A looming doomsday?
Unaware that the Central Bank was planning to give its latest quarterly update on the performance of the economy this week, I spent a significant part of the past weekend revisiting sections of a thought-provoking book on economic development which I read for the first time about 20 years ago.
Written by British economist and financial journalist Hamish McRae, and published in 1994 as the current phase of globalization was beginning to gain momentum, The World in 2020. Power, Culture and Prosperity: A Vision of the Future offered a glimpse, based on an analysis of economic trends back then, of what the world probably would look like by the end of the second decade of the present century.
More importantly, McRae, whose wife, Frances Cairncross, had delivered the 1998 Central Bank-sponsored Sir Winston Scott Memorial Lecture, identified one common overriding requirement which every country must meet to reap success in the dynamic global economic environment that was then unfolding. He put it rather simply: “The success or failure of any country over the next thirty years hinges on growth.”
McRae went on: “By the next generation, some countries are likely to have improved substantially both their standard of living and their quality of life; some will have muddled along, becoming a little richer, but feeling distressed that they have in relative terms slipped back; and some seem destined to fail, with all the misery that falling living standards inflict on their people.”
Which, of these three scenarios, would you say best applies to Barbados on the eve of its 50th anniversary of Independence and three years away from the arrival of 2020? A bit of all three, I would say. While there is no doubt that Barbados has substantially improved both the standard of living and quality of life for residents since Independence, the island has struggled in the last eight years and has actually fallen back.
This is particularly evident in the sharp decline of gross domestic product (GDP), the most commonly-used measurement of a country’s progress. We have slipped back and, given the serious challenges facing the economy, some would go so far as to say that we are doomed to fail if the necessary action is not taken soon to turn things around. Time obviously is ticking away.
The more I read McRae’s thesis on growth, the more I see its relevance to Barbados in the present predicament. The inescapable fact is that growth matters now more than ever and creating the conditions for its attainment should be accorded the highest priority. Growth is indispensable to our continued progress as a nation and also to safeguard the gains of the past, especially since Independence.
Unfortunately, the economic policies of the incumbent Democratic Labour Party (DLP) administration are actually undermining the opportunity for growth because their emphasis is on squeezing demand which actually drives growth. Apologists for the regime will counter this argument by pointing to the 1.3 per cent growth which was achieved during the first nine months of this year – the first time in seven years that gross domestic product (GDP) has expanded by this much. While this is undeniably a positive and welcome development, the reality is that it is nothing really outstanding to shout about when the full picture is taken into account.
To make up for the decline and stagnation of the last seven years, which have resulted in a much smaller economy today, the rate of GDP expansion needs to be much higher. Some say at least three per cent annually. Besides, the 1.3 per cent growth rate up to last month is below what policymakers had forecast at the beginning of this year. The fact that they have had to go back to the drawing board on two consecutive occasions to do a downwards revision, suggests that the original forecast was overly optimistic given the prevailing circumstances of the economy.
At the beginning of the year, we were told to expect a 1.8 per cent growth in 2016. In June, we were told to expect 1.6 per cent instead. Now, the forecast is for 1.4 per cent. Given what has gone before, it is left to be seen whether this latest revised forecast will actually be achieved. At a time when confidence in the DLP’s ability to manage the economy is not what it should be, both downward revisions would have only served to cement the perception that policymakers seem unsure about what they are doing.
In the debate about the economy’s performance so far this year arising from the Central Bank’s latest update, what stood out for me was not so much what the Central Bank governor had to say but former Prime Minister Owen Arthur’s grim assessment which suggested a doomsday scenario could be looming unless the Freundel Stuart administration drastically changes course and very soon.
When Arthur speaks on economic matters, he does so with a lot of credibility, unlike the Dems. Indeed, the Dems themselves provided strong confirmation of this because, at one point, they were seriously contemplating tapping Arthur’s expertise as an economist to give them advice. It is debatable, however, whether his advice in this instance will be acted upon. The countdown to the next general election is on and incumbents tend to avoid taking hard decisions which can jeopardize their electoral chances.
Pointing to the huge public sector debt which has resulted in a succession of downgrades by international credit ratings agencies, Arthur said the DLP administration had essentially run out of financing options which explains why it is relying so heavily on borrowing from the Central Bank to bridge the budget deficit. As a result of the ratings downgrades, external lenders naturally would be reluctant to provide loan financing unless the Government’s policies find approval on the markets.
With a ratio of more than 100 per cent to GDP, Barbados’ public debt is currently the highest in the English-speaking Caribbean. “Sometimes if you refrain from doing what you must do, it inflicts more damage than doing the things that you have to do no matter how painful those things may be. That situation has been reached in Barbados,” said Arthur, who cannot be accused by the regime of playing politics as he is bowing out of politics at the end of this term.
I have argued, drawing on my political management background, that fixing the economics is next to impossible unless fixing the politics takes place at the same time. Why? Because politics is the source of the policy and the policy is the source of the economic solution. The next general election presents Barbadians with an opportunity to fix the politics.
That George Pilgrim sought at a news conference to focus on “leadership problems” within the Barbados Labour Party (BLP) instead of trumpeting the 1.3 per cent growth as a major DLP success, suggests the Dems themselves see it as nothing really to shout about. Hence, the diversionary tactic which is symptomatic of a politics of desperation.
Meanwhile, next month is celebration time for the Dems under the guise of the island’s 50th Independence anniversary. Deep inside, they probably already sense this will be their “last mas” in Government for a long time. Let’s pray and hope it is also not the “last mas” for the economy.
(Reudon Eversley is a political strategist, strategic communication specialist and longstanding journalist. Email: firstname.lastname@example.org)