central bank of barbados tom adams financial centre, spry street, bridgetown p. o. box 1016 telephone : ( 246 ) 436 - 6870 : fax. ( 246 ) 436 - 7836 e - mail address : info @ centralbank. org. bb website : www. centralbank. org. bb remarks delivered by mr. cleviston haynes, governor ( ag ), central bank of barbados at the sagicor cave hill school of business and management conference on risk management and competitive intelligence. hilton hotel june 26, 2017 master of ceremonies, distinguished guests, ladies and gentlemen let me begin by congratulating the chsb for hosting this important conference that seeks to empower our leaders with the tools to manage risk in the dynamic environment in which we operate today. understanding and adapting to emerging risks and opportunities is essential if firms are to compete successfully in an increasingly technology driven competitive space where barriers to entry are being eroded rapidly. firms which formerly competed in the domestic market only can now, with a touch of a button, compete abroad or conversely face competition from abroad. it is in this context that i am honoured, therefore, to present this morning on the theme perspectives on growth in the caribbean. as a policymaker, i am acutely aware that the long term success of our business sector depends in part on how quickly and effectively we are able to create a policy framework that facilitates growth, builds confidence, stimulates innovation and encourages new investment. this is essential because some of the industries that have served us well in the past may not be viable in the new globalised environment. our capacity to grow strong competitive firms and develop new industries will therefore be critical. our responsiveness to emerging risks, whether as policymakers or as producers, is therefore crucial. understanding the challenges which each stakeholder faces is key to the long term sustainability of the economy and the development of strong competitive enterprises. in my presentation, therefore, i propose to share some insights on the recent growth experience in the economies of the caricom region. i will use the recent barbados experience to assist in illustrating the need for a sound macroeconomic framework to underpin sustainable growth. discussions on growth in caribbean economies are now topical. such discussions are often prefaced by the recognition that these economies are constrained by their small size in terms of land mass and population and are vulnerable to economic shocks and natural catastrophes. in addition, caribbean economies are distinguished by an absence of diversity in the goods produced and a

adjustment effort, including addressing interest costs on selected debt on a voluntary basis, to reflect current borrowing constraints. the impact of the fiscal developments was manifold. first, fiscal adjustment attempted to compensate for the substantial loss in taxes from foreign sources by substituting with domestic taxes. as a result, sequential reforms were made to the personal income tax and property taxes, new taxes were introduced to stabilise revenue and the value added tax was reformed and the rate increased. secondly, potential growth enhancing capital expenditure absorbed much of the initial non - interest expenditure adjustment. however, state enterprises were able to cushion the impact on growth through their capital works programmes. however, since some of these enterprises lack the financial capacity to service the ensuing debt, central government is expected to absorb the costs over the medium term. thirdly, the persistence of large deficits and rising debt led to deterioration in the sovereign credit rating, with adverse effects on access to capital markets at reasonable costs. increased reliance on domestic financing while servicing debt has added to the depletion of reserves. fourth, government encountered cash flow difficulties that encumbered its ability to make payments on a timely basis, including to some of its public enterprises. fifth, policy makers were forced to review how longstanding entitlement programmes, particularly for education and health, should be financed in an environment in which financial resources were insufficient to meet demand. sixth, policy makers have had to review the size of the public sector, its scope of activities and its efficiency in delivering its services. jobs were cut from the public sector roll in 2013 and steps taken to identify agencies which could be merged to avoid potential duplication of services. this review is ongoing. in addition, some state assets have been identified for divestment, creating resources to ease short term financing flows. some of the challenges being experienced in barbados are being replicated across the region. deficits, debt and access to low cost finance are interrelated. it is important for us to recognise that every dollar of the fiscal deficit has to be financed or arrears will accumulate. the sale of state assets, when judiciously applied, can enhance cash flow by providing one - time revenue. but in general, only productive assets can be quickly sold for what there are worth, while the sale of such assets may have, inter alia, competition, relative prices, income distribution and foreign exchange effects. moreover, divestment does not substitute for the need for fiscal adjustment. against this backdrop, what therefore