WHAT MATTERS MOST: Economic bite not ridden well
LET US LIKEN the Barbados economy to a bicycle that has two wheels.
The front wheel is the tradable sector (tourism) that earns the foreign exchange. The back wheel is the non-tradable sector (retail and distribution) that uses foreign exchange. This distinction is used very rigidly by some practitioners.
While it is important to distinguish between the sectors by their capacity to earn or use foreign exchange, it is equally important to appreciate that both sectors have to contribute to economic growth. In this regard, it must be recognised that the two sectors are inter-related. Furthermore, there is a human element to economic growth, which though measured in dollars and cents, has making people happy as its ultimate objective.
The front wheel of a bicycle is believed to be more important than the back, perhaps purely on the basis of its position. However, the design of a bicycle makes it obvious that the momentum starts with the back wheel. In addition, it is possible to ride on the back wheel for considerable distances.
The notion that a front wheel is more important is simply based on prejudice, not design.
As it relates to the economy, the prejudice is justified on the basis of foreign exchange but cannot be justified on the basis of economic growth. No reasonable person will question a private sector-led growth strategy that focuses on earning foreign exchange as an ideal policy for a Caribbean economy.
Equally, a reasonable person will question making the majority of a population unhappy for several years on the basis of the overplayed need to protect the country’s foreign reserves.
It is reported by the chief proponent of this overused doctrine that “the Barbados economy is estimated to have grown by 0.5 per cent in 2015, thanks mainly to a stellar tourism performance”. If the performance of the front wheel was stellar, why was the bicycle unable to travel at a faster speed? Furthermore, why did the stellar performance result in a smaller front wheel when measured in foreign reserves?
These questions are even more relevant when the bicycle was being ridden with the wind at its back. The wind in this case was the dramatic fall in international oil prices that caused a “$380 million reduction in payments for fuel imports” in 2015.
The evidence is clear that the tourism performance was not as stellar as reported when an analysis is conducted on the components of the numbers and not just the size of the tourist arrivals.
Last week’s article revealed that “one, the visitors’ length of stay declined; and two, visitors staying for one day and two to three days have become the fastest growing categories”.
As a consequence, the front wheel (tourism) was able to pull the bicycle (economy) along at only a very paltry rate of 0.5 per cent.
It ought now to be evident to the economic advisers and the Government that not even a double-digit increase in tourist arrivals was sufficient to inspire significant movement in the economy. This must cause them to rethink and reconsider that the bicycle (economy) cannot go forward at meaningful pace without both wheels (tradable and non-tradable sectors) moving at the same time.
What fascinates me most about the recent economic report is that the governor of the Central Bank, who said his technocrats were not magicians and did not have silver bullets with respect to forecasting economic growth and other indicators, is now prepared to put five-year forecasts in the public domain.
Now that the Paradise project is not being considered, real gross domestic product is forecast to expand by 1.7 per cent on average over the next five years. Remarkably, for a man with such little faith in his technocrats’ ability to forecast, he reported that growth would peak at two per cent in 2017 when major tourism infrastructural projects that are expected to start near completion.
What a turnaround in the governor’s confidence in economic forecasting! Or is it that these forecasts are optimistic rather than pessimistic?
Even though these projects are in the tourism sector (front wheel), their immediate impact will affect the construction sector (back wheel). There is no doubt that the projects can have a desired effect on economic growth that is very much needed.
When there was a call for such stimulus prior to 2013, the same governor and others condemned the suggestion on the basis of its impact on the foreign reserves, which were more than at present.
It’s the riders, not the bicycle!
Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email: [email protected]