Caribbean Export OUTLOOK 2016

The past few years have been exceptionally tough for the Barbados economy. It

appears that growth will pick up – perhaps by 1% in 2015 and 1.5% in 2016.

Within the Caribbean, Barbados has a long

established reputation of being economically

successful and enjoys a very high level of

human development. In the 2007/08 Human

Development Index (HDI), published by the

United Nations (UN), Barbados was ranked

31st out of 177 countries – the best performer

in the region. However, the latest index from

2014 places the country 59th out of 187, with

a high, as opposed to very high, level of human

development. Barbados is now the third highest-

ranked country in the region after Cuba (44)

and the Bahamas (51). Although the HDI is just

one measure of a country’s performance, it does

reflect the real difficulties Barbados has faced

since the 2007/08 global economic crisis.

Since 2009, Barbados has struggled to achieve

any real growth. After a 4.1% contraction in that

year, GDP growth figures were 0.3% (2010),

0.8% (2011), 0.2% (2012), 0.3% (2013), and 0.0%

(2014). A key reason for the tepid growth was the

underperformanceofthecountry’smaineconomic

driver,tourism.In2007,stop-overtouristsamounted

to 572,937; in 2014 the figure was 519,598. Other

sectors, including construction, mining, quarrying

and sugar, also struggled.

The results of poor economic growth and reduced

government income were larger fiscal deficits and

an associatedworsening of the level of public debt.

In 2007, the fiscal deficit was 0.9% of GDP and

it grew steadily, reaching 11.2% in 2013. Because

of the high deficits, public debt rose from 51.4%

of GDP in 2007 to an estimated 97.8% in 2013.

Unemployment also increased from7.4% in 2007

to 11.6% in 2013. Thus, the Barbados government

is tasked with implementing a twin-track

approach of reviving the economy and reducing

the unstainable fiscal deficit, and is looking at

new ways to do this.

One priority area for the government is the

international business and financial sector, which

saw a dip in performance in the aftermath of the

economic crisis, but at its height contributed

20% of GDP. In early 2015, Minister of Industry,

International Business, Commerce and Small

Business Development, The Honourable

Donville Inniss said the government had agreed

a paradigm shift was needed in the sector. A range

of initiatives is therefore being implemented to

that end. For example, a multi-year licence for

International Business Corporations (IBCs) has

been created; a new Business Facilitation Unit

has been established; further funding has been

awarded to Invest Barbados; and the country

is expanding the number of Double Taxation

Agreements (DTAs) with other countries. Also,

the Central Bank has implemented interest rate

liberalisation for the commercial banking sector,

and attempts are being made to enhance mobile

and Internet banking services. Despite efforts to

strengthen regulatory standards in the sector, it

is highly vulnerable to external pressures – as was

seen in June 2015 when Barbados was branded

a non-cooperative jurisdiction on tax matters by

the EU.

Another priority is boosting tourismby focusing

on new source markets and expanding luxury

tourism (the Sandals hotel brandwas introduced

in 2013). These efforts, combined with an

increase in airlift, have seen a sharp increase in

long-stay visitor numbers. The World Travel and

Tourism Council noted recently that tourism’s

role in the economy will grow over the medium-

term, facilitated by new initiatives in eco-tourism

and sports and cultural tourism. Other areas of

interest include offshore oil exploration and

education services.

Regarding the fiscal deficit, a range of strategies has

been implemented, encompassing adjustment,

reform, recovery and sustainability. They

include: reducing the public sector workforce,

implementing a public sector wage freeze,

expanding the range of items covered by the

standard VAT rate of 17.5%, and introducing

a mobile airtime excise tax. A new Barbados

Revenue Authority was also established in 2014.

The initial impact has been positive, with the fiscal

deficit falling to 6.6% of GDP in 2014. However,

more spending cuts and revenue-raisingmeasures

will be required. The IMF, for example, has called

for further restructuring of public enterprises

as they “pose a major fiscal risk . . . and many are

providing services without any link to overall costs

or objectives”.

The past few years have been exceptionally

tough for the Barbados economy. It appears

that growth will pick up – perhaps by 1% in

2015 and 1.5% in 2016 –, helped by a recovery in

tourism and offshore financial services. Indeed,

the government is exploring new avenues to

bolster these sectors and others. But the nascent

recovery is fragile and serious problems remain,

and there are question marks over whether

deeper fiscal retrenchment will be politically

sustainable.

Dr. Peter Clegg is a Senior Lecturer in Politics at the University of the West of England, Bristol. He has been a Visiting Fellow at the Institute of Commonwealth Studies

in London, and a Visiting Research Fellow at the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES) at the University of the West Indies in Jamaica.

Pulse OF THE CARIBBEAN