The Barbados economy continued to face major economic challenges during 2017, the result of declining international reserves and weak public finances. Moderate economic growth was registered but the need for a deepening of fiscal consolidation measures raised inflationary pressures and, together with low levels of investment, dampened the acceleration in economic activity.
The fiscal policy measures did contribute to a reduction in the fiscal deficit and this was complemented by the Bank’s tightening of its monetary policy stance through increased securities requirements on commercial banks from 10% to 20% of deposits. This shift in policy by the Bank enabled a substantial reduction in new Central Bank lending to government. Despite the fiscal gains, however, the size of fiscal imbalances, the debt overhang and the financing requirements emphasise the need for further public sector reforms to enable fiscal sustainability over the medium term.
The stock of international reserves again fell sharply, reaching just over half of the targeted benchmark of twelve weeks of import cover. This outturn largely reflects the impact of external debt service payments, low public sector external borrowing and the tightness of the foreign exchange market that prevented the transfer by commercial banks of substantial inflows of foreign exchange to the Bank.
During 2018, the Bank will continue to assist the Government in strengthening the macroeconomic framework. In this regard, increasing the international reserve buffer will be pivotal to the design of Barbados’ macroeconomic strategy. Aggregate demand will need to be carefully monitored and higher levels of public and private sector capital flows will be vital to the rebuilding of Barbados’ foreign exchange reserves to acceptable levels. In addition, it will be important to ensure that fiscal consolidation strategies align the deficit with available financing, stall the growth of debt and contribute to a restoration of confidence. We believe that with the assistance of all stakeholders we can address the challenges ahead.
In March 2017, the Bank published the 2016 Financial Stability Report which indicated that the financial system continued to have the capacity to withstand a range of adverse shocks. The banking system remained stable during 2017, with banks registering high levels of capital adequacy, a moderate reduction in non-performing loans and above normal liquidity ratios. The fall in loan delinquency, together with the widening of the interest rate spread, contributed to a modest improvement in bank profitability.
The Bank recorded a profit of BDS $46.9 million during 2017 compared to $ 27.1 million in 2016. The Bank’s foreign income was again depressed by low coupons and the decline in the international reserves available for investment. However, the improved financial performance reflected the impact of the increased holdings of domestic Treasury Bills and Debentures. This performance, together with the impact of Church Village land vested in the Bank by Government, enabled the Bank to strengthen its capital position.
The Bank entered a transition phase during 2017 following the departure of its sixth Governor Dr. DeLisle Worrell. The Bank celebrated its 45th anniversary, a significant milestone for an institution that has been blessed by being able to attract and retain talented committed individuals, several of whom have served for over 30 years. They have helped to nurture the Bank to maturity, constitute our institutional memory and are the pillars of our 45 years of strong corporate performance. Their presence has strengthened the resilience of the organisation and facilitated a relatively smooth transition. Increasingly, some of these stalwarts are retiring and we wish to thank them for their service, secure in the knowledge that the commitment, dedication and fervour within the Bank among the emerging generation of central bankers will enable us to continue to pursue our goal of excellence.
Our Vision is to create an institution of excellence of which Barbadians can be proud. During the coming year, the Bank will maintain its focus on its core responsibilities related to macroeconomic and financial stability.
In addition, it will seek to upgrade its systems for governance and risk management and promote improved efficiency in the delivery of its services through enhanced use of technology and improved customer service delivery. We recognise that the strength of the institution resides in highly trained and committed staff whose accumulated knowledge and intellectual capacity drive our performance.
By staying true to our core values of respect for the individual, integrity and accountability, we will seek to attain our objectives by improving our systems for internal communication and enhancing our leadership at all levels. Through these initiatives, we will strengthen our capacity to respond nimbly to the challenges that lie ahead and continue the excellence, stability, innovation, and leadership for which we are known and respected.