Having fallen from glory, the Barbados economy stood at the edge of a precipice at the beginning of 2018, requiring urgent resuscitation and emergency surgery to save it from total collapse.
But with a general election looming, politics almost automatically became the focus of the day, even amidst burgeoning calls from various groups for urgent action to be taken to save the ailing economy.
The government of the day, led by then Prime Minister Freundel Stuart, was also focused on the sale of at least two state assets – the Barbados National Terminal Company Ltd and Needham’s Holdings – to help boost falling reserves. Barbados rang in the New Year with foreign exchange reserves at just 6.6 weeks of import cover, or $410 million; a massive debt of more than $15 billion; a large fiscal deficit of over 4.2 per cent of gross domestic product (GDP); and mounting uncertainty, which resulted in a slowdown in crucial investment.
As the island’s economic woes dragged on, so did the blame and criticism from economists, politicians and other pundits.
During the first quarter, the island registered meagre growth in reserves to see them reach just $423 million, which was still well below the benchmark of 12 weeks of import cover. The economy also contracted by 0.7 per cent.
With a demand from union leaders for a wage increase for public servants, a pending debt service, and threat of devaluation of the Barbados currency which is pegged to the US dollar 2 to 1, worries continued to mount.
It was clear some tough decisions had to be taken to save the economy while addressing infrastructural, social and environmental challenges.
From all indications, residents were conscious that the country was running out of time. Clearly not satisfied with the Government’s handling of the economy, they elected a new administration in the form of the Barbados Labour Party (BLP) which took all 30 seats in the May 24 general election.
Almost immediately after taking the reins, the Mia Mottley-led administration announced some changes to resuscitate the economy.
First came the suspension of all debt payments, both local and international, which did not come without consequences. Already in junk status, the Barbados economy instantly received a further downgrade from international ratings agency Standard and Poor’s (S&P) to ‘Selective Default’ (‘SD’). International creditors did not take this news favourably, especially as details were still sketchy.
Nonetheless, the Mottley administration raced against time to bring the economy back from the brink and then moved to serve up a dose of bitter medicine in the form of a $1.2 billion adjustment plan to tackle the island’s economic woes head-on, over the next three to four years.
Prime Minister Mottley announced a three-phased plan aimed at lowering the fiscal deficit from 4.2 per cent of gross domestic product (GDP), promote economic growth and shore up the reserves.
Known as the Barbados Economic Recovery and Transformation (BERT) programme, this far-reaching plan, which was disclosed to the public about a week after a visit by a team from the International Monetary Fund (IMF), was also intended to drive down the massive debt which stood at close to 175 per cent of GDP.
No individual or business in any sector escaped the BERT programme.
Mottley, who is also the Minister of Finance and Economic Affairs, made it clear that all Barbadians and visitors to the island would have to play a part in the realization of economic recovery. As such, a range of new tax measures were introduced, some taxes were increased, and others abolished.
It was announced in early September that Barbados had reached a staff-level agreement with the Washington-based IMF, much to the delight of some and disapproval of others. This was quickly followed by other international lending agencies throwing the island a lifeline.Almost immediately after securing funding of US$290 million through a four-year Extended Fund Facility from the IMF, Barbados received commitments of further funding from the Caribbean Development Bank and the Inter-American Development Bank, both of which subsequently made good on those promises.
Though there continued to be much criticism, especially from the Government’s political opponents, some economists suggested that the country had taken a step in the right direction by devising a home-grown recovery plan backed by the IMF.
Shortly after, Government successfully completed its debt restructuring plan with local creditors, offering a debt swap. This resulted in creditors getting less interest and repayment over a longer period.
As expected, S&P raised its long- and short-term local currency sovereign credit ratings on Barbados to ‘B-/B’ from ‘SD/SD’, while reaffirming its ‘SD/SD’ long- and short-term foreign currency credit ratings on the island, and its ‘D’ (default) ratings on Barbados’s foreign currency issues, due to the outstanding debt restructuring with external creditors.
By mid-November, the island’s reserves had been boosted from an approximately six-year slide to reach just over $1 billion, significantly lessening the likelihood of devaluation of the prized Barbados dollar.
Though the achievements were based on borrowed money, this was just enough to ease some of the island’s economic worries and offer a glimmer of hope to businesses and potential investors.
At the same time, the Government had embarked on a restructuring of state-owned enterprises to slash its wage bill, and put measures in place to pay outstanding tax returns, and collect monies owing to Government.
Another major highlight of the year was the race by government against time to meet commitments to comply with demands of the Organization for Economic Cooperation and Development (OECD).
This included amending several pieces of legislation governing the international business and financial services sector, and the removal of tax incentives. This saw the corporation tax rate for both local and international businesses being placed on the same level, with a range of between one per cent and 5.5 per cent based on earnings.
Minister of Small Business, Entrepreneurship and Commerce Dwight Sutherland told Barbados TODAY he would describe 2018 as being “a very challenging year for businesses”.
“We would have seen a number of businesses closed as a result of the economic climate. I would say the latter half of the year businessmen and women have been very optimistic,” he said.
Sutherland said it was clear that the economic challenges would not last and the economy would regain good health.
“The outlook for business in this country looks exceptionally well. And I am very optimistic as the Minister of Small Business, Entrepreneurship and Commerce . . . we should see some growth within the next year. We intend to play our part within our ministry to build out this economy. I am positive and when I go around visiting businesses they too are optimistic about their future,” he added.
For noted economist Shane Lowe, the quick resolution of the domestic debt restructuring and the IMF’s approval of the BERT programme “in a much shorter than average time” are “perhaps the most notable achievements thus far”.
While some continue to be pessimistic and others see light at the end of the economic tunnel, one thing is for sure—like the rest of the region and the world, residents are looking and waiting with bated breath to see just how and when the Barbados economy will bounce back and return to its glory days.