World Bank caution

Barbados is expected to record the second-highest growth in Latin America and Caribbean economies this year, behind Guyana, according to the latest World Bank review.

However, the Washington-based financial institution, noting that growth in the region overall is still lagging, has advised governments to eliminate wasteful spending, reduce public investment, and revise some blanket initiatives to ensure they benefit only the most vulnerable.

In its Latin America and Caribbean Economic Review publication for October, New Approaches to Closing the Fiscal Gap, the World Bank is predicting a growth rate of 10.5 per cent for Barbados this year with continued although reduced growth in the next two years.

It is projected growth will be around five per cent in 2023 and 3.2 per cent in 2024.

During a press conference on Tuesday to discuss the report, Chief Economist for Latin America and the Caribbean William Maloney was unable to say what was the basis of the prediction for Barbados’ strong growth this year and projected decline in the following two years.

However, he pointed to the possibility of the high rate of COVID-19 vaccination contributing to a quick recovery in the tourism industry, the island’s main revenue earner.

At the end of September, data from the Ministry of Health showed that Barbados’ COVID-19 vaccination rate stood at 67.7 per cent.

After modest three per cent average expansion this year, growth for Latin America and the Caribbean is expected to fall to around 1.6 per cent next year.

Guyana is expected to have the largest growth rate this year at 57.8 per cent, before falling to 25.2 per cent next year.

Acknowledging that the Caribbean was one of the hardest hit regions by the COVID-19 pandemic, Maloney said growth was still lagging behind 2019 levels and may not recover for another two years.

He said this was due in part to the high dependence on tourism, which was crippled during the height of the pandemic.

Maloney cautioned that the region was facing renewed headwinds and would experience various impacts from several developments, such as the war in Ukraine, higher interest rates in advanced economies, slower growth in developed economies and persistent inflationary pressures.

The World Bank official said the lower growth rates for the region over the next two years suggested there were still many structural problems, and he therefore recommended long-term reforms to raise growth rates.

At the same time, Maloney expressed concern about the rising rate of inflation, which stands at around six per cent for Latin America and the Caribbean.

As it relates to the creation of more fiscal space, the World Bank’s 68-page publication pointed to the need for a cut in public investment, more effective public spending and cutting wastage and inefficiencies.

At the same time, Maloney indicated that some policies should be revisited. He suggested a review of subsidies that benefited the entire population, saying they could be tweaked to benefit only the most vulnerable.

“Often what we find in the region is that we subsidise oil prices or fuel prices across the board, which means we are not only helping out those poor families we are subsidising fuel prices for the entire population, including those that don’t need it. So that savings we are talking about is precisely the gains that will be gleaned from better targeting those kinds of relief efforts,” he explained.

The World Bank has estimated that the Caribbean spends around four per cent of GDP on public investment.

“If we really want to kickstart growth this is an area we really need to cut,” stressed Maloney, who at the same time warned against cutting pensions and expressed reservations about new taxation.

“A better approach, we argue, is working towards more effective public spending. We estimate that eliminating losses in badly designed transfers, for instance, energy procurement and wage bills could save roughly 17 per cent of spending. That applies to two out of three countries in the region. You can more than balance the budget with those savings.

“More than that, we see working on better public spending as kind of a gateway to modernising the state and increasing public trust and confidence in the state,” he added.

Maloney expressed concern that the increased fiscal deficits that countries ran over the last two years to deal with the COVID-19 pandemic remained, due especially to higher interest rate payments.

“Over the longer term, limited fiscal space as we try to struggle with this is going to constrain the necessary investment in infrastructure, education and innovation needed for growth,” he cautioned.

The World Bank report also highlighted that nearly 170 million students in the region lost one out of two days of in-person schooling during the height of the pandemic and their expected lifetime incomes are expected to fall by 10 per cent.

“Average primary education scores in reading and math are expected to fall to levels of more than 10 years ago. The fact that these effects will be concentrated among those of the poorer strata who lacked access to online learning during the pandemic highlights a new source of persistent inequality,” it added.

marlonmadden@barbadostoday.bb