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BARBADOS | Dr. Clyde Mascoll responds to economist Jeremy Stephen

Featured Chief Economic Counsellor, to Prime Minister Mia Mottley, Ambassador Dr. Clyde Mascoll Chief Economic Counsellor, to Prime Minister Mia Mottley, Ambassador Dr. Clyde Mascoll
BRIDGETOWN, Barbados, October 11, 2018 - Chief Economic Counsellor and lead negotiator with the IMF, Ambassador Dr. Clyde Mascoll has hit back at economist Jeremy Stephen who is predicting that" the Government’s parlous finances are threatening the future pensions of  civil servants."

Writing in 'Barbados Today,' Stephen  contends that unless Government increases the amount of Government paper commercial banks are required to hold, banks would buy the “bare minimum” while individuals may not even want to consider any in the future.

Stephen has forcast that Government will need to embark on a second round of refinancing if Barbados fails to attract enough foreign direct investment to help ease the island’s money woes.

However, in responding to Stephen,  the government's Chief Economic Counsellor Dr. Clyde  Mascoll said it was difficult to understand Mr. Stephen’s shattering investor confidence comment,   as the greatest threat to investor confidence was a possible devaluation of the Barbados dollar."

In a statement today, Dr. Mascoll said "The Barbados Economic Recovery and Transformation programme is designed precisely to protect the value of the dollar which should instil not shatter investor confidence.

"The biggest threat to the pensions of civil servants was the refusal of the last administration to pay the contributions of civil servants to the National Insurance Scheme. The government was in arrears to the tune of almost $500 million," he said.

Mascoll noted that "the financial health of the NIS is tied into the macro economic framework of the Barbados Economic and Recovery Transformation (BERT) plan. The proposed hair cut to the NIS is equivalent to 1 and ¾ years of contributions. The last administration did not pay for the civil servants for the last four years."

He said "the net impact on NIS is about $800 million which is equivalent to the debentures and treasury notes that the NIS was forced to take in settlement of the arrears, which the previous administration and the State-Owned Enterprises owed the Scheme."

The Chief Economic Counsellor pointed out that "15th Actuarial report at page 25 shows that the sensitivity analysis confirms that the financial health of the NIS has not been compromised by the debt restructuring. The government’s pension for those under the age of 45 cannot be an issue as suggested by Mr. Stephen.

Mascoll in his statement declared that "The new debt instruments are not crappy. They are designed to save $500 million in expenditure. This is done via a reduced interest rate and extensions of maturities. In the circumstances, the proposed strips are expected to give bond holders access to their original investment before the end of the maturity period. This is creative and respects the time value of money."

"Furthermore, the interest rate on the new debt instrument rises, periodically, in recognition of the need to restore confidence to the market. The biggest deterrent to investing in government paper is a very low interest rate. The latter is being increased over time. Furthermore, given the deposit rates in the banking system, the rising interest rate on the new debt will be a more attractive option," he said.

"Surely Mr. Stephen should know that the payment of salaries to civil servants cannot be threatened when the government is running primary surpluses of 6 per cent. This needs no explanation," he contended.

"There will be no need for banks to hold excess reserves in an environment of rapidly declining government debt. Mr. Stephen seems not to be the one who has confidence in the recovery and transformation programme," Mascoll declared.

"It is agreed that the restoration of economic growth is critical. It is also agreed that both local and foreign direct investment are important for the generation of an export-led economic recovery programme. In this regard, it should also be noted that the government’s capital expenditure programme is larger than anything presented to the public over the last decade," he noted.

Dr. Mascoll concluded that "In the circumstances, the current government should be lauded for its energy, preparedness, inspiration and courage, not picked at by trained economists who were advisers to the last administration."

Last modified onSunday, 14 October 2018 06:57
  • Countries: Barbados

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