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OP-ED: A Gloomy Time
While the economic recession that began in late 2008 has abated in North America and Europe, its effects have been prolonged in those Caribbean countries whose economies are highly reliant on services, the principal one being tourism. From the start of the recession, policies were required to cut government spending on anything but economically sustainable projects, scale back borrowing to finance only infrastructural development that would lift the tourism product, and prepare the economies to take immediate advantage of a return to economic health of their main markets. Instead for many countries, it was business as usual. The net effect is large debt-to-GDP ratios, significant fiscal deficits, and in many countries little capacity by governments to pay wages and salaries without incurring even more debt.
Of the 14 independent CARICOM States only the four commodity-exporting ones -- Belize, Guyana, Suriname and Trinidad and Tobago -- have escaped the now alarming prospect of implementing austere measures in order to survive.
The Barbados situation was set out by the International Monetary Fund (IMF) after its annual inspection in early December of the state of the country’s economy. The inspection is euphemistically called an “Article IV consultation”, and the statement issued by the IMF at its conclusion is a highly sanitized script designed not to offend the government concerned while, at the same time, setting out worrying developments.
In short, the IMF report on Barbados was as follows: Central government debt had risen to 94% of GDP by September 2013; the government’s deficit is expected to rise to 9.5% of GDP in 2013/2014; the government wage bill rose to 10.3% of GDP in 2012/13 -– “the highest in the region”; and, most worryingly of all, international reserves had fallen to US$468 million at end-October.
The majority of CARICOM countries should be troubled by the Barbados situation for two reasons. The country has been regarded for decades as a model of good governance and stability in the Caribbean. To the extent that this reputation is eroded in the international community, the region will suffer on the perception that if matters have reached a sorry pass in Barbados, it must be a lot worse in other countries.
At a more fundamental level, Barbados is the second largest importer of CARICOM goods and has been so for many years. As an example, Barbados imported goods from CARICOM worth US$616. m (2012), US$600.2 m (2011) and US$523.3 m (2010). Therefore, a cut in Barbados’ demand for goods (resulting from a lay-off of over 3,000 public servants and consequential job losses in the private sector) will have an impact on the quantum of Barbados’ imports from CARICOM countries. Those affected countries will either have to find alternative markets or face losing some foreign exchange earnings and jobs associated with their exports to Barbados.
The economic situation in the majority of the neighbouring six independent countries of the OECS has been similar to Barbados’ for some time. Unemployment has been in double digit figures for over four years and rises every year; foreign exchange receipts are moderate; and investment in education and knowledge creation has declined.
Over the last four years, none of the OECS countries, The Bahamas, Barbados or Jamaica has enjoyed economic growth of 2% or more; indeed for much of the period their economies weakened. When it is considered that these economies require approximately 5% growth per year simply to absorb school-leavers into employment and maintain existing infrastructure, it can be seen that the last four years of minuscule or no growth have set them back significantly.
The only CARICOM countries that showed growth over the period 2010 to 2012 were three of the four commodity-exporting countries – Belize 5.3% (2012), 1.9% (2011), 2.7% (2010); Guyana 4.8% (2012), 7.8% (2011), 3.0% (2010); and Suriname 4.8% (2012), 4.7% (2011) and 4.1% (2010). In the case of Trinidad and Tobago, it had a mere blip in economic growth of 0.2% in 2012 after a decline in 2011 of 2.6% and a similar blip in 2010 of 0.2%, but consistent oil and gas revenues helped it to weather the storm.
On top of all this is the high debt-to-GDP ratio of almost all of the CARICOM countries projected for 2013 by the Western Hemisphere Department of the IMF. With regard to debt-to-GDP ratios, apart from Trinidad and Tobago (33.4%) and Suriname (37.1%), the others are troubling. At the high end are Jamaica (142.7%), Grenada (115.8%) and Antigua and Barbuda (95%); and at the lower end are Guyana (58.2%) and The Bahamas (56.1%). None of the others are below 75%. Unless debts are reduced considerably by the countries with debt-to-GDP ratios of over 70%, debt repayment will consume much of their dwindling foreign exchange reserves summoning them to the hard path that Jamaica has travelled recently with the IMF and that now beckons to Barbados.
The financial institutions in Barbados and the members of the OECS are also facing difficulty. The asset quality and profitability of many of the banks are now troubling given that clients are finding it difficult to repay both personal and commercial loans. In the case of some banks – particularly the indigenous ones -– over exposure to governments for loans and advances pose a real problem. Some time ago -– certainly among the members of the OECS -– a programme of mergers and acquisitions of the indigenous banks should have been actively encouraged. Now one collapse could spell calamity.
It is a gloomy time.* * *
Sanders is a Consultant, Senior Research Fellow at London University and former Caribbean diplomat. Responses and previous commentaries: www.sirronaldsanders.com