BARBADOS' ECONOMIC PICTURE may not be as rosy as it appears.

Even in the face of a strong first quarter performance as outlined recently by the Central Bank, Charlie Skeete, a former senior economic adviser at the Inter-American Development Bank in Washington, says serious challenges may be lurking around the corner.

Skeete specifically sounded alarms about the fiscal and current account deficits, both of which he said could force the David Thompson administration to put the brakes on Government spending and that in turn could lead to a slowdown in economic growth.

The Central Bank reported that in the January to March quarter, economic growth was strong, recording a four per cent spurt, up from 2.6 per cent for the same period last year. In addition, unemployment remained low; the key economic sectors of tourism and manufacturing were firing on all cylinders; the nation's foreign reserves had skyrocketed by $110 million, reaching $1.6 billion; and Government revenues were up.

But Skeete said he was deeply worried about the Government's fiscal deficit of $128.9 million at the end of March, nearly four times the deficit recorded a year earlier.

"What the fiscal deficit does is that it keeps Government spending at a level that would keep people employed and keep consumer activity at a level that would keep the economy growing. The problem with fiscal deficits is that in an economy like ours you cannot sustain them. You would have boom and crash."

Skeete warned the country would find itself facing a problem of "twin deficits" – internally and externally. That's because the domestic deficit "goes into imports", he said.

Skeete recommended that the Government be frank with the people by telling them that "we came off an unusually active year for a variety of reasons", such as high "capital and current account activity connected with the Cricket World Cup; the unusually high number of visitors; and the inflow of capital preparing for that."

In essence, "the party is over", was the way he put it.

Skeete said the current problem was inherited by the Thompson administration from the Owen Arthur Government but it was one which must be tackled quite early. If not the pain would be more severe down the road.