BEHIND THE HEADLINES: A disappointing 2015 performance
NOT A SURPRISE and certainly not encouraging. That summarises the reaction to the Barbados Central Bank’s report released last week and it may also tell a story about the inner feelings of the mandarins in the Ministry of Finance about the performance of Barbados’ economy in 2015.
But first things first. The facts speak for themselves. The economy grew by a meagre 0.5 per cent, instead of the much hoped for one per cent; the construction sector “decreased” by three per cent, “due largely to the unexpected delays in the start of major infrastructural projects”, the retail business and services sector “saw limited spill-over”; unemployment dipped by a statistically insignificant amount, going from 12.3 per cent in 2014 to 11.8 per cent; labour costs rose but productivity stagnated; inflation was at a standstill due to the “persistent slide” in international oil prices; international reserves ended the year at $927 million, the equivalent of 14 weeks of imports; external debt service went up; and tourism received a much-needed shot in the arm, heightening the country’s dependence on the industry at a time when the international financial services sector lost ground.
The bottom line in Barbados’ economic story is that the island nation, which is celebrating its golden jubilee of independence, ended 2015 more dependent on tourism than the year before and the year before that. Just as important, the country seems to be a well entrenched economic under-achiever, raising people’s hopes for better days only to fail to live up to expectations raised by the Central Bank and the Ministry of Finance.
“It did not live up to the forecast that I was under the impression it would attain in terms of the achievement of economic growth and it did not meet what I thought there was hope for by way of fiscal consolidation,” said Charlie Skeete, a retired senior economic adviser at the Inter-American Development Bank in Washington DC.
“It was not for lack of commitment of the economic programme but the programme was not implemented as expeditiously and with the kind of discipline and rigour that one had hoped for.”
One explanation for that is the high debt which continues its upward climb. Another is the relatively poor fiscal performance.
“There are two ways you can deal with the kind of fiscal situation in which Barbados finds itself,” asserts Skeete. “When it comes to high debt and unsatisfactory fiscal performance you can grow your way out of it or go the route of tightening your belt through fiscal discipline or what they call austerity or fiscal consolidation, or you can do a combination of the two.
“Barbados committed itself to a programme of fiscal consolidation and it has achieved some of the targets but not, by any means, all of them,” he went on. “When you add to that the hopes for the growth target that have not materialised” the picture becomes difficult.
Stated bluntly, Barbados hasn’t succeeded in key areas.
“There is a big elephant in the room here and it is the amount of money we owe away,” insisted Skeete, a former Barbados ambassador in Washington who before assuming that role was a permanent secretary in the Ministry of Finance.
“Barbados is a highly indebted country and the question is at what time are we going to face up to the fact that we have a high debt that is getting higher, not lower.
“Everybody wants to talk about tourism and the admirable thing of alternative energy. But at the end of the day we owe to the rest of the world, more than 100 per cent of the value of goods and services we produce in a year.”
The upshot is that an increasing amount of our revenues must go to servicing the debt instead of being used to build or repair schools; provide a reliable flow of clean water to villages, towns and rural parishes; getting the Queen Elizabeth Hospital and clinics up to snuff; picking up the garbage, filling the potholes in the streets and yes, providing housing for the diplomats we send abroad.
Unfortunately, Barbadians often tend to skip any debate on the uncomfortable and inevitable question: What are the corrective steps to reverse the downward slide? High on that list must be the policies and the mindset of the Government and the private sector that would engineer a fast pace of growth which would surpass surges in the debt.
“You can either practise fiscal austerity or fiscal consolidation or you can grow your way out of it. You can stimulate the economy to get it to grow fast enough that it outpaces the growth in the debt and makes it a smaller percentage of the goods and services you produce,” argued Skeete.
“We aren’t growing fast enough and we are not implementing the fiscal consolidation with the discipline and rigour required to reduce the debt and the debt service,” he said.
That brings us to the rating agencies, Moody’s and Standard & Poor’s.
The recent Central Bank report isn’t going to make it easier for Wall Street to keep the credit rating from falling further into junk bond status. The rating firms want to see economic growth and a decline in the debt if they are to recommend investors to put more money into Barbados. We must wait and see what happens at the end of 2015-16 financial year and how Wall Street reacts to our story. It may not be a pretty picture.