Rainy day here, says economist

One noted economist is expressing concern that Barbados and other Caribbean countries could accumulate more debt as they respond to the impacts of the destructive coronavirus (COVID-19) pandemic.

In an early assessment titled COVID-19 – Social Distancing the Goats from the Sheep, and Noah, regional economist Marla Dukharan said: “Mashup of three unrelated axioms ‘you reap what you sow’, ‘make hay while the sun shines’ and ‘save some for a rainy day’, epitomizes what I don’t see when I look around the Caribbean”.

She said there was only one country in the region that was being the metaphoric Noah, consistently building an “ark” of fiscal surplus and buffers in preparation for the inevitable flood over the past seven years.

“As far as I can see, the only country in the Caribbean with ample fiscal space and therefore the fiscal capacity to respond meaningfully to tourism sector and broader macroeconomic collapse as a result of the COVID-19 response, and engage in targeted fiscal spending without significant borrowing, is the Cayman Islands — and they are doing just that,” said Dukharan.

So far, Barbados has recorded six cases of the COVID-19 virus, and all sectors are beginning to report a decline in business as people heed calls from authorities to limit their social interactions and limit their gatherings to 100.

She said though not unjustified given the current circumstances, Barbados, Jamaica and Trinidad and Tobago, while responding with fiscal and monetary stimulus in most cases, could end up at least partially financing their relief with debt.

But she warned that the interventions should be targeted specifically where they were most needed and most likely to be effective.

Government is currently in discussions with the International Monetary Fund (IMF) in an effort to get some relief from its strict four-year Barbados Economic Recovery and Transformation (BERT) programme that is in its second year.

Dukharan said: “Barbados and Jamaica in particular, with their high debt loads and limited fiscal space, with clear medium-term fiscal deficit and debt reduction targets, have made significant progress with respect to fiscal responsibility and are responding appropriately in my view.

“Trinidad and Tobago, however, has maintained expansionary fiscal policy for the past decade, overspending and unsustainably financing its deficits via debt, asset sales, and drawdowns on the Heritage and Stabilization Fund (HSF), irrespective of the business cycle or economic conditions — which has generated zero growth in that space of time. This is neither pro-cyclical nor counter-cyclical fiscal policy. This is pure irresponsibility,” she argued.

With some pundits now predicting deep protracted global economic downturn, with a V-shaped recovery and others, a U-shaped recovery, Dukharan said she was predicting a more L-shaped global recovery.

She said besides not ever fully recovering from the last Great Depression, the global economy was already in somewhat of a recession up to last year and “nothing” was being done about it.

She said: “With COVID-19, we are yet to see peak infection and mortality, according to the pundits. As such, the true socio-economic impact, direct plus indirect, measurable and anecdotal, real and perceived, is yet unknown and unknowable.

“And as the Great Recession taught us, there are unknown unknowns. Not all of them will be negative, though,” she added.

She argued that the 2007/2008 recession had left global structural weaknesses that the COVID-19 pandemic “will crack wide open”.

Some of those weaknesses, she said, included “obscene wealth and income inequality, the retreat of true democracy and freedom, the unwinding of multilateralism, and underinvestment in infrastructure, health, and education, to name a few. All of which ultimately have damaged confidence.”

Adding that it was the wounded confidence that was perhaps the most lasting and damaging consequence of the recession and its aftermath, Dukharan said perhaps the most terrifying lesson of the recession was that “unprecedented monetary stimulus” proved relatively ineffective — as evidenced by lower global growth rates post-great recession.

“What to do when printing doesn’t work? Fiscal stimulus, in the form of ‘helicopter money’ or universal basic income, is the unlikely policy choice of the day, and I believe this could work in the short-term to keep some economies afloat,” she suggested.

“But as sensible as this option seems now, it is only open to the countries with the requisite fiscal space. And so, if no other good comes of this crisis, at the very least it will separate the goats from the sheep. True leaders and statesmen and women will be revealed, especially the Noahs who were prepared — who sowed seeds, made hay, and saved for this rainy day,’ said Dukharan.
marlonmadden@barbadostoday.bb