Stuck in the ditch
As happens (I’m told) when you are in an IMF programme, we are stuck in the ditch. Wheels spinning in the mud. The big tow truck (foreign direct investment) that is supposed to pull us out of the rut is late in arriving. A lot of little vehicles are trying but not really helping that much.
You have to realise that this no-growth is purposely built in to the BERT reforms, or is, better said, an expected outcome. That’s because you are not achieving anything if you are borrowing or printing money in order to keep the economy turning over. All you are doing is creating a bubble that will burst eventually.
In that context, let us look at this extract from the central bank’s first quarter review, issued last week.
It noted that although total imports increased by about half a percent for the first quarter of 2019, compred to a decline during the same period of last year, “Imports of consumer goods dropped by 2.6%, mainly due to a decline in pharmaceuticals, toiletries, clothing, motor vehicles and furniture.”
So we could have seen an overall fall in imports had it not been for the rising price of oil and related costs, the bank adding that “A rise in fuel, electronic components and construction materials boosted the imports of intermediate goods by 1.8%, while an increase in the imports of machinery raised capital goods by 6.1%.”
But at the level of you and me, the average consumer, we purchased less and this put less pressure on the foreign exchange reserves.
Anyway, if you want to know what all of this is really about it is that a team from the International Monetary Fund (IMF) will be in Barbados this week as part of its monitoring of the country’s implementation of economic reforms.
Governor of the Central Bank Cleviston Haynes said at his quarterly press conference last Thursday that the Government was expecting to receive another US$49 million from the Fund.
So, in the meantime, until a great deal more foreign direct investment comes in, Barbados’ economy remains in recession, contracting by just under a quarter of a percent in the first quarter.
Mr. Haynes noted that (duh) stabilising the economy and restoring investor confidence were the keys to achieving that growth. Here are some of the main positives he noted:
- The government was likely to meet its targets for the fiscal yearend, which was March 31, as agreed with the International Monetary Fund (IMF).
- The reserve cover has increased to almost 14 weeks of imports.
- The Government was “demonstrating its commitment to achieve a primary surplus equivalent to 6% of GDP for FY 2019-20.”
- More layoffs at state-owned enterprises, part of a phased implementation strategy, lowered expenditures, as did further reductions in transfers to some SOEs.
But, despite the gains made from essentially spending less and bringing in more through more focussed tax collection efforts, economic activity remained subdued compared to the first quarter of 2018. Main points of worry:
- For the first three months of 2019 growth in the tourism sector and medical education services was reversed by weakness in non-traded sectors, especially construction.
- Despite long stay arrivals from the UK maintaining their marketshare, and those from the U.S. comprising the fastest-growing tourism market for Barbados, travel from Canada, Trinidad & Tobago and other Caricom countries fell. As a result, total long stay arrivals grew by only 2.2% for the first quarter of 2019 compared with nearly six percent for the same period last year.
- Cruise data to the end of March indicated that arrivals had declined for the second consecutive year.
The conclusion drawn by Mr. Haynes and his colleagues at the central was that despite the macro-economic recovery efforts going well, “there remain significant downside risks that need to be monitored and managed.”
Taking the positive view, the report noted that new greenfield projects, including the Kooyman retail complex at Kendall Hill and the Sagicor Retirement Village at Boarded Hall were expected to boost growth in the second half of the year, leading the bank to estimate that growth of perhaps 0.25% for 2019.
But next year, 2020, and the years beyond are expected to bring greater growth “as the structural reforms to enhance competitiveness and the ease of doing business take root.” Not much you can say to that except: Let’s hope the bank is right. There are no points to be scored one way or the other. We are taking the medicine and we have to hope we recover economically.