Are we still crying wolf?
MY GREATEST FEAR for the economy has been causing me to think of the tale of “the boy who cried wolf”.
A little shepherd boy seduces nearby villagers into believing that a wolf is attacking his flock. He repeats the tale so often that the villagers ignored his cry for help when his sheep are actually attacked.
Over the last three years, Barbadians have been told repeatedly that the international environment is responsible for the country’s economic condition.
No reasonable person can deny that the international environment has had some effect on the local economy, but, equally, no reasonable person can put the blame for the country’s fiscal crisis on that environment.
I have argued that Barbados has a fiscal crisis which has been confirmed and not an economic crisis of the type. experienced in the early 1990s. The need to differentiate between the two is essential in determining the policy mix necessary to create much needed growth in the Barbados economy.
It is convenient for some to downplay the fiscal crisis and play up an economic crisis to lay blame on the international economic conditions.
Here are the facts in support of my argument: (1) real economic growth declined by 12.9 per cent for the period 1990-1992 as compared to a decline of only 3.5 per cent for the period 2008-2010; (2) unemployment averaged 18.4 per cent for 1990-1992 compared to 9.3 per cent for 2008-2010 and (3) foreign exchange reserve cover was 5.9 weeks when compared with 20 weeks for 1990-1992 and 2008-2010, respectively.
These are three fundamental economic indicators and the facts tell the story. In each case, the numbers for the early 1990s are much worse!
On the other hand, in the case of the fiscal condition, the period 2008-2010 is much worse because for the first time in this country’s history, the Government has had to borrow over $40 million per month to pay civil servants.
Prior to 2008, the previous time a Government borrowed to pay civil servants was in 1991 and it was a mere $15 million for the entire fiscal year. Barbados therefore has a fiscal crisis of a kind never before seen and of a size never before measured.
The real difference, however, came in the responses of the two administrations. In the early 1990s, the country literally had no foreign reserves at one point. Between 2008 and now the country’s foreign reserves fell below $1 billion only for the period October 2008 to August 2009 and was never less than $775 million.
My fear is that what is now brewing in Europe may indeed ferment to a point where its impact could be severe over the next six to 12 months. Both the IMF chief and the president of the World Bank “issued strong statements this week about the risks that the recovery from the recession of 2008-2009 is at risk of being aborted.”
For Barbados, the greater fear is the prognosis for Britain. Economic growth in Britain is already not expected to be strong, and the figure is expected to be revised downward in the near future.
So far, the country’s tourism performance out of the British market has not been bad in terms of numbers but spending has been below par.
If a double-dip recession becomes a reality compounded by the hosting of next year’s Olympics in London, then the implications for the local economy are worrying. The second recession could be the one that has severe effects on the Barbados economy, especially if the United States Congress fails to agree on a way forward.
It is in this sense that the tale of the boy who cried wolf comes to mind. The moral of the tale in this context is that when truth becomes reality it may still be seen as perception. Unfortunately, perception is reinforced by repetition.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email [email protected]