Now that the euphoria and the jubilation that surround Crop Over are a thing of the past, the parliamentary Budget debate has brought Barbadians back to the reality of the nation’s economic woes.
Essentially, the country is facing perhaps its sternest economic test of the 21st century.
With unemployment stuck in double digits; foreign reserves having dropped by US$100 million in the first half of this year; and inflation on the rise as food and commodity prices increase, according to Standard & Poor’s (S&P), the big question is: how is the country that a decade ago was once described as the world’s best managed Black society faring when compared with its peers?
In this case, Barbados’ peers, countries with a similar or slightly higher credit rating, run the gamut from Aruba, Morocco and The Bahamas, each with a BBB rating to Croatia, Romania and Hungary, nations which have the identical BB rating as Barbados. Interestingly, the latter group suffered the same pain as Barbados: their ratings were downgraded by S&P.
The Wall Street credit rating giant, which recently changed the outlook on Barbados’ rating from stable to negative, warning the action “reflects the potential for downgrade if the government does not bring down its fiscal deficit or if external pressures of persistent current account deficits mount,” went to great lengths to indicate that Barbados has some things going for it. At the same time though, its peers are doing better in key areas.
In a comparative analysis, S&P pointed out:
• Barbados’ “political risk is lower than that of (its) peers, reflecting strong institutions, predictable policies, and social cohesion.
• Although its gross domestic product per capita is higher than most of its peers, Barbados’ small, open and narrow economy with a growing public sector has “weaker growth prospects”.
Barbados’ per capita income is expected to reach US$15 800, which is much higher than those of Morocco, Hungary, Romania and Croatia but much smaller than The Bahamas and Aruba, both of which have surpassed US$25 000 mark.
• The country’s human development indicators compare favourably with those of its peers. Barbados ranks 28th out of the 187 countries in the United Nations 2013 Human development Index, making it the highest-ranked country in Latin America and the Caribbean.
Among its peers, only Hungary has a slight higher ranking, 37th, while the others including Croatia (47th), The Bahamas (49th), Romania (56th), and all of Latin American sovereigns, score worse.
But it does not match its peers in other important ways. For instance, its economic recovery from the global financial crisis is “slower”.
While the median real GDP growth for BB rated countries was slightly more than one per cent, Barbados’ economy has slipped back into recession but it could rise to one per cent next year. Morocco’s real growth, though, was estimated at more than four per cent and Romania’s at least two per cent.
In the case of The Bahamas its growth can peak at two per cent this year and in 2014. Romania and The Bahamas can surpass the two per cent mark but Hungary’s economy is expected to be at a standstill, rising to less than two per cent in 2014. Like Barbados, Croatia should slump this year but register a marginal growth of about one per cent the following year.
The major headache for Barbados is its structural problem, which was aggravated by the fact that “it has one of the lowest investment rates among its peers”, a fact of life that constrains growth.
As if those troubles weren’t enough, there is the large Government debt and the heavy interest burden which, stated S&P, are “comparable to its peers”.
Even so, warns the Wall Street firm, “fiscal adjustment and stabilization of the debt trajectory are important to maintain the ratings at the current levels”.
There are some other factors that must be taken into consideration. One of them is that Barbados’ “track record of macroeconomic stability and an economy based on tourism and the financial sector have produced a high level of wealth in Barbados”.
But the growth prospects are “weaker than those of its peers, reflecting its less-diversified, open economy; reliance on vulnerable tourism and financial flows; and weakening competitiveness and other structural shortcomings”.