Last week I opined that “all available indicators suggest that Barbados’ economy is back in recession”. The good news is that the economy did not contract over the last nine months but it was “stagnant”. I also intimated that it was likely that the fiscal deficit increased and the foreign reserves declined.
Unfortunately those expectations were affirmed by the Central Bank of Barbados on Tuesday. What is the bottom line? Things are hard but they could be worse. The optimists among us would venture to suggest that the economic situation could be better in beautiful Barbados.
Hooray hooray! Barbados is not in recession but key indicators imply that so far this year, the economy has not gotten any better. Economic progress has been sufficiently elusive to warrant a policy rethink; the central theme of this column last week. Permit me a moment to explain. The fiscal deficit has widened, the foreign reserves have declined by $108 million, unemployment has risen to 12.2 per cent, inflation is still high (at 7.8 per cent) and the economy is on pause. Those metrics do not inspire hope of a brighter tomorrow but a change in policy can. Note carefully that I said a policy change, not a change in government. Leave the politics to the politicians and the electorate. If you haven’t read the Central Bank’s Review of Barbados’ Economic Performance for the First Nine Months of 2012, you should visit their website and read the full text.
They are those who may desire me to comment on the BLP’s 15-point plan for recovery. I do not intend to endorse or disavow. What I would say is that some of their prescriptions happen to mirror some of the recommendations that I have shared with the public in these pages.
For example, the reinstatement of a 15 percent VAT rate, income tax reform, divestment of statutory corporations like the CBC, better business facilitation, restructuring government, reforming the instruments of governance etcetera. Interestingly enough, some of the Opposition’s prescriptions also reflect existing government policy; for example reform of government’s procurement system.
The government does not have to allow the Opposition to steal the initiative. There is still time for the captain to change economic course. Since my writing last Thursday, it was reported that the UK economy emerged from its flirtation with recession, largely on the strength of economic activity generated by the 2012 Summer Olympics. The United States also reported a stronger than expected third quarter up-tick in economic activity, advancing by 2.0 per cent. Tomorrow morning the Bureau of Labour Statistics’ press release is expected to indicate that employment in the United States grew by over 100,000 jobs in October. The ADP National Employment Report noted that U.S. companies added 158,000 jobs in October.
I stand by the policy recommendations that I advocated last week as well as those expressed in earlier articles. A policy adjustment is warranted. The Government of Barbados needs to refocus its tourism marketing budget and adjust its marketing strategy in an effort to maximise arrivals from more promising source markets. Emphasis also needs to be placed on business facilitation, reducing the cost of doing business and high impact capital investment.
All economic participants domicile in Barbados must aspire to improve the quality of service. In the words of Governor Dr. DeLisle Worrell, “the factors which make us competitive are investment to upgrade, expand, and renew our products and services, and the delivery of such excellent quality of service that our customers keep coming back and continue to spread the word.”
I agree with the Governor that public expenditure management is imperative but I disagree with his opposition to the restoration of the disposable income of households and businesses. The economy must be allowed to breathe if sustainable growth is to return. Government has a responsibility to create an environment that is conducive to attracting foreign direct investment and local investment. Economic management has to be as dynamic as the economy. The current fiscal policy stance has not prevented the foreign reserves from declining between January and September this year; it has not prevented a higher fiscal deficit or lower employment. According to the Central Bank’s report it would seem that the existing fiscal policy has only been successful in stifling growth.
*Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience. C.R.Forte@gmail.com