Time to help Barbados with a lesson
FUNNILY, THERE are lessons in economic management for Barbados to learn from Jamaica. And that’s a reversal. With per-capita income of more than US$15,000, Barbadians, on average, are nearly three times as rich as Jamaicans. Further, Barbados is among the top 40 countries, and the only one from the Caribbean, on the United Nations’ Human Development Index, a measure of social and economic development on the basis of life expectancy at birth; access to, and involvement in, education; as well as gross national income per capita. Jamaica, at 99th place, among 188 countries, is around 60 places below Barbados.
But Barbados may find the foundations upon which such impressive social gains rest in danger if it can’t muster the courage, as it once did – and Jamaica is now doing – to accelerate structural reforms to its economy, particularly the containment of its rising debt, which Warren Smith, the Caribbean Development Bank’s president, recently declared to be “unsustainable”.
That debt has more than doubled over the past eight years, from 51.4 per cent of gross domestic product to 105.5 per cent at the close of the 2015-16 fiscal year. The International Monetary Fund (IMF) has warned that it could reach 114 per cent by 2020. When debentures held by the National Insurance Scheme are taken into the account, the debt is closer to 143 per cent of GDP. Those ratios, of course, are better than Jamaica’s, whose debt, despite the 20-percentage-point decline over the past four years, is still 125 per cent of GDP.
GLOBAL FINANCIAL MELTDOWN OF 2007
Barbados, in part, reflects the ongoing impact of the great recession unleashed by the global financial meltdown of 2007 that hit Caribbean economies hard. The Barbadian economy declined by an average 0.3 per cent on the six years to 2014 . But their situation is exacerbated by the lack of appetite the Bajans have had for painful, but necessary structural reforms.
For instance, while well shy of the whopping 11 per cent of 2011, the central government’s deficit last year was seven per cent of GDP and the IMF projects it will be 6.4 per cent for 2016-17. These fiscal gaps are covered mostly by borrowings from the central bank.
The Fund has calculated that reversing the debt down to under 100 per cent of GDP by 2020 and dealing with the funding the problems would require “fiscal adjustment of at least 3.5 per cent of GDP over the next three years”.
But it said in a recent report that “the government’s recent weak track record raises concerns as to whether there is adequate implementation commitment or capacity” for such action. “Currency depreciation, which the authorities reject, may improve competitiveness and could allow for a somewhat less ambitious adjustment, although substantial fiscal adjustment would still be required ... ,” the IMF said.
That wasn’t always the case. In the early 1990s Barbados also faced a serious macroeconomic crisis. Then, like now, there was consensus against any devaluation or flotation of Barbados dollar. The Erskine Sandiford’s Democratic Labour Party government, however, undertook a brutal programme of adjustment that eventually returned the economy to a sustained period of growth.
It’s an approach that Delisle Worrell, now the government of the Barbados Central Bank, used – in the aftermath of Jamaica’s financial sector crash of the late 1990s – often to commend to Kingston in speeches here and in radio interviews from Bridgetown. It took long for Jamaica to imbibe the lesson. But on the evidence from Bridgetown and Jamaica’s behaviour of the past four years, it’s one that Kingston should offer in reverse.