Forget the Central Bank Governor’s projection of 1.8 per cent economic growth this year!
The Caribbean Development Bank (CDB) said today it expects the average rate of growth in the Caribbean for 2016 to be in the order of 0.3 per cent, with Barbados coming in at 0.9 per cent, half of what Dr Delisle Worrell forecasted about two months ago.
Addressing the CDB’s annual media conference this morning, Director of Economics Dr Justin Ram further poured cold water on the Government’s forecast by stating that the island was not expected to be among the leading performing regional economies for 2016. The top three are the Turks and Caicos Islands, which is due to record the highest rate of growth (5.4 per cent), followed by St Kitts and Nevis at 4.5 per cent and Dominica at 3.9 per cent economic expansion.
In all, 13 of the CDB’s 19 borrowing member countries are expected to show faster growth this year than they did last year, while Trinidad and Tobago and Suriname are expected to experience negative growth.
In Barbados’ case, Ram suggested that the desired growth would remain elusive unless the Freundel Stuart Government implements significant structural reforms and drives down the current debt-to-GDP ratio, which stood at approximately 131 per cent at the end of last year.
He further cautioned that despite its record level of tourist arrivals, the island simply was not raking in as much as it did in the past from its number one sector.
“So really there needs to be a programme to get greater value added out of the tourism product,” the CDB official said.
In comparing Barbados’ performance with that of other regional countries, he suggested that “structural problems” and “structural deficiencies” were also responsible for the low ranking.
In addition, he said Government’s ongoing austerity programme, as well as recent public sector layoffs were “now feeding through into the economy.
“So we expect that will have a somewhat negative impact on growth and hence the reason for the low growth forecast in 2016,” added Ram.
Pressed by Barbados TODAY on its 0.9 per cent projection, which flies in the face of the Government’s revenue earning measures and the Central Bank’s touting of its strong reserves, Ram explained that the revenues “had to come from somewhere”, while suggesting that there has been “a sort of a diversion of the resources away from perhaps productive uses towards the Government.
“How the Government decides to utilize those resources we actually wait to see, but remember that currently the Government is really into an austerity drive and they are trying to minimize and reduce the growth in expenditure. So we do not expect the Government to boost their expenditure significantly in 2016 although they might receive additional taxes,” he added.
Pointing out that the island’s debt-to-GDP ratio was double the CDB’s recommended 60 per cent maximum, which is
“quite high”, Ram stressed the need to bring it down in order to have “a sense of stability in the policy environment”.
“And when we actually have that sense of stability in the policy environment we will then expect to see a boost in investment and then in time, in consumption. So for 2016, yes, the forecast is a bit low but if the Government implements significant structural reforms and maintains the path to bringing that debt to GDP ratio down, then, in time, we expect the policy environment to support further investment and ultimately consumption within the economy,” he added.
As for the Caribbean on a whole, the CDB official said the region faced a number of risks, including the possibility of a global economic downturn, political uncertainty in Venezuela, weather-related events, as well as continued warming of relations between the US and Cuba.
“Commodity exporters will need to make difficult decisions about their expenditure patterns,” he said, while also sounding a warning that a reduction in “correspondent banking” relationships also posed a threat to financial transactions and trade and remittance receipts.
Also addressing the press conference, CDB President Dr Warren Smith warned of a possible economic weakening in Europe and North America; a slow economic growth rate in China, as well as the impact of climate change on social infrastructure, concluding that though Caribbean economies were largely in recovery mode, it was happening at a time of “great uncertainty in what is emerging as a somewhat topsy-turvy external environment”.
In the face of these threats, Ram said the focus must be on building “dynamic, export oriented, competitive, inclusive, diverse and environmentally resilient economies”.
This, he said, could be achieved through private sector-led growth; a more educated and flexible labour force; regional integration; as well as a sustainable energy plan.
Today, CDB officials also stated that labour market reforms, fiscal consolidation and human capital development programmes were key to growing the regional economies.
And they called for the issues relating to youth unemployment, regional integration and free movement of CARICOM nationals within the region, the difficulty in doing business in some territories, logistics and travel within the region as well as the difficulties faced by small and medium sized enterprises in accessing finance, to also be addressed.