Nov 2010 Financial News

Budget Day today

Nov 22, 2010

TODAY is Budget Day in Barbados.

All eyes will be on the House of Assembly at 4 p.m. when Minister of Finance and Economic Affairs, Chris Sinckler presents the 2010/2011 Budgetary Proposals, which will chart Government’s assessment of the current economic conditions and how it plans to finance its activities for the next financial year.

Government will be expected to clearly outline what sectors will be key to this island’s recovery. Tourism has rebounded to an extent, but traditional markets such as Britain and the United States are slowly returning to annual growth in their economies.

Government will also have to show its determination to deal its debt problems. The global credit crunch has narrowed areas where loans can be sourced, while repayment of existing debts remains a challenge. Productivity in all sectors will no doubt also get serious attention.

The role of agriculture and small business are also sure to be front and centre of this Budget. A clear objective of cutting the import bill and how this will be accomplished is expected. In addition, the role of small businesses to aid the holistic recovery and long-term viability of this economy is expected.

The Proposals will have to take stock of international and regional developments while charting this country’s response to the impact of the global financial crisis. During the last visit of the International Monetary Fund (IMF) assessment team to the island, praise was given to approaches by Government to confront the effects of the crisis.

At the time chief of the IMF team, Marcello Estevão, stated, “Despite a variety of policy measures to alleviate the impact of the crisis, the level of economic activity is expected to remain broadly unchanged in 2010. The team expects a return to moderate growth thereafter, as tourism receipts remain constrained by weak consumption growth in the United States and the United Kingdom. With public deficits and public debt now at high levels, the emphasis has shifted to fiscal consolidation. The team strongly supports the authorities’ aim, as set out in the Medium-Term Fiscal Strategy, to put public debt firmly on a downward path. Such a correction will be crucial to maintain domestic and external stability and growth, and to support Barbados’ external credit rating, but will require substantive measures on several fronts to control current spending and increase tax revenues. These measures could be accompanied by further actions to limit the impact on the poorest. The team commends the authorities for their prudent management of foreign reserves.”

Government’s stated mission to consolidate its supervision of financial institutions was also praised. “While the banking system remains well capitalised, there has been a significant rise in non-performing loans as a result of the recession. Against this background, continued close monitoring remains appropriate, which will be aided by the recent creation of a financial stability unit in the Central Bank of Barbados and intensified bank reporting requirements,” said the report.

Almost simultaneously, Government has to deal with a deteriorating credit rating and must outline ways which it proposes to bolster the important foreign reserves. Last month, Standard and Poors downgraded this country’s rating to ‘BBB-minus’, pointing to an expected increase in this country’s debt burden because of delayed fiscal consolidation policies but the constant is that the rating remained stable. “The downgrade reflects the continuing weakening of the government’s fiscal profile. In addition, there is an increasing risk that delays in the fiscal consolidation might lead to debt surpassing currently projected peak (61 per cent of gross domestic product on a net general government level and 102 per cent on a gross central government level) in 2012,” the firm added.

While Government has at least 20 weeks of import cover with its reserves, a long-term plan to encourage capital inflows into this country will have to be outlined. This, along with addressing declining revenues, will be a major focus point.

Opposition Leader Owen Arthur is expected to deliver his reply tomorrow, Tuesday November 23 at 4 p.m.


Source:
By Dorian Bryan
Barbados Advocate
Monday November 22, 2010

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