I like to take note of IMF economic assessments, not because they are the best but because I know that the process of making them involves a certain rigour and consultation that seeks to iron out inconsistencies and internal errors. They also have a historical context in mind, at all times. So, what did the Fund say recently about Barbados? The had a mission there just a few weeks ago, in June. Here are the main points (my highlights):
“The Barbadian economy continues to face major challenges, including low growth, a very large fiscal deficit and a high debt burden. Real GDP is expected to decline by 0.6 percent this year, as slightly stronger tourism activity is offset by the impact of the government’s deficit reduction efforts. Inflation is expected to remain subdued and private sector credit growth weak. The unemployment rate rose to 13.2 percent in the fourth quarter of 2013.”
“The decline in international reserves through most of 2013 was arrested in the first quarter with external borrowing in the December 2013–March 2014 period, and reserves have remained at about US$570 million (3.3 months worth of imports) since.”
“The central government deficit in the fiscal year 2013/14 is estimated at 12 percent of GDP, higher than projected owing mostly to unbudgeted transfers to public enterprises, including to reduce arrears. Central government gross debt, excluding securities held by the National Insurance Scheme, rose to 96 percent of GDP at March 2014.
“The need for fiscal consolidation is urgent. The authorities agree and have implemented most of their announced budget measures. Follow up is essential to ensure that these measures produce material results in the near term to lower the government’s financing needs. Slippages should be met with offsetting actions in order to meet budget targets.”
“While awaiting the findings of a review of domestic taxation by technical experts, consolidation efforts should also focus on the other components of expenditure, including ways to improve the targeting and effectiveness of social services. This should include scaling back some universal programs available to higher income groups to ensure that they reach the most needy.”
“In parallel with deficit reduction, steps to raise growth are equally important. A number of large private and public investment projects in the pipeline should boost capital inflows and productive capacity.”
Put simply, the Barbados economy has seen much better days. The economy is, however, not on its knees. That’s recall what you see. Just driving around, you see signs of a tired tourism sector: hotels and restaurants closed. But, signs of change are there as new structures appear. It’s hard to tell much about visitor numbers. My flight from Miami was full, though mainly of Bajans, by the sound of the voices. My wife’s flight from Jamaica was also full, in part with groups that had been visiting Jamaica, some for a tennis tournament.
It’s low season for tourism, but one sees little clumps of pasty white bodies, wearing shorts and sandals, and looking a bit lost. But, go to a few eating places, and they are far from empty. As usual, money is around, and it’s being spent with discretion, meaning choice is at play.
Go out for a drive and one sees buildings going up. “Government spending,” yells my wife. I see jobs and wages and investment. Fueled by borrowing, maybe. I also see homes going up. In fact, friends took us to see the new house their constructing. We also saw renovations, looking good, not incomplete. Boats were still on the water with kitchen fittings from Miami, such is life on little Caribbean islands. It’s been that way for years. Barbados has been stumbling along.
It’s no basket case, like a war-torn country. It’s now paragon of taking hard economic decisions, like Estonia, another small state in the shadow of a giant neighbour. The fortunes of the USA and UK bear fruit in Barbados. The UK has been doing better than most. As the Fund said in its recent assessment of that economy:
The economy has rebounded strongly and growth is becoming more balanced. Growth has accelerated since the second half of 2013, and leading indicators suggest that the recovery has momentum. Although household expenditures played the driving role in the early stages of the recovery, business investment has picked up more recently. Net exports remain subdued.
Inflation has fallen rapidly.
Good macroeconomic performance is expected to persist. Real GDP growth is projected to remain strong this year, before gradually returning to trend rates, driven by further rebalancing toward business investment and a gradual recovery in productivity. Inflation is expected to revert to target.
That’s good news for Barbados, which depends a lot on Brits wanting to bronze themselves.
I hear educated Barbadians complaining that their current government is full of incompetents. That may be true, but these politicians haven’t wreaked havoc on the place. In fact, it’s so not wrecked that others Caribbean people would want to take their chances here than in their own little rocks.
So, with a whole day of observation, let me say I don’t see the dismantling of the economy, even though I know that 3,000 public servants were ‘sent home’ in December, and free tertiary education is a thing of the past. The jury stays out and a verdict will have to await weekend deliberations.
Maybe, Barbados is a strange example of the duck on the pond: what we see on the surface is nothing to write home about because the real action is going on underneath the surface. Perhaps, the economic dismemberment is going on in places we cannot see. The man feeding chickens in his yard, while trying to watch two boys kick a football, and has a house with breeze blocks added to its wooden frame.
He’s part of the recession and unemployment, too? I’d better keep eyes open and not blink too fast.