The adage that there are only two constants in life – death and taxes, is proving true in this post COVID-19 landscape. Managing a business, a household, or a country is an increasingly difficult task and riddled with a growing number of challenges.
At the micro level, many households were forced to tap into their rainy day savings as sudden and pervasive job losses became a feature of the period. For government, the pandemic resulted in significant, unplanned expenditure and borrowing.
Barbados, having experienced years of economic upheaval after the global financial collapse, experienced an unprecedented debt crisis. And in 2018 we entered a voluntary default arrangement with our creditors.
That move significantly reduced the debt-to-GDP ratio and paved the way for the country to finally borrow on the international market at reduced rates.
But as we indicated, the path is never smooth and seldom linear for countries and citizens of the developing world. Our open economy is tied to major trading partners such as the United Kingdom and the United States of America.
As a result, the news this week that Britain’s new Chancellor of the Exchequer Kwasi Kwarteng, who is effectively that country’s chief minister of finance, had approved one of the biggest tax cuts in the country’s history sending the British pound sterling tumbling, was met with great concern.
It was supposed to be the freshly installed UK Prime Minister Liz Truss’ big gamble, designed to kick-start the flagging economy. However, pundits are clutching their pearls, fearing the move is backfiring in a traumatic way.
One of the implications for British citizens is the falling value of the pound sterling against the United States dollar which is resulting in increased prices of imported goods. This is on top of the surging price of energy as winter nears.
For us in Barbados, the falling pound further exposes the vulnerability of our economy at the time when our hopes are pinned on an extraordinary performance of the tourism sector, especially from the coming winter tourist season.
British visitors are highly prized by tourism markets because of the stability they engender. They usually book well in advance, they stay on longer holidays, and as a result, tend to spend much more money during those trips.
With the value of the pound falling, visitors’ spending power is greatly reduced, and travel becomes a much more expensive endeavour for them.
For our tourism sector, Britain is key to our expected recovery. The latest developments are seemingly also on the mind of Prime Minister Mia Mottley, as she called it a “cause for concern”.
In an attempt to calm nervous sections of the community, the Prime Minister has sought to discourage panic over the issue.
“It is of concern, and we are watching it. In the same token, we have to be nimble and respond to the market. Obviously, that is just one contributing factor to the cost of air travel. You would have had that because airlines are trying to recover from the absence of flying for a large part of the time in the pandemic. They are also trying to recover from increased fuel prices, and they are now having to deal with currency issues in the UK market,” she said this week at the ground breaking ceremony for a South Coast hotel development.
At the same time, members of the Barbados Hotel and Tourism Association (BHTA) are expectedly nervous. The group’s new chief executive officer Geoffrey Roach acknowledged that top-end luxury travellers from Britain may be insulated from the current turbulence, but uncertainty remains about other groups.
As we try to stabilize an economy that has been disrupted by so many events that have been outside of our control, the 22 per cent drop in the value of the pound over a six-month period is not the kind of development we want at this time.
This is but one of the many fires the country has to fight simultaneously. The threats of derisking and losing access to correspondent banking facilities is another pall hanging over our economy.
Getting the local economy firing on all cylinders is going to be a tough task due to the “attacks” that are coming from every direction. We are therefore relying on the good sense and expertise of our policymakers, as well as the resilience and creativity of our people to weather the barrage of trials to our strength and stability as a nation.