Increase Imports, Boost Economic Growth Through Stable Exchange Rates in Barbados

• Former governor of the Central Bank of Barbados has proposed that the region import more a move that upends decades of thought in economics on managing developing countries like Barbados.
• Dr. Delisle Worrell suggested increased imports as part of bold policy reforms focused on currency stability, arguing that only these measures will unlock sustained foreign investment and lift the Caribbean out of decades-long economic stagnation. However, in his latest monthly newsletter, Dr Worrell, said: “The patriotic sentiment that Caribbean countries import too much is at odds with the reality that our standard of living in this region is made possible by imports. The fact is, the greater the level of imports, the higher the standard of living.
• “In order to increase the GDP of Caribbean economies, we must therefore increase our capacity to import. That means investing in tourist accommodation and services, exploiting oil, renewable energy and mineral resources, hosting more international business, financial and educational services, and investing in rum and other manufacturing facilities, all with a view to securing more foreign currency for imports.”
• Dr Worrell contended that foreign earnings depend entirely on the Caribbean’s capacity to produce, asserting that the export markets served by the region are so large that they can easily absorb whatever volume of goods and services Caribbean countries can offer.
• “In order to increase capacity to earn foreign currency,” said the author of several economic publications, “the Caribbean needs investment, the largest share of which must be financed in US dollars to pay for imported construction materials, equipment, supplies, fuel, vehicles, and other requirements. Countries can attract this needed foreign finance insofar as they provide a competitive environment for investment.”
• He noted that, in economic terms, import dependence is a structural characteristic of small economies like those found in the Caribbean, but this should not be viewed as a weakness, but rather as an inherent feature of the economy, similar to the country’s time zone.
• The economist recommended that new capacity be developed through investments and financing in foreign currency to cover import costs. “The most important policies our governments can pursue to promote investment are - maintaining a stable and predictable exchange rate for the domestic currency; and prudent management of public finances to ensure the country remains creditworthy in the financial markets of New York and London.
• “With a stable exchange rate and an investment-grade rating for government foreign debt, countries are assured of foreign investor interest in the internationally competitive sectors of the economy. The final hurdle for potential foreign investors is often the efficiency of the public sector.”
• Pointing to robust increases in foreign direct investment as the barometer of a country’s progress, Dr Worrell said: “An increase in foreign direct investment across the region would be the surest indicator that Caribbean countries are lifting themselves out of the economic doldrums in which they have been stuck for many years.”

(Source: Barbados Today)