Austerity ‘pays’

Officials of the International Monetary Fund (IMF) are banking on a return to growth for the Barbados economy as a result of Government’s austerity measures.

In fact, Chief of the World Economic Studies Division in the Research Department of the IMF Oya Celasun is predicting that confidence will return to the local economy in the coming months as a result of the four-year austerity IMF-backed programme.

Responding to a question from Barbados TODAY at the 2019 World Economic Outlook media conference in Washington this morning, Celasun also pointed out that in coming months tourism dependent economies in the Caribbean should experience higher growth than commodity dependent ones.

She explained that this was due mainly to the prospects for these economies being tied to those that are more advanced.

“There has been some softening, but generally growth is stronger (in tourism-dependent economies). The commodity-dependent ones are still in the process of adjusting to the lower commodity prices and some of them, oil prices,” said Celasun.

In relation to the struggling Barbados economy, the economist said once Government remained disciplined in implementing and meeting its targets, confidence should return, resulting in a strengthening of economic activity.

“For Barbados, we have an IMF programme so the prospects are that activity will strengthen somewhat with the build up of confidence as the programme is implemented,” she said.

“It is essential for that to happen to return to positive growth in 2020 – that the targets are met and the reforms are steadily implemented,” she added.

The Barbados economy declined by 0.6 per cent last year and has averaged a disappointing -0.7 per cent growth over the last decade

Faced with a massive debt of approximately 150 per cent of gross domestic product (GDP) and an unsustainably high fiscal deficit of around six per cent, the Mia Mottley-led administration took the decision to enter into an IMF programme.

Following initial meetings in June, officials signed off on a US$290 million Extended Fund Facility programme with the IMF in October last year, and the country has received its first passing grade in December 2018.

The austerity measures, which included public sector layoffs, introduction and increases in some user fees and restructuring of public enterprises, are ongoing.

According to the World Economic Outlook: Growth Slowdown, Precarious Recovery, an IMF publication released this morning –  the Caribbean should experience a decline in growth to reach 3.6 per cent this year, following the 4.7 per cent last year.

In relation to the global economy, Chief Economist of the IMF Gita Gopinath said growth is expected to weaken this year as a result of a slowdown of growth in 70 per cent of the world economy. Following softened growth of 3.6 per cent last year, it is projected to further slow in the first half of 2019 to reach 3.3 per cent, representing a downward growth projection of 0.2 per cent.

This, she said, was as a result of a negative revision for several major economies such as the US, Canada, Australia the Euro area, Latin America and the UK.

“With improved prospects for the second half of 2019 global growth in 2020 is projected to return to 3.6 per cent. This recovery is precarious and predicated on the rebound in emerging market and developing economies where growth is projected to increase from 4.4 per cent in 2019 to 4.8 per cent in 2020,” she said.

However, she said the world economy remained in a precarious and delicate state, adding that several economies still faced a range of challenges.

She warned of some significant factors that were weighing heavily on growth including ongoing trade tensions between the US and China, changes in international oil prices and uncertainty surrounding Brexit.

Gopinath also warned of the need for countries to “avoid costly policy mistakes”.

She said policymakers should “work cooperatively” to ensure strong monetary and fiscal policies and financial sector policies to address specific country issues.

She also pointed out that economies were facing risks associated with climate change.

“Across all economies, the imperative is to take actions that boost potential output and boost inclusiveness and strengthen resilience,” said Gopinath.

“This is a delicate moment for the global economy. If the downside risks do not materialise, and policy support put in place is effective, global growth should rebound. If, however, any of the major risks materialise then expected recoveries in stressed economies, high debt economies, in export-dependent economies, maybe derailed,” she warned.

Policymakers, economists, financial experts and other stakeholders are meeting in Washington this week for the annual IMF/World Bank Spring Meetings as they discuss challenges facing economies around the world, and come up with possible solutions to spur growth.
marlonmadden@barbadostoday.bb