EDITORIAL: Failed to achieve balance
AS THE YEAR opened, the state of the economy has regained its topicality after celebrations of Independence and Christmas.
The debate has been reignited with the publication of the January 2016 economic letter of Governor of the Central Bank Dr DeLisle Worrell which contained, among other disclosures, that since 2013 Barbados was not able to bring in enough foreign exchange to achieve “a balance between foreign exchange inflows and outflows.”
While this paraphrase cuts to the core of the issue the language used by the governor presents a sharper and starker picture, given the concerted effort over the past seven years to reduce the deficit and to get the economy on a sustained growth path.
The governor’s words are: “The foundation for growth is a stable economy, and in Barbados that means a balance between foreign exchange inflows and outflows. We know when we have achieved that balance because in that case we do not have to dip into the Central Bank reserves of foreign currency to make up the difference. The country has failed to achieve that balance since 2013, and there remains the need to dampen spending further in order to protect the country’s reserves of foreign exchange. The reserves are what protects us from devaluation. The Central Bank remains in a position to provide US dollars at the 2:1 exchange rate to meet all legitimate needs if no other source is sufficient.”
Given the recent economic measures, these are not the words that Barbadians wish to hear at this time, but Central Bank governors are not employed to “flavour the pot” Their task is to give us the facts however inconvenient. The statement shows that the greater outflow of foreign exchange since 2013 has not allowed for a sufficiently stable economy to fuel growth, or at any rate, the rate of growth that we need. The statement implies that the foreign reserves may have taken a hit which in turn drives the “need to dampen spending further in order to protect the country’s reserves of foreign exchange.” This raises the spectre of belt-tightening.
While the country will be grateful for this reality check, we are reminded by a former governor that a central bank governor is a creature of the Minister of Finance and, therefore, this matter becomes one of politics and policy; for it now seems beyond argument that something has gone drastically wrong with the much touted policy of the homegrown fiscal consolidation policies or that those policies have failed.
It is so unsatisfactory a situation in which we find ourselves that the President of the Barbados Chamber of Commerce and Industry Eddy Abed can tell us that business executives were not surprised by the statement since some of them were told as long ago as September that they would have to wait in a queue and would be allocated foreign exchange when it became available.
We are only too well aware that the policy of the Ministry is set by the Minister and his Cabinet colleagues, and that the opinions and advice of any governor does not constitute policy.
In the face of the governor’s letter, the Government has a compelling duty to address the country on how it now proposes to tackle the issues which he says face the economy.