Economist Dr Patrick Watson is warning of foreign exchange depletion and depreciation of the dollar if certain measures are not taken now.
Speaking at a post-budget forum at Presentation College, San Fernando, on Thursday night, Watson said if the local manufacturing sector was not completely diversified there would be depletion in foreign exchange, resulting in the Central Bank intervening to protect its reserves.
Watson, director of Sir Arthur Lewis Institute of Social and Economic Studies, said he was satisfied that neither a short run issue of stabilisation nor the long run of putting the country on a path of return to growth had been done in the budget. He said the growth in the energy sector had resulted in the non-performance of the non-energy sector.
"For instance, the manufacturing sector which was a net earner of foreign exchange in the late 90s and early 2000 is now a net user of foreign exchange," Watson said. "If I am a manufacturer and I do not sell goods abroad in sufficient quantity to re-earn foreign exchange, the next time I want to replenish my stocks of inputs I have to go and get foreign exchange. "And whom am I looking forward to generating that foreign exchange–the oil sector or the energy sector which is in decline because I am not contributing to it. "It will result in a depletion of the foreign exchange with consequent pressure on the rate of exchange." Watson said the Central Bank would have to take certain measures which might lead to the depreciation of the US dollar.
"If the manufacturing sector is unable to put more foreign exchange in the system, and my prediction is in the short run it will not be able to do so," he said. "That is why the measures that are taken will simply be to stop the possible retrenching of some of its workers and they may not even take that bait...They may take the money and still retrench." He said the end result was that by the end of next year that sector would return for more incentives. "And until that sector is completely reorganised, completely revamped, completely diversified and other sectors are introduced, we are going to have a problem where the foreign exchange is going to be under and the Central Bank is going to intervene in a way to protect its reserves," Watson said. "It cannot allow the ongoing depletion...We are depleting much more than adding to stock."