THE CONFUSION on what to expect of the Barbados economy in 2016 started in January, when the Minister of Commerce, Donville Inniss, provided his own figure of two
This is a case of the economist being the diplomat and the politician being the technocrat. The phrase – well below the potential that is within reach – means absolutely nothing, especially from someone who threw cold water on the ability of the economists to forecast economic growth.
In recent weeks, the International Monetary Fund (IMF) published its annual report on the world economic outlook, which contains a forecast of 2.1 per cent in 2016 for Barbados. The reaction of the Government to the figure has been fascinating. Given that the figure provided by Minister Inniss was just above the 1.8 per cent projected by the Central Bank, why was there such a reaction to the IMF’s figure?
Great interest
The answer is that while the Government is pretending not to have any interest in what the IMF or Moody’s thinks, it certainly does. The psychological damage done in the past is still playing its part in how opinions are valued by the Government, notwithstanding its public utterances. At this stage, the author ought not to be the issue but rather the reasoning that informs the opinion.
As it relates to economic growth projections that differ from those of the Government, only last year the IMF’s projection was lambasted by the minister of finance. Not even the foreign opinion mattered because it was not deemed to be favourable.
The IMF made an initial forecast of 0.5 per cent growth for Barbados in 2015. The Government’s initial forecast was between two and 2.5 per cent. During the course of the year, the IMF revised its forecast to 0.8 per cent.
In the face of high tourist arrivals and favourable oil prices, the economy struggled to reach 0.5 per cent in 2015. To put context to the concern about economic growth forecasts from the two sources, it is best to provide and analyse the information in the table (at right) for the last four years.
The local forecast is provided by the Central Bank. It may be fair to suggest that Minister Inniss rounded off the bank’s forecast for 2016 and opted to put a better figure in the public domain. Lo and behold, his figure is now very consistent with the IMF’s forecast for the current year. Perhaps, this may prompt a revision of the local forecast.
There will be no effort to lambaste the IMF’s figure because it is actually higher than that of the Central Bank. In the circumstances, there are some things to notice about the differences in forecasts between the IMF and the local provider. First, in the small four-year sample, the IMF was less optimistic except for 2016. Two, except for 2014, the IMF’s forecasts are closer to the actual outcome. Three, the IMF’s Caribbean forecasts are somewhat higher than the forecasts for Barbados.
It is understandable that the Barbados Government is fussy about the IMF’s growth forecast being more optimistic for 2016. It therefore now suits the Government to praise the institution that is notorious for being criticised. This is the same institution that it has sought to distance itself from in its home-grown fiscal strategy. The real issue here is that an economic growth forecast should reflect the policy environment.
In the last eight years, the Government did everything to prevent the Barbados economy from growing, while forecasting growth. Every effort was made to reduce spending. Several projects were identified that have not seen the light of day. The investment climate has been compromised.