Barbados is essentially “feeling its way in dark” for 2019. This is one leading economist’s take from the Barbados Central Bank’s report 2018 report released on Wednesday.
According to Professor Michael Howard, the report essentially showed that the economy went into recession in 2018 and that its chances of recovery were dependent on the moon and stars aligning, in terms of the country’s economic outlook. Howard contended that Central Bank Governor Cleviston Haynes was hesitant to make predictions due to the absence of any concrete economic indicators.
The economist argued that this state of uncertainty in the economy would result in potential investors remaining on the fence, adopting “a wait-and-see approach for any plans to invest in the country.
“In terms of the challenges this year, he was uncomfortable and generally non-specific. For instance having cut expenditure, he is a bit uncertain, as I am, if the Government would be able to sustain the fall in current expenditure. To what extent can Government assure that expenditure is not going to increase rather than decrease,” asked Howard.
The retired head of economics at the University of West Indies, Cave Hill Campus, lamented that the report had no serious analysis of the impact of Government’s decision to reduce domestic corporation tax to be compliant with the Organization for Economic Cooperation and Development (OECD).
Dr Howard noted that Governor Haynes needed to elaborate on the cut in the corporate tax, which is not part of the IMF [International Monetary Fund] programme but is there now as a revenue adjustment issue. He is hoping that the corporate sector would invest in the economy but that is just a hope and we can’t say very much about that.
Last December, Prime Minister Mia Mottley gave local businesses a bug tax break announcing a massive reduction in corporation tax from 25 per cent to between 1 to 5.5 per cent. At the time of the announcement she made it clear that she wants businesses to share the benefits with Barbadians.
The development means that local businesses would benefit from the overhaul of the tax regime, putting them on a level playing field with their international counterparts with businesses in Barbados.
However, Howard argued that with revenues below the target last year and a projection of zero growth this year, it was important to get serious analysis of the possible impact of the reduced tax. In addition, Howard contended that another unknown variable was the state of play with regard to negotiations with international creditors and the potential effect on the foreign reserves.
“He is simply hoping that these negotiations will not have an impact on the foreign reserves and quite frankly that is my hope as well. He is hoping that these creditors will not go hard on Barbados. He also gave no view on the IMF programme and whether the requirement of a six per cent surplus over this year into next year was even possible. So the Governor was very good on what happened in 2018 but he, like myself, is very uncertain about what will happen this year. So we are really feeling our way in the dark,” said Howard, who told Barbados TODAY that Barbadians will have to wait until the second half of the year to get the answers to these questions.
In his press conference on Wednesday, Haynes revealed that after contracting slightly in the final three months of last year due to a weak performance in the tourism sector for that period, Barbados’ economy is forecast to be flat in 2019.
During his review last November, Haynes had said economic activity contracted by 0.5 per cent during the first nine months. However, the Governor said in the last quarter the country’s economy had contracted a further 0.1 per cent.