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DLP column – Standards and Poor view


NATANGA SMITH, [email protected]

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Below are extracts of recent comments carried by the Global Credit Portal.
Barbados is slowly recovering from the severe impact that the global financial crisis had on the country’s narrow and open economy. After contracting in 2008 and 2009, the real economy rebounded slightly (by 0.3 per cent) in 2010. We believe that the economy has bottomed out and that economic activity is now accelerating.
Real GDP increased by 2.8 per cent in the first three months of 2011. A pickup in tourism (arrivals and spending each grew by seven per cent in the first quarter of 2011) . . . A gradual rebound in other private sector activity should support the forecasted real GDP growth of two per cent this year and three per cent in 2012-2013 . . . Barbados’s fiscal position, which is a significant weakness of its credit profile, improved in 2010. The Government introduced a series of revenue measures at the end of 2010, a decision that was in line with our expectations and underpinned our revision of the outlook on Barbados to stable from negative in October 2010.
These measures, together with ongoing restraint in capital spending and wages, have helped to narrow the Government’s fiscal deficit.
On the other hand, the effort to reduce large transfers and subsidies (amounting to 37 per cent of total spending in fiscal 2010) was less successful. Overall, the general Government fiscal deficit (including National Insurance Scheme [NIS] surpluses of roughly 2.5 per cent of GDP) is estimated to have declined to 5.6 per cent of GDP in 2010 from seven per cent in 2009, and the forecast is for it to narrow further, to 4.6 per cent of GDP, in 2011.  
The global recession took a hard toll on Barbados’s small and open economy. Following two years of negative growth (negative 0.8 per cent in 2008 followed by a contraction of 4.8 per cent
in 2009), the economy seems to have bottomed out, and grew by a modest 0.3 per cent in 2010. The 2.6 per cent growth in long-stay arrivals, following two years of negative growth, contributed to the overall modestly positive economic performance.
In the first quarter of 2011, the tourism statistics improved further, as the British market reacted favourably to the news of a one-year postponement in increases in Britain’s air passenger duty.
Overall, Standard & Poor’s expects real GDP growth of two per cent this year, followed by three per cent in 2012-2013.
We expect the medium-term growth to fluctuate around two per cent throughout a recently started new economic cycle, a level similar to the average of 1.7 per cent for the past cycle (2002-2009).
Growth prospects might be lower if the Government debt overhead is not addressed, or if economic recovery in the developed countries takes longer than expected.
On the other hand, if the tourism sector benefits from large investments, such as Four Seasons, and the public sector gains efficiency as per the Government’s restructuring plan, the country’s growth prospects could be higher than the last cycle’s average.
Douglas Leopold Phillips is a pseudonym for the Democratic Labour Party.

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