More downgrades likely, warns economist

The warning was issued by economist Ryan Straughn, who told Barbados TODAY that while he was surprised at the timing of the downgrade by Standard & Poor’s, issued last Friday, he was expecting it given the Freundel Stuart administration’s failure to implement corrective measures in a timely fashion.

Furthermore, he said the decision by the Government to extend the tax measures until April 2016 meant that the targets were not achieved.

In addition, Straughn said based on his interaction with officials in the business community there was concern that the anticipated growth would not be realized.

“Unless there is fairly robust growth in the local private sector for foreign investors to feel confident that the business environment is conducive to new investment, unless that dynamic changes we will continue to struggle to raise revenue and in the absence of any real expenditure cuts, we will continue to miss targets and I think that by extension you will see a worsening in terms of the credit quality of Government. So it is very likely that there may be downgrades in the future,” the economist reasoned.

He contended that confidence among business operators was “very low” because they were not in a position to plan adequately.

“Business operators have to look forward more than just a year ahead in order to transition their businesses properly. In this environment where you are not absolutely clear where the Government’s position is in terms of taxation and how that will potentially impact the operations of businesses that is probably one of the biggest hindrances in terms of getting confidence in the economy,” said Straughn, although he acknowledged that there “a few” companies that continued to perform well.

Straughn said the comments by the Prime Minister and the Central Bank following the S&P downgrade did not surprise him, but he contended that there appeared to be an implementation deficit.

“The continuous downgrade is a reflection of the lack of success of implementing the programme rather than the conception of the programme itself . . . At the end of the day S&P’s duty is to people who hold Barbados Government bonds and for people who may want to hold Barbados Government bonds,” Straughn argued.

In relation to suggestions that Barbados engage the International Monetary Fund in a structural adjustment programme, the economist poured cold water on the idea.

“Given that we have enough international reserves to pay for the stuff that we need there is no absolute requirement to engage the IMF. However, given our inability to solve the fiscal problem I believe that they can be engaged in that context to deal with the fiscal situation,” he added.


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