#BTColumn – Whither the Barbadian economy and society

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

By Anthony Wood

The debates on the 2023-2024 Estimates and the Budget have given citizens little optimism about the future of the Barbadian economy and society. The exercises provided no clear path to growth in the economy and insufficient strategies to deal effectively with problems plaguing the society like high food prices and high cost of living generally, worrying levels of dispossession and poverty, lack of employment opportunities especially for the youth, and dysfunctional families and communities. Also, the constraints to the functioning of the economy were not articulated in the Budget.

However, one point emerging clearly from the debates is the Government’s intention to continue its policy of excessive borrowing even with the second Barbados Economic Recovery and Transformation (BERT) programme, which has a stabilization focus. Indeed, the present international economic environment of uncertainty and inflation demands moderation in government spending with the BERT programme.

The Estimates for 2023-2024 yielded a deficit of $844 million. When combined with the new expenditure commitments from the Budget, negotiated wages settlement for public officers, increase in the value threshold for payment of land tax to $300,000, and unspecified project loans, the borrowing requirement of the Government for the next financial year will easily exceed $1 billion. 

This level of borrowing will exacerbate the current high-debt situation, which, if allowed to continue without a marked improvement in macroeconomic performance, will undoubtedly place constraints on the country’s prospects for social and economic development.

There needs to be a reset in the management of the social and economic affairs of Barbados. A few key objectives should be pursued. First, the export earning capacity of the country needs to be improved in order to generate higher levels of foreign exchange on a sustained basis and reduce the country’s dependence on foreign borrowing. As a small open economy, the country needs to boost its national capacity to import (that is, its ability to import using current export earnings).

The value of exports declined from $535 million in 2013 to $502 million in 2022. Conversely, the value of imports increased from $3.5 billion in 2013 to $4.3 billion in 2022. Thus, the trade deficit increased from $2.965 billion in 2013 to $3.798 billion in 2022. This situation should be a cause for serious concern among the policymakers.

While the second programme with the International Monetary Fund (IMF) affords certain benefits like access to reasonably priced finance and loans from other multilateral financial institutions, the social cost of the arrangement with the IMF should not be overlooked.

Inescapable austerity measures in the second BERT programme, including retrenchment of some workers in the state-owned enterprises (SOEs), and reforming the National Insurance Scheme (NIS) and public sector pension arrangements, will have undesirable social implications. The fact that these measures will be operationalized after the retrenchment of almost 3,000 workers in the two extended short-term Government programmes and others from the private sector as businesses adjust their business models should be concerning to policymakers. 

Thus, there must be a deliberate effort to move the economy out of its stabilization mode and bring closure to the country’s relationship with the IMF after the second BERT programme. We must once again demonstrate our ability to manage our economic affairs without the direct influence of institutions like the IMF.

Second, in examining the state of society, the fact that Barbados has slipped in the United Nations Development Programme’s Human Development Index and Transparency International’s Corruption Perception Index should be concerning to the policymakers and citizens.

The slippage in the Human Development Index ranking indicates that urgent action is required to improve income levels and social conditions of the more vulnerable families in the country. The worsening in the Corruption Perception Index indicates that attention should be paid to strengthen the governance structures at the national level.

Third, in the pursuit of growth in the financially constrained environment and the imperative to address the impaired social conditions, there should be a deliberate economic enfranchisement policy. This necessity needs to move beyond the realm of rhetoric, and concrete policy action is required to involve more small and medium-sized businesses in meaningful, financially rewarding contracts with the Government.

Fourth, a re-examination of the role (and worth) of institutions such as trade unions, churches, community groups, non-governmental organizations, and families is required in order to reposition them to make meaningful contributions in the next phase of the country’s development. These institutions were once strong pillars of national development, but for varying reasons have lost their influence in the process of nation building. It is vitally important that this trend is reversed, and there is a collective effort to ensure that these institutions become spheres of positive influence once again.

The country has reached an interesting juncture in its development. The principal problems facing policymakers can be summarized as follows:

(1) Inflation, post-COVID-19 poverty, and high public debt levels, 

(2) Weak export capacity and widening trade deficits, 

(3) Austerity measures within a very ambitious IMF-supported second BERT programme, 

(4) Lack of a progressive or clear private sector growth strategy, and 

(5) Institutional and structural challenges.

While we expect the Government to provide effective leadership to drive social and economic progress, the task requires the commitment and participation of the wider Barbadian society. We are reminded that economic development is basically a national enterprise, and it starts in the hearts and souls of those who aspire to greater mastery of their own destiny.

Anthony Wood is a senior economist, former lecturer in Economics, Banking and Finance at the University of the West Indies, Cave Hill Campus. He is also a former Cabinet minister.