IDB says Barbados economy recovering but challenges lurking

The Inter-American Development Bank (IDB) is warning that despite some green shoots, the Barbados economy continues to face several high risks, especially given its heavy reliance on tourism.

The IDB gave this assessment in its latest report on Caribbean economies – Global and Regional Economies at a Crossroads – released on Wednesday.

The Washington-based financial institution indicated that while opportunities were on the horizon, risks remained high. In fact, it indicated that lower visitor arrivals, high food and commodity prices, natural disasters and more costly external debt service for the Government, were some of the challenges facing the country.

In her assessment, IDB Country Economist for Barbados Cloe Ortiz de Mendivil said inflationary pressure was expected to continue throughout the year and ease in the medium-term as value chain disruptions resolve and international prices of food and fuel level off.

“Although economic reactivation is taking place in Barbados and the country is finally recovering from the pandemic shock, multiple risks need to be considered,” she said.

“The economy continues to heavily depend on the tourism sector and events such as high inflation in source markets and strong competition from other destinations could result in a slowdown of tourist arrivals. The rise in global prices not only affects visitor arrivals but also impacts the cost of living for Barbadians, since most of what is consumed is imported, and also pushes global interest rates up due to efforts to control inflation in main economies.

“The latter results in more costly external debt service, pressuring public finances. Further price pressures could impact the country. In addition, the island is highly vulnerable to the adverse effects of climate change and global warming and needs to heavily invest in adaptation and mitigation while facing restricted fiscal space,” the IDB official said.

Pointing out that the current weather patterns were affecting local crops, the economist said the hurricane season, which runs until November 30, poses a permanent risk.

She acknowledged that Prime Minister Mia Mottley has been advocating for action from the global community in relation to helping small island developing states that continue to face a high cost of living, high debt and severe impacts from the climate crisis.

She suggested that some opportunities existed in relation to the Bridgetown Initiative for the reform of the global financial architecture.

The IDB report noted that the Government’s fiscal performance was back on track while indicating that the approved budget for the current fiscal year outlined expectations of a primary surplus of 3.5 per cent of gross domestic product, and gradually increase to 5 per cent by financial year 2025/2026, as the country continued its Barbados Economic and Recovery Transformation (BERT) programme.

“To work towards that goal, important structural reforms are taking place in the areas of duty and tax exemptions, revenue administration, pensions, state-owned enterprises, and public financial management,” noted the report.

In relation to the wider region, the report said there continued to be progress in the recovery of most Caribbean economies despite external shocks. However, it noted that the region was at a crossroads in addressing social, fiscal and growth challenges and that the risks remain in the near term.

The IDB document indicated that tourism-based economies had recovered more rapidly than expected from the sharp, pandemic-induced contraction of 2020, although some have recovered more rapidly than others.

“Commodity prices have declined, though they remain above pre-pandemic levels with persistent negative effects on households across the region, while at the same time buoying macroeconomic prospects for commodity exporters,” said the report.

marlonmadden@barbadostoday.bb