Major setback for economy of Barbados
“The single largest issue facing the economy is that economic growth in Barbados remains below the 2.5 to 3.0 per cent that is normal for our economy,” Minister of Finance Chris Sinckler remarked during his 2015 Budget Speech last June 15. “We must get back to normal levels of growth sooner rather than later.”
Evaluated against this minimum benchmark, the Barbados Central Bank’s latest report on the economy, showing a disappointingly lower than expected performance for the year up to September, represents, indisputably, another major setback for the Freundel Stuart administration’s strategy to kick-start a stubbornly sluggish economy.
At the start of the year, a rather upbeat Central Bank told us that gross domestic product (GDP), the most commonly used yardstick of economic performance, was poised for expansion in the range of 1.5 to 2.0 per cent in 2015. By the middle of the year, however, when Governor Dr DeLisle Worrell gave his review of the second quarter performance, the forecast had been revised downwards to one per cent.
Now, we are hearing that 2015 growth, based on the negligible 0.3 per cent expansion recorded up to September, is hardly likely to exceed 0.5 per cent compared with 0.2 per cent last year. It will be the eighth consecutive year since 2007, when GDP rose by 1.7 per cent, that the underperforming Barbados economy has either declined, as happened in 2009, or has posted lacklustre growth below one per cent as was the case in each of the other years.
Based on the evidence, most of which has come from the Government itself, it is reasonable to state that our once thriving economy, under the overall management of the incumbent Democratic Labour Party (DLP) and the day-to-day supervision of Minister of Finance Sinckler, has become entangled in a web of stagnation from which it is having great difficulty freeing itself. The overall effect is that Barbados today, in real terms, is worse off than it was in 2007.
As Bridgetown store owner and Chamber of Commerce senior vice president Eddie Abed noted in remarks at the organization’s monthly luncheon in September, “our economy today is five per cent smaller than it was in 2008”. Restoring and sustaining high levels of economic growth, which was a central ingredient in Barbados’ past success, has therefore become an urgent imperative.
It will not come about, however, by simply hoping for the best. It requires, above everything else, adopting the right policy mix to create the enabling environment.
This important task has always been the responsibility of Government. The persisting underperformance of the economy, which clearly suggests that the current treatment is not healing the sick patient at the required rate, is more than likely to reignite debate on the continued relevance and effectiveness of the DLP Government’s Medium-Term Growth And Adjustment Strategy.
Although one of its stated objectives is a growth rate in the range of 2.5 to 3.5 per cent per annum, critics have questioned the approach, especially after it previously fell short of a number of targets.
Reducing what economists call “aggregate demand” has been a major thrust of the Sinckler strategy over the past two years. An overriding objective has been to ease pressure off the foreign reserves and, by so doing, protect the exchange rate of the Barbados dollar. However, satisfying aggregate demand is critical to generating growth. Dampening it too much, which is what the Sinckler strategy has apparently done, can be counterproductive, causing contraction of growth. The challenge, therefore, is finding the right balance.
I lay no claim to being an economist. However, I have studied sufficient economics –– specifically development economics which emerged in response to the peculiar challenges facing developing countries like Barbados –– to have a reasonably good grasp of the subject to be able to analyse our current predicament. Besides, being a political strategist, I am required sometimes to give advice that simultaneously takes into account political and economic considerations.
This experience has led me to the conclusion that growth requires more than a convergence of the main factors of production allowing the generation of goods and services to satisfy needs in an economy. Equally as important, growth is also about human behaviour. Public policy, therefore, should also place emphasis on nurturing behaviours which are conducive to promoting instead of impeding growth.
Economics has come around to accepting this view, and it is seen in the rise of behavioural economics. For his pioneering work in this area, Daniel Kahneman, an American psychologist, was awarded the 2002 Nobel Prize
His bestselling book Thinking Fast And Slow makes very interesting reading about the way people make choices.
Through its failure to meaningfully engage Barbadians through effective communication, for example, the DLP administration has fallen down badly in this critical area. Which explains why Barbadians generally seem to lack confidence in the current economic approach and why it is common to hear unflattering remarks about the DLP on the streets.
The failure of the economy to deliver on its original 2015 growth target, is likely to cause a further erosion of confidence.
Without confidence, consumers will be reluctant to spend which is necessary to spur the production of goods and services, which is reflected in movement of the GDP. Similarly, businesses, which are the engine of growth in our economic model, will be reluctant to invest either in setting up new enterprises or expanding existing ones to create jobs, boost Government’s tax revenue and generally contribute to increasing national wealth.
In what can be seen as another reflection of declining confidence in Barbados under the present administration, following the spate of downgrades by rating agencies Moody’s and Standard & Poor’s, the World Bank a few days ago downgraded the island as an attractive domicile for doing business. In the Doing Business Report 2016, Barbados fell three notches to a 119th global ranking. Jamaica, at 64th, had the highest ranking among CARICOM countries, and was lauded for reforms that placed it among the ten top improvers.
In the same way that the economies of most other CARICOM countries are currently performing better than Barbados’, the World Bank Report has given higher ratings to St Lucia (77), Trinidad and Tobago (88), Dominica (91), Antigua and Barbuda (104), The Bahamas (106) and St Vincent and the Grenadines (111). Barbados, which once was always at or near the front, only fared better than Belize (120), St Kitts (124), Guyana (137) and Suriname (156).
Given the many disappointments, winning back public confidence is an increasingly daunting task for the DLP administration because of deep-seated perception and image problems. Barbados, in its current predicament, resembles a cruise ship stalled in the middle of the ocean as a result of engine problems which are proving hard to fix. Worried passengers are calling for an urgent solution, but the captain and crew are singing Bobby McFerrin’s Don’t Worry, Be Happy.
The political and economic malaise in the country suggests the time is fast approaching –– if it has not come already –– when a general election will be the only viable solution. The critical question, however, is will the broad national interest come before narrow partisan considerations. A continuing erosion of confidence in the future will have bruising long-term consequences for Barbados. The not-so-distant experience of Guyana serves as a powerful reminder.
(Reudon Eversley is a political strategist, strategic communication specialist and journalist.