Barbados and other small states are being warned to expect a hard time over the next six months to a year as the economic and social impact of ongoing global economic challenges and the war in Ukraine continue to be felt.
This warning came on Friday from Ireland-based economist David McWilliams and Barbados-based regional economist Marla Dukharan, as they addressed a gathering attending the Caribbean’s first conference held in the metaverse to look at the outlook for global and Caribbean economies in 2023.
“Economically, you don’t have to be a genius to recognise we are going to go into a very rough six to eight months, and maybe 12 months. Emerging markets are going to find it very difficult to pay their debts simply because at those sort of levels of interest you begin to face a totally different funding challenge for countries, companies and households and individuals that took on a lot of debt over the last five or six years, particularly countries that took on a lot of debt at variable rates during the pandemic. It doesn’t look great from where I am,” McWilliams told the meeting.
He warned of the need for these countries to urgently put measures in place to retain and build human resources, attract private sector investment and build out new industries in an effort to mitigate against further weakening of their economies and increasing poverty.
Dukharan also agreed that things will be difficult in the months ahead, “especially in those countries that we depend on for trade, remittance flows, tourism, foreign direct investment and overall economic activity, and as McWilliams rightly put it, for capital as well”.
“All of those countries are slowing down, risk is up, uncertainty is high and the geopolitical picture is becoming increasingly complicated,” she warned. This is happening at a time when global growth was expected to be weak, she said.
Dukharan said she was comforted, however, by the notion that the current undesirable economic cycle “will not result in us all falling off a cliff and it will [not] be total annihilation”.
Meanwhile, McWilliams also proposed that countries use Ireland as an example. He explained that once that north-western European country was able to maintain a budget surplus of billions of dollars then it became easier to build out education and healthcare facilities and other social services while providing more assistance for those most in need.
“All small countries have to overcome the tyranny of geography. The tyranny of geography is that our market is just too small . . . So the first thing you’ve got to do is [determine] what human capital or brain power you have, what capital you want, what sorts of industries you could have,” he said.
“If I were you, I would sort of cut and paste what we did, which is basically cut your taxes on capital to almost zero if you can. and attract in real, physical industries,” he said.
He also proposed that the Caribbean piggy-back off the US when it comes to innovation.
“Our dilemma as innovators is that it is very hard to innovate at the same level of a country with a huge market. So sometimes you’ve got to piggy-back and ‘rob’ their innovation . . . Make sure that your cost for capital in Barbados, Jamaica or wherever you happen to be, is lower than anywhere else by having a very quick legal system protecting capital and innovation and taxing it at a very low level. What you don’t want is hot money coming and going out five weeks later,” he added.
He also pointed out that countries in the region should seek out opportunities in Africa.
McWilliams described the current global economic challenges as “a tipping point” that would usually occur every 100 years, and he believed while it did not spell total disaster, it could go on for some time, bringing with it dire consequences.
He believed the global economy was coming to the end of a “supercycle” with the US facing “an enormous” potential for a recession despite low unemployment.
According to him, if decisive action was not taken in that market, on which Barbados and the many other tourism destinations depend, “we might just limp along with higher levels of inflation and reasonable levels of growth for some time”.
He said he did not see the Russia-Ukraine war ending any time soon given what Ukrainians wanted were different from what Russians wanted.
He also pointed to imminent austerity in the UK, while describing that nation as “a rule taker” whereas “the US is a rule maker and everybody orbits around them”.
Expressing surprise at the increase in poverty in Britain, Dukharan said “My concern is, you have all of these economic, political and geopolitical developments taking place and I feel the social side of it and the social implications of what is happening around us is something that perhaps not enough people talk about, and certainly not enough policymakers.”
“In my region, I don’t hear any government leader talk about the poverty rate in our country and what they are going to do about it,” she said.
“We do have wider structural problems and I feel as though if we don’t address these structural problems with meaningful policy reform we will climb suddenly towards a balance of payment crisis in the coming year or two,” she warned.