In its most recent review, published on November 13, 2009, the Credit Rating Agency, Standard and Poor’s (S&P) affirmed Barbados’ investment grade international credit rating, but adjusted its outlook from stable to negative. The S&P report has generated much public comment and debate on the state and management of the Barbados economy, as the economy wrestles with an economic crisis of biblical proportions, the worst since the great depression of the 1930s. I propose in this brief article to offer a perspective on the performance of the Barbados economy utilizing three widely used metrics of economic performance, the level of employment, the level of foreign exchange reserves and the state of public finances.
At the end of the third quarter of 2009, the un-employment rate in Barbados was reported at 10.1%. Table 1 presents data on the un-employment rate in Barbados since the year 2000, as reported by the Central Bank of Barbados.
Table 1
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |
Unemployment Rate |
9.4% | 9.9% | 10.3% | 11.0% | 9.6% | 9.1% | 8.7% | 7.4% | 8.1% | 10.1% |
The data suggests that the average un-employment rate in Barbados over the last decade has been 9.36%, and the median 9.50%. Readers may want to note the increase in un-employment in the aftermath of the mild global economic slowdown after the September 11, 2001 attacks on the World Trade Centre in New York. Due to the structure of the Barbados economy with its heavy reliance on tourism and international finance, we are uniquely vulnerable to global economic recessions. Given the magnitude of the current global recession, an un-employment rate of 10.1%, after well over a year into the current global economic crisis, represents a measure of success to date. I am inclined to credit this to the commendable restraint shown by the private sector in terms of layoffs, and the choice by the government to maintain levels of employment in the public sector as well as implement a moderate fiscal stimulus.
In a press release of November 13, 2009, the Central Bank of Barbados reports that current levels of foreign exchange reserves provide 20.7 weeks of import cover, well above the accepted norm of 12 weeks import cover. Readers may want to compare this to the recession of 1991, when reserves provided 2 weeks import cover. Barbados does not appear to be in any imminent danger of an exchange rates crisis, or have any need to enter into an arrangement with the International Monetary Fund (IMF). The fact that Barbados appears likely to emerge from the current global economic crisis with its fixed exchange rate regime and independence from the IMF intact, represents a measure of success in navigating the economic recession. I am inclined to credit this to the lessons learnt from previous crises, especially the strategy of pre-emptive borrowing of foreign exchange reserves.
In assessing the state of public finances I will utilize the fiscal balance as a percentage of Gross Domestic Product (GDP). The fiscal balance is the government revenues minus government expenditure, and the total is then divided by GDP. Table 2 table provides data on the fiscal balance in Barbados since the year 2000 as reported by the IMF..
Table 2
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |
Fiscal Balance to GDP (%) |
-3.1 | -6.2 | -12.8 | -5.9 | 1.4 | -3.6 | -3.8 | -6.00 | -5.6 | -7.1 (proj) |
The data suggests that Barbados has had an average annual fiscal deficit of 5% of GDP over the last decade. Readers may want to note the dramatic worsening of the fiscal deficit in the aftermath of the global economic slowdown after the September 11, 2001 attacks on the World Trade Centre in New York. Given the Barbados economic model of a high commitment to health care and education spending in particular, economic slowdowns wreak havoc with government finances. Of interest is the worsening in 2007 when there was no global economic slowdown. I am inclined to attribute the worsening of the fiscal deficit in 2009 to the slowdown in government revenues as a result of the global economic crisis, and the choice by the government to maintain levels of employment in the public sector as well as implement a moderate fiscal stimulus. In this respect Barbados is far from alone. Economies major and minor, developed and developing have seen their public finances worsen as governments try to mitigate the impact of the worst global recession since the 1930s. To provide some perspective, table 3 presents the latest figures as reported by the Economist magazine of November 7 2009.
Table 3
| United States | Japan | China | Britain | Canada | |
Fiscal Balance to GDP (%) |
-11.90 | -7.70 | -3.40 | -14.50 | -2.40 |
In summary, I would suggest that the Barbados economy has performed reasonably well to date in terms of levels of employment and the levels of foreign exchange reserves. The public finances have, however, suffered as the government has sought to maintain levels of employment in the public sector, and stimulate the private sector by implementing a moderate fiscal stimulus. The change in the outlook from stable to negative by S&P is largely driven by the increases in the fiscal deficit. The international credit rating is important and the nation should try to hang on to it. Hopefully we can find a way to maintain desired levels of employment, make the needed fiscal adjustments and hang on to the investment grade rating, in the midst of this deep and stubborn global economic recession. Given the Barbados economic model, this is far from being anyway near as easy as the S&P analysts seem to be suggesting. My question is, as raised by my colleague, Dr. Don Marshall, if the adjustments in the fiscal deficit required to please S&P necessitates that the economy be plunged into an especially deep recession, would that be in the best interests of Barbados as an economy and a society?
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