In deep water
On what is basically the eve of the Central Bank’s review of Barbados’ economic performance for 2013 – Tuesday – there is little to smile about.
Compounded by 3 000 plus public sector job cuts, which have started with 392 workers of the Drainage Division being laid off, Barbadians’ wishes for a happy new year may ring hollow, even among the employed.
Alongside the dramatic decline of nearly $1 billion in foreign exchange reserves since December 2012, as a result of a fall-off in private foreign investment, there have been declines in foreign earnings from tourism, services, sugar, beverages and chemicals in the past year.
And in the country’s second largest foreign-exchange earning sector, a look back to the end of September last year shows a marked decline in active entities in the international business and financial services (IBFS) sector; mainly just over 300 new registrations up to September compared to the overall 2012 figure of 433 and 511 in 2011.
The construction sector, according to the Central Bank’s last quarterly report, is expected to recover in 2014 as a result of new tourism-related projects, mainly the refurbishment of the Almond Beach property to host Sandals Resort, and the Sugar Point cruise pier.
Overlapping that sector will be tourism, the island’s main foreign exchange earner; and without a glance at the Central Bank’s upcoming figures, Barbadians would be aware that the West Coast seems busier than ever. Most hired cars are out and major tourism players are boasting 80 to 90 per cent winter occupancies between last month and April.
Modest real output increases are therefore forecast for tourism as Government eagerly looks to the coming of Sandals. However, long-stay arrivals dropped by over six per cent with dips in all the major source markets: Britain, the United States, Canada and the Caribbean, while cruise passenger arrivals were up 12.3 per cent at the end of last September.
Burdened, however, by increased water rates, high electricity bills, excise tax and property tax increases, among other things, the tourism sector has been described by economists as “not viable” and in urgent need of attention.
The energy sector, on which the administration is pinning long-term hopes of recovery, seems set to accelerate after a slow start, since some four megawatts of electricity are now being generated by solar power, doubling the 2012 level.
Such a level of energy output should represent just over $3 million in foreign exchange savings up to last month, while the passing of the Electric Light & Power Act has opened the way for new foreign investors waiting in the wings.
One such investor is Canadian-based local entrepreneur Michael Smasher Cadogan, whose Megawatt Energy Inc. has been the focus of talks with Government for four years.
“I am ready,” said Cadogan who, along with other partners, is set to finalize a renewable energy power purchase agreement (PPA) licence by monthend.
“We are working with a capital group as well as some top developers with over seven megawatts of energy installations. We know the financial situation on the island and we want to help. Renewable energy will play a great part. We also have a programme that we want to introduce to Government for the middle and lower class who cannot get a bank loan,” he told the SUNDAY SUN.
But one cannot help but see the gloom reflected in repeated downgrades and what could well be a brutally realistic report next month by the International Monetary Fund (IMF).
Having met Government and its related agencies here in December for the Article IV Consultation, the IMF has so far pointed to flat exports and tourism arrivals, slow growth and expansive fiscal policy as the main culprits of a sharp increase in public debt and fiscal financing pressures.
Projecting real output to fall by 0.7 per cent and the current account deficit to widen to 11.4 per cent of gross domestic product (GDP), the IMF noted the fall of foreign reserves by US$468 million (BDS$936 million) at the end of October as well as the duplication across ministries charged with providing social services like housing and welfare.
Minister of Finance Chris Sinckler has pledged to address this duplication by assessing 19 statutory corporations.
IMF technical assistance in support of such reform of statutory bodies is expected to start soon.
The most “real” of economic statistics to the average Barbadian is the 11.7 per cent unemployment figure, to which will be added at least 3 000 public sector workers and hundreds in the private sector unless growth policies are implemented and the unfinished projects referred to recently by the Barbados Chamber of Commerce are completed soon.
Alex McDonald, chairman of the Private Sector Association, also referred last week to unfinished public-private sector projects, but seemed unconvinced that his sector must drive the recovery effort.
“When one asks, has the private sector done enough, we really have to ask has our nation done enough, has our nation reacted in an appropriate manner to the crisis; the answer is really and truly no. Because nationally we have not adopted a difference in what we actually do.
“I still think we’re sitting down thinking that if we just hunker [down] and tighten up a little bit, that this storm will pass,” McDonald said Wednesday night on Starcom Network radio.
Stating that the current crisis was not a storm but that “we’ve been dropped over the boat and we’re in deep water”, he called for leadership inspired by Government so that once the path to growth has been prepared, the private sector will start moving.
The urgency of this situation was also emphasized last week by United States-based Barbadian economist Charlie Skeete, who said the key export sectors were in dire need of “retuning and refurbishment”.
He added: “Make no mistake about it; these are medium- and long-term endeavours. I’m always a little suspicious of people who keep telling you what we really need is to get the economy growing again. That is true, but the more immediate problem is that we owe a lot of money, our debt service is continuing to rise relative to our ability to produce goods and services.
“And, as the rating agencies have been trying to remind us, our creditors do not believe that our capacity to service debt is adequate and they therefore feel that lending Barbados money is not a wise thing to do . . . until we can get these longer term problems solved.”
Skeete said the first order of business, therefore, was for Barbados not to “dig itself into a deeper hole of debt”.
“Anybody who tells you that you can run a large and widening deficit [$511.1 million] and have a fixed exchange rate at the same time is fooling you. You cannot do the two things together successfully,” he said.
With a gloomy Central Bank review and projection now coming into this climate of uncertainty, Barbadians may well be shivering over the next few days; not so much from the cool night breezes as from the cold facts related to Barbados’ still unresponsive economic sectors.