Barbados economy rocked by COVID, says IDB

Of six major Caribbean economies studied by the Inter-American Development Bank (IDB), Barbados’ economy was the third worst affected by the COVID-19 pandemic in 2020.

This has been outlined in the IDB’s latest issue of Caribbean Economics Quarterly from the institution’s regional office which is located here.

According to the just published document, the economic crisis brought about by the pandemic was an outlier in terms of the “speed and depth” of the shock on regional economies.

When compared to other regions of the world, the Caribbean and Latin America was dealt the hardest blow. However, when the IDB further examined the economies of Guyana, Trinidad and Tobago, Jamaica, Belize, The Bahamas, and Barbados, the economy here suffered the third deepest shock in 2020 with a decline of 13 per cent of gross domestic product.

Local statistics show the deep contraction continued well into 2021.

On the other hand, the multilateral financial institution said Guyana’s oil and gas discoveries propelled a massive 44 per cent growth spurt in that country’s economy.

“Out of 195 countries globally for which consistent data were available, 11 of the 20 most significant negative shocks to real GDP growth in 2020 were from Latin America and the Caribbean,” the IDB noted.

Giving context to the situation, the report stated: “The severity of the shock was amplified for the region given many countries’ pre-existing vulnerabilities and economic structures — particularly for those Caribbean economies that are dependent on tourism.

“That said, the sharp recession would have been worse had it not been for policy actions taken by governments in the region.”

In a note of caution, the IDB said that as the region recovers in 2022 and beyond, it was important to consider that inflation and “sharply rising commodity prices, driven to a large degree by the war in Ukraine, imply a high degree of uncertainty regarding economic prospects”.

On the matter of financial depth in the Caribbean – the size of the financial sector in relation to the economy –, the IDB said of the six countries in the region that were examined, the highest was 80 per cent in Barbados with  the lowest being 25 per cent in Suriname.

However, the Bank pointed out that the Caribbean countries analysed still “compare poorly with the average for both high-income and middle-income countries, which stood in 2022 at 165 per cent and 121 per cent, respectively”.

“The countries also fare poorly when compared to the regional Latin American and Caribbean average. Only Barbados has a deeper financial sector than the regional average of 60 per cent. Country size does not seem to be the determining factor, since the six countries are also all below the average for small states, globally,” it added.

The key authors of the document were economists Henry Mooney, David Rosenblatt, Khamal Clayton, Monique Graham, Natasha Richardson, Maria Cecilia Acevedo, and Stefano Pereira.

They noted that as economies developed, the structure of the financial system should as well.

“At basic levels of financial development, banks dominate the financial system, focusing on payment, short-term deposit, and short-term lending services. As financial systems deepen, other segments arise, including insurance companies and other private non-bank intermediaries. At a later stage, public equity and debt markets develop,” they explained.

The authors of the IDB document also expressed concern that despite the breadth and depth of the policy measures and their relative success in preventing corporate and financial sector defaults in economies like Barbados’, data showed firms across the Caribbean saw “a

considerable deterioration in access to credit and related products at the end of 2020”.