BEHIND THE HEADLINES: Hold the champagne
“There is really nothing to celebrate,” said Charlie Skeete. Skeete, a retired senior economic adviser who once sat on the Inter-American Development Bank’s executive board in Washington, was reacting to the Barbados Central Bank’s recent report on the performance of the economy during the first six months of 2014.
“Unless you want to celebrate the fact that growth was not negative so far this year, according to the bank’s figures, then there is nothing to feel good about,” added Skeete, a former Barbados ambassador in Washington. “If you want to celebrate the fact that the economy was not contracting, fine, but I wouldn’t break out the champagne”.
The bank and its Governor, Dr DeLisle Worrell, painted an economic picture of Barbados that showed some less than desirable developments. For example, foreign reserves had continued to decline this year, albeit at a slower pace than during the 2009-2012 period, so much so that “the stock of reserves stood at more than $1 billion, enough to cover 15.1 weeks of imports”.
Then there is the spectre of joblessness. Unemployment was “slightly higher than for the same period a year earlier, inflation had fallen to less than two per cent as at the end of April, Government revenue had declined as both Value Added Tax and corporate tax receipts went down, the tourism industry registered marginal expansion, and international business and financial services also rose marginally,” the bank stated.
Just as important, “fiscal consolidation to restore the external balance exerted an unavoidable drag on the output of the non-tradable sector,” the bank stated.
In other words, the Government’s austerity efforts were being felt. That leads us to the six month report’s bottom line: output for the “economy as a whole remained flat” and that hard fact of life was the reason why the Central Bank is forecasting a slight growth rate of 0.3 per cent, with the economy picking up some steam next year, rising to 1.2 per cent and 2.5 per cent in 2016.
Skeete, who served for several years as the Permanent Secretary in the Ministry of Finance in Bridgetown, was worried about the performance of the economy to date.
“We are not out of the woods,” he said. “We are not out of the economic crisis. Barbadians can’t relax.”
That conclusion was traceable to the fact that reserve levels were tending to trend downwards. That trend was being offset to some extent by the fact that imports remained flat or were slightly depressed.
Skeete said: “Unless exports grow faster than imports from year to year, consumption can be maintained only with a resort to foreign borrowing,” he went on. “Compared with the first six months of 2013, exports have grown by about two per cent and imports have declined by less than half of one per cent. This six-month development is not enough to relieve the pressure that the current account deficit in the balance of payments is placing on reserves.”
That brings us to the state of government revenues, another key item in the financial matrix.
“Largely because of stagnation in revenue collection the fiscal balance as a percentage of gross domestic product continues to widen and this also places pressure on reserves,” he said.
The former ambassador also warned that “debt service continues to climb precipitously and when combined with declining revenues, this places great strain on Government’s ability to finance other services”.
To put it another way, falling reserves, plummeting imports and consumption, expansion of the fiscal deficit which was now up to 12 per cent, the impact of the austerity measures which were beginning to bite, rising unemployment, and growing debt were all contributing factors to the less than favorable state of the economy.
“The Governor of the Central bank wasn’t upbeat on employment. I personally feel the unemployment picture is worse that the figures suggest. I am worried about plummeting Government revenues, which are falling at a faster rate than Government expenditure is declining. What that tells me is that revenue collection is obviously in need of urgent reform,” he said.
“Overall the economy continues to limp along. 2014 will mark the third year of GDP growth of less than half of one per cent. That’s why I don’t think there is anything in the bank’s statement about the economy that should be a reason to celebrate,” he said.
“Clearly, we are in a situation in which we have a large and increasing debt burden, which must be serviced and this trend will lead to a widening of the deficit.”