FROM page 11.
alternative energy production.
With respect to tourism, Barbados remains a world class destination for high-end visitors. Despite competition from much larger destinations in the Caribbean, Barbados has been able to maintain its share of the market over the past two decades.
Another strength of Barbados’ tourism is the fact that visitors are drawn from as many as four major markets, the UK, the US, Canada and the Caribbean (see Figure 8). Government supports efforts to deepen penetration of existing markets, and diversify further, into Latin America and other European markets.
Recent tourism initiatives to further diversify the product and boost the island’s market share include:
* The designation of Bridgetown and its Garrison as a UNESCO World Heritage Site;
* The upmarket Lime Grove Lifestyle Centre;
* The Four Seasons Resort;
* Construction of the Port Ferdinand marina;
* Building airlift capacity from Latin and South America (GOL Airlines operating between Brazil and Barbados, COPA from Panama to commence in the coming winter season); and
* Increased marketing initiatives in Europe & Western US.
Barbados’ competitive advantages in the international financial and business services sector are a highly qualified professional workforce, generally good infrastructure, social and political stability, a robust regulatory framework and a wide network of double taxation agreements.
International Business and Financial Services Sector
In response to a major challenge from Cayman and Bermuda to Canadian firms in the Barbados IBFS sector, Government has offered some additional tax relief, and initiatives are underway to market Barbados’ services in a diversity of markets where we have DTAs in force.
In agriculture and agro-processing, the major success has been in the export of quality rums, which now earn substantially more export revenues than does the export of sugar.
The substitution of alternative energy sources for fossil fuels as an energy source is the area where Barbados can make substantial savings in foreign exchange spending. Barbados can build on a history of utilising solar power for water heating, to extend to electricity generation. Government has obtained the support of the Inter-American Development Bank through a series of technical assistance and policy-based loans totalling US$125 million to develop the renewable energy sector.
Government is drafting a revised Electric Light & Power Bill to allow commercial suppliers of electricity and small scale users to sell their electricity onto the national grid to the main supplier, Barbados Light & Power Co. Ltd.; a pilot project for small-scale consumers is already in place. Solar generation facilities already in place at Government institutions include:
* A 17,300Wp system at the Harrison’s Cave attraction;
* A 11,100Wp solar ice generating facility in the island’s East Coast fishing centre; and
* An estimated 8,000 -10,000 Wp of energy production from the use of photovoltaic panels by the Ministry of Transport and Works.
The S&P downgrade
The reasons for the downgrade cited by S&P were:
* Weakening economic fundamentals;
* Challenges to our competitiveness;
* Other structural shortcomings of a narrow economy;
* “Weak” fiscal stance; and
* A rising debt burden, off-budget spending, outstanding contingent liabilities.
The fundamental reality of small size cannot be altered, but small countries may do as well as large countries, if they have resilient policy frameworks (Briguglio, Cordina and Kisanga, 2006). Small size means that a “narrow economy” (in S&P’s words) is inescapable; Barbados does not have the human and material resources to produce a wide range of commodities at competitive prices.
That is why the appropriate strategy for economies like Barbados is to grow the foreign exchange sectors, to provide for needed imports, rather than attempt to widen the range of things produced, a strategy which will ultimately be frustrated by economies of scale and insufficient resources. The “narrow economy” is a fact of life, but it is not a “weakness” if appropriate policies are pursued, and it does not limit the potential for growth, if growth strategies are based on the country’s comparative advantages in the foreign exchange sectors.
Barbados has established an enviable average quality of life through slow steady economic growth, rather than rapid expansion. Responses to the challenges to the country’s competitiveness offer a reasonable prospect of resuming a path of steady, modest expansion. These responses, led by investment and marketing by the private sector, and supported by Government, focus on tourism, international business and financial services, agriculture and agro-processing, and alternative energy production. Growth in these sectors leads the way to overall expansion that can be sustained, because they provide (or economise on) the foreign exchange that fuels all economic activity. Investment is designed to make Barbados’ products and services more competitive by offering better value for money, rather than by making the commodities less expensive.
Fiscal performance, off-budget spending and contingent liabilities
The fiscal performance is appropriate, judged by the criterion of reserve adequacy. Tighter fiscal policy would probably add to foreign reserves, but at the expense of weaker economic growth. There are no new contingent liabilities likely to impact on Government budget in the current fiscal year, and there is no spending which is unaccounted for.
Government has provided a guarantee for a loan of US$60 million of financing by a merchant bank for the Four Seasons tourism project. The hotel is fully financed and is expected to be profitable, and it is expected that this guarantee will not be called. Government may be asked to provide a guarantee of bonds to be issued by a company to be set up for the resolution of Clico. Those bonds are likely to be repaid out of the realisable assets of Clico, over time, and not by Government.
The extent of NIS financing of Government is not excessive by historical comparisons. The proportion of debt including statutory corporations in the NIS portfolio is below the levels of the early 2000s.
The S&P downgrade in perspective
The downgrade of Barbados’ external debt by Standard & Poor’s does not affect access to international financial markets. Many sovereigns, including some Caribbean borrowers, are rated lower than Barbados.
By using fiscal tightening to preserve the foreign exchange buffer, Barbados has maintained its policy independence. The current economic strategy is appropriate to Barbados’ economic realities, and respects the limitations of small size. The policy framework is robust, with constant monitoring and feedback to allow for timely policy adjustment as needed.
Both government and the private sector are responding appropriately to the competitiveness challenges the country faces. However, it is accepted that the response in many areas is in need of further upgrade. Barbados’ economic policies are fully articulated, with supporting documentation which is available to Barbadians and foreign investors.
Dr. DeLisle Worrell is the Governor of the Central Bank of Barbados.