Street firm has given the private sector high marks for “playing its part in sharing the country’s burden over the past few years by preserving jobs through reduced work weeks and other flexible arrangements”.
Just as important is the attitude of the National Insurance Scheme (NIS), which has introduced “a number of programmes to alleviate the burden for employers, especially those that keep their employees”.
S&P did not leave out the trade unions. The labour movement’s policy of working within the tripartite arrangement – Government, private firms and labour – suggests “the union’s continuous support for the Government’s austere policies”, according to the agency.
Richard Francis, S&P’s primary analyst for Barbados, prepared the analysis. He was clear about an important economic fact of life: the stability of the nation’s exchange rate.
“Given weak external liquidity, fiscal discipline and a favourable investment outlook are important to keep international reserves stable and to support the currency peg,” he said.
Focusing on the deficit, which is influenced by Government spending and raising revenue, Francis said S&P expected “the Government to take additional measures in 2013 to reduce the fiscal deficit in the coming years”.
“The Government plans for most of its financing to come from external sources in 2013, which it will use, in part, to boost the country’s international reserves,” Francis stated.
“The Government is considering complementing debt financing with divestment of some public entities. Overall, we expect the change in general Government debt to be about 5.8 per cent in 2013, reflecting the expected international bond issue, gradually falling to about 2.5 per cent in 2016.”
As he saw it, Barbados faces both negative and positive features, and they include:
• Foreign reserves which dropped by more than $100 million in the first half of 2013. They should “rebound as a result of an external bond issuance in 2013, ending the year higher than at year-end 2013.”
• Barbados’ financial system is “broadly sound, but non-performing loans remain high”.
• The per capita income, gross domestic product, which stands at an estimated US$15 485 (BDS$30 970, down from US$15 800 in 2012, would grow marginally, rising to US$16 156 next year and US$ 16 896 in 2015. Back in 2008, the per capita income was US$16,407.
• “If the tourism sector benefits from large investments, such as the Four Seasons, and if Government restricting plan leads to a more efficient public sector, the country’s growth prospects could be higher,” he said.
• Unemployment should increase slightly this year, rising to 11.8 per cent, up rise from 11.6 per cent last year. S&P expects it to fall to 11.5 per cent next year. In 2007, the jobless rate was 7.4 per cent.
• Foreign direct investment in Barbados was said to be “holding up, though tourism-related investments are far below what they were before the (economic) crisis.”
• “We expect public sector external borrowing to help boost the country’s international reserves. We project international reserves will increase this year, covering more than 80 per cent of the monetary base,” Francis said.
“. . . We expect Barbados’ current account deficit to deteriorate in 2013 as a result of a fall in tourism receipts and manufacturing exports to six per cent from 3.5 per cent of GDP in 2012.”
The analyst observed: “Barbados has generally effective policymaking, which public consensus and a strong social contract support.”