A bleak outlook
“Barbados’ economic difficulties are by no means over, and our growth, employment and inflation indicators remain less than satisfactory.” — 2012 Half-Year Economic Review, Central Bank of Barbados, July 2012.
Surprise, Surprise! Barbados’ economy is still struggling to produce growth, unemployment is increasing and the cost of living is through the roof. Unfortunately, the review of Barbados’ economic performance during the first six months of this year brought neither good tidings nor hope for a brighter future; at least through to the end of the year.
Central Bank Governor, Dr. DeLisle Worrell pointed out that the rest of the year will be tough and urged Barbadians to live within their means. Those words are cold comfort to individuals who are already unemployed, struggling to make ends meet or worried about their ability to pay their mortgage, credit card, or car loan.
It was estimated that the economy grew by 0.6 per cent during the first half of the year, a period which saw the economy recording growth of about 1.5 per cent for January to March. Apart from the fact that 0.6 per cent growth is virtually no growth and the growth rate for the first half of the year is roughly a third of the outturn for the first quarter, it is extremely likely that the economy contracted during the second quarter of 2012. Not good news at all.
The recession in Barbados certainly isn’t over. It was reported that tourism output grew by 1.8 per cent, though arrivals declined by 1.6 per cent due to declines in the US and UK markets. It would seem that the 6.4 per cent increase in average length of stay and the 2.5 per cent increase in cruise arrivals were sufficient to buoy the sector, which no doubt suffered the adversity resulting from the demise of Almond Beach Resorts and REDjet.
Curiously enough, no mention was made of the level of tourists’ spending relative to last year but a look at the Balance of Payment figures reveals that tourists’ spending was down; a trend which started in 2009.
Fortuitously, the other productive or foreign exchange earning sectors registered modest declines while construction grew by 1.3 per cent; and utilities; transportation, storage and communications; and retail and wholesale trade all advanced by a marginal one per cent.
On the plus side, both the fiscal deficit and the external current account deficit improved conspicuously when compared to the corresponding period last year. The policy of fiscal consolidation and aggregate demand containment seems to be working, but at what cost?
Barbadians are confronted with an economy that is slowing down, high inflation (8.6 per cent) and an unemployment rate of 11.8 per cent and growing; it is safe to say that Barbados’ economy appears to be in a state of stagflation, yet the Governor still asserts that the economy is stable. I’m not so sure.
It was also stated that “any alternative economic strategy was likely to speed up inflation and depress growth and employment because it would exhaust the foreign reserves and threaten the exchange rate”. Am I missing something here? Newsflash! (Just in case the governor missed it.) The current policy stance has already contributed to a depressed economy, rampant inflation and elevated unemployment. Yet it is promoted as the best strategy? I shake my head.
Just maybe, the current policy mix isn’t only containing domestic aggregate demand but also the aggregate demand of tourists and purchasers of our exports. There is no doubt that the high level of inflation which exceeds that of our trading partners is eroding Barbados’ international competitiveness.
A pro-growth public sector capital investment programme, complemented with special incentives for foreign direct investment in tourism, manufacturing, etcetera, local investment that is financed by foreign capital sources and an innovative policy that tackles inflation could form the nucleus of a viable alternative policy mix. There are policy options that will stimulate short-term growth, build capacity for future growth and curtail inflation.
Inflation in Barbados is due in part to the domestic energy policy, the existing fiscal policy and a Bajan business model which dictates that prices must increase as aggregate demand contracts. Surely, given that the foreign exchange reserves are no lower than the amount recorded at the end of 2008, despite a $63 million decline since December 2008, there is room for inventive policy-making that will not threaten the parity of the exchange rate.
Quite frankly, I think all of this recent talk about threats to the parity of the Barbados dollar is overblown.
The Central Bank forecasted growth of about onbe per cent for 2012, exactly the same forecast that was made a year ago for 2011. Actual growth in 2011 was 0.6 per cent. In circumstances where the Euro Zone is back in recession with an evolving debt crisis which is slowing down economic growth in Germany, the United States, Canada, Latin America and Asia; it is clear that Barbados is facing strong headwinds as we approach the end of the year. The policymakers’ tepid fiscal policy stance and appeals to Barbadians for their patience and resolve shall do little to avert the bad weather that lies ahead.
Brace yourselves, Barbadians. According to the Central Bank Governor, the ship of state may be about to experience some more turbulence.
Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience. C.R.Forte@gmail.com