Last week Tuesday’s release of the Central Bank’s review of the economy for 2015 was like a case of déjà vu. The economy was estimated to have grown by –– you guessed it –– 0.5 per cent in 2015, and forecasted to grow by one to two per cent this year. Certainly we have seen this movie before. There is a running joke among some colleagues of mine that the Central Bank of Barbados’ favourite growth number is 0.5 per cent. Since 2010, in almost every Central Bank economic review of the previous year, it has reported that the economy grew by 0.5 per cent. It also tends to project what could only be described as optimistic growth of one to two per cent in the coming year. Of course these numbers are subsequently revised.
So where are we? What is the state of the Barbados economy? There was a lot of welcome candour in last week’s report. There are also some notable bright spots in the economy.
The tourism industry registered a “stellar” performance in 2015 with very impressive growth (my words) in key source markets.
“The tourism out-turn was the best on record since 2007.”
This is a very positive development. Minister of Tourism Richard Sealy, his team at the Barbados Tourism Marketing Inc. (BTMI), as well as industry stakeholders should all be commended for their efforts to improve Barbados’ tourism product and attract visitors to our shores.
On another positive note, there has been no sustained rise in the general price level on account of low energy prices, the fiscal deficit has been reduced and the 2015/2016 deficit target is within reach. Moreover, the Government has made some progress in reducing its expenditure on wages and salaries; and goods and services.
The renewed interest in investing in private tourism development, as well as information and communications technology, was another welcome feature of the Barbados economy in 2015. The economy may be poised for sustainable growth and development, but a few prerequisites are necessary.
These include a favourable external economic environment, Government’s commitment to following through with its fiscal consolidation efforts, tax relief for Barbadians, increased foreign direct investment, and of course reducing the fiscal drag on the economy.
Though tourists’ spending in 2015 has increased to levels not seen since 2010, spending is still below pre-crisis levels. In addition, with the exception of tourism, and finance and other services, no other major sector of the Barbados economy posted growth in 2015.
Other areas of concern are the seven per cent decline in goods exports, the decline in the foreign reserves despite the significant savings from the price of oil imports, and indeed the magnitude of public sector debt and the unsustainably high fiscal deficit.
In order to meaningfully correct these imbalances, the Government and people of Barbados must commit more time, effort and money to providing the highest quality service, ever mindful of the importance of delivering value for money as a competitive imperative. Government needs to build on the progress it has made in containing wages and salaries to 2007/2008 levels.
In addition to that, it must accelerate its timetable for statutory corporations reform in an effort to sustainably reduce transfers and subsidies to state enterprises. Finally,
I do not see any way that the Government can embark on a much needed capital investment programme while reducing the fiscal deficit to two to three per cent of GDP without addressing the elephant in the room.
Government’s interest on debt has increased from $343.6 million in fiscal year 2007/2008 to $662.2 million in 2014/2015. For the period April to December, 2015, the Government has already expended $510.6 million on debt interest alone. As a matter of fact, the Government of Barbados has moved from a position of paying 13.9 cents in interest payments for every dollar it collects in revenue in 2007/2008 to paying 26.4 cents on interest for every dollar it collects in revenue in 2014/2015.
It is important to note that these alarming figures do not include the cost of servicing the principal on the debt. This is at the root of the Government’s fiscal challenges: the daunting task of reducing the fiscal deficit, which contributes to the debt accumulation –– a proverbial debt trap.
Can you imagine if the Government had $300 million a year to invest in public transportation, roads and bridges, water and sanitation, education and small business development? A strategic divestment programme and debt refinancing are important policy options that will become more and more difficult to ignore as time goes by.
The irony is that the sooner they are embraced the more effective they are likely to be.
(Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience.