It Is Very Easy To Forget: Short Economic Memories In Barbados

Submitted by Trained Economist

Graph Credit: Barbados Economic Society

The challenges we now face must be put into a context and avoid the Tea Party like angry lashing out and politicizing of issues. The Barbados situation reminds me so much of what Obama faces in the USA.

1. It is easy to forget how dependent the Barbados economy is on tourism and international capital flows (especially for property investments). Given that the global recession was been especially long and severe, and the recovery weakest in the major source markets for our tourists and capital flows, it meant that Barbados would be severely impacted in terms of tourist arrivals, tourist expenditure and international capital flows. Aggregate demand, GDP, employment, government revenues and foreign reserves were bound to be negatively impacted. In 2008, Real GDP grew by 0.2%, it declined about 4.8% in 2009 and grew by around 0.3 % in 2010. Given those numbers and the length and depth of the global recession in our major source markets I am not persuaded by arguments which suggest that domestic policy aggravated the impact.

I would like to take you back to 2001 after the September 11 bombings. Our major source markets went into recession after the September 11 bombings and in 2001 Real GDP in Barbados fell by 3.4% and again by 0.4% in 2002. Very few would have argue that the post 911 recession was of the scale of the current recession, and the recovery was far more robust and sustained, but look at the impact it had on Barbados. The reason it had that impact was not because of a failure of local policy then, it was because of the openness of the economy and the reliance on tourism and international capital flows. The then government launched a major counter cyclical program but we still had two years of declining GDP. In the face of a recession of the scale encountered by our source markets and the slow recovery, a domestic growth solution is not a very practical one for Barbados given the structure of our economy.

2. It is very easy forget that Barbados runs a fixed exchange rate regime and maintaining such a regime requires foreign exchange reserves. I want to remind persons that attempts to grow the Barbados economy from domestic sources typically leads to major drainage of foreign exchange which can endanger the fixed exchange rate regime. As the global economic crisis unfolded in 2007/2008 there was a loud clamor in Barbados for a fiscal stimulus package along the lines of the US, and along the lines implemented in 2001/2002. There did not seem to be too much concern for debt levels and credit ratings then, the scream was for a stimulus package so that we could keep growth and the good times going.

I think that a major fiscal stimulus was sensibly resisted because of the likely impact on the foreign exchange reserves at the very juncture you could expect a slow down in tourist revenues and international capital flows (our main sources of foreign exchange). The government opted to engage in foreign borrowing to shore up the reserves. I think this was a wise and proactive move to protect the Barbados dollar and the reserve cover has remained adequate during this very trying period. If we can get through this with our exchange rate regime intact I would think we had achieved a major success.

3. It is very easy to forget what happened to the public sector over the last 17 years. In 1994 the public sector pay roll was 21,000, it now stands at 30,000. In the 17 year period there have been numerous pay increases, not linked in any way to productivity or growth in government revenues. Since the restructuring of the public service in 1991 and the election results of 1994, both parties seem to have taken the political lesson of “not touching public sector jobs.” It is now in fact unconstitutional to cut public sector salaries.

Faced with a large public sector payroll, the current administration has sought to avoid paying the political price of public sector job cuts, and chosen to maintain the public sector payroll, as well as free at the point of delivery access to most public services. The length and depth of the global recession and the weak nature of the recovery means that this laudable policy is a costly one. The cost is being felt in terms of the public sector deficit and the level of debt. I cannot help but feel that many of the persons who now scream about the deficit, credit rating and debt levels may well scream just as loud if sizeable cuts were made in the public sector and/or services. I have noted the screams about the adjustments in the drug service and UWI.

Many seem to have bought into the notion that there is a domestic growth, no pain or sacrifice solution for Barbados in the face of the challenges faced by our major source markets. I think its very easy to dream off and forget reality. In the face of the current circumstances in our major source markets if we want to maintain the public sector payroll and free at the point of delivery access to public services, then we should be prepared to accept the consequences, which are a large deficit, more debt and lowered credit ratings. It may be perfectly okay for Barbadians to make that choice until things recover.

23 thoughts on “It Is Very Easy To Forget: Short Economic Memories In Barbados

  1. The next time Trained Economist you seek to write something to ‘educate’ the bajan public,bring the truth and all the facts. What you trying to do is shift blame, because you want people to believe the DEMS ain do nothing wrong. it is everybody else cept DEM. All the back tracking they do already on small matters and some big bloopers, you really feel the Bajan public gine buy your syrup that they did everything right in the economy. Cha man

    Fact no 1. you can only judge the impact of domestic policy as an aggravating factor to the impact of the economic crisis, if you examine the impact of the domestic policy. If you are trained and truthful, given the decline in foreign exchange earnings from tourism and financials services, would this not have reduced gov’t revenues and create job losses. If you then increase taxes in 2008, what will be the impact on spending power, and its impact on profits and corporation tax? Would it make employment and gov’t revenues, worse or better?

    2. Then Economist, trained and true, in 2008 gov’t refused to stimulate the economy, stopped gov’t construction projects, taxed economyt. Give us impact on B’dos economy. Growth or further and faster decline? Then they decided to do stimulus, late – 30m to hotels insufficient given the scale of the problem, 6m to BTA, housing programme (gave all the work to Jada, failed stimulus test, nuff construction workers out of work), a retraining fund and conversion of NIS to a loan (can’t help businesses like mine), 2 buildings and carpark. Counter cyclical on the fly, did it stop slide, no because the sharpest drop was experienced in 2009, too little, too damn late. So what do you advise DEMS to do Jack, tax economy again, raised utility costs, VAT, and allowances. What was the impact on consumer spending, corporation tax and government revenues?. Did it make the crisis better or worse?

    3. Now Trained and True, tek off the camouflage. BLP did not employ 9000 new people over 14 years, it confirmed and made permanent 4000 staff 2006 that were acting or temporary for as much as ten years, still on payroll. Only difference now is pension Jack. Now if you take off that new employees would be 5000 if your figure of 9000 is correct. Now Sandi fired 4000 during his crisis. Get the drift Jack. Now gov’t wage bill grew very quickly between 2008 and 2010, hiring people for jobs but no work. How many were they, and what was the cost, and how did it affect the debt, cause DEMs tear way the debt borrowing according to Mascoll and Persaud, 1.5b in 3 years, not for stimulus not for capital projects but recurring expenditure which included all the yardfowls they hired and keep on hiring. What about that bloated cabinet champ? see if you could read and understnad the S & P full report BU put on anothe rpost. If you can understand it and tell the truth, who really catspraddle the debt and how we rate among peers. Check it out and comeback and tell de truth.

    4. Cutting the damn wrong tings Jack, you should have cut useless activities likes councils and camps; you should have restrianed further giveaways like free busfare. You should not have increased water by 60% and Light and Power boasting about the profits they mek this year because of your generous gov’t handout of an increase. I smelling hell to pay my light bill at 400.00 But you tell us we must accept less social service; you cut BTC nuff slack, and prop Clico with nuff money. Son yuh cut de wrong things, you could get cheaper or less roundabouts that don’t solve traffic problems; you could leave out money for Sherbourne, polyclinic in St. John and keep Drug service benefits. Wunna either don’t know what wunna doing or what wunnah doing, wunna know is wrong.

    5.I buy into notion of pain, how much it pain me to endure this gov’t after raising my hopes for change. I into pain jack the cost of living, the cost of living, the cost of living. I into pain Jack, my business struggling to get customers, they ain got no money cause the gov’t and big fellows empty their pockets, and I have to find someway to see how I can pay my bills. What else you want me to feel – lose my house and car? You ain’t going to be satisfied till wunnah tek way all. At some point you have to take something for the pain, Jack. An election will sort mine out, what will it do for you? Don’t evah come back here and sayyou are a trianed eocnomist, you are a trained apologist for DLP.

  2. Bajan Truth what is the article was not factual? You made a lot of comments but did not bring any real evidence to counteract the psotions put on the table.

    Disagree with the man, but don’t say no real facts were brought.

    Are you saying that the DLP hired some 3,000 new persons since 2008. If that was true the unemployment rate would not have changed?

    Do you have evidence that the debt was not 100% in 2007?

  3. Bajan Truth, the basic underlying point to what TE is asying is that to listen to a lot of commentators you would be left with the impression that if there was a different set of people in charge Bim would not really have been affected by this recession.

    Itys like the American people blaming everything on Obama and forgetting the stuff done by Bush and those before him.

    • The bottomline is that a large contributor to the deficit has been government’s desire to protect public sector jobs.

      Is the BLP saying it would have protected jobs and grown the economy in the current environment?

      Those countries like Guyana which have shown growth have export led economies no?

      Interested in reading some debate which challenges Trained Economist position.

  4. david have you noticed that whenever information is brought to the table that you get a rant like Bajan Truth or the blog gone quiet.

    I saw a comment raising concern that NIS was not audited since 2007. When it was pointed out that it had not been audited since 1999, hwich is worse than since 2007, the rage went away and there has been no further comment on the matter.

    Who the cat likes she licks.

    • This is the problem in Barbados, we go down party line on every single thing.

      Another example is the fact CLICO statutory fund ran deficit under the BLP.

      In fact in all the jurisdictions CLICO operated this occurred, why?

  5. I feeling the pain too and would like to blame the government. But if we are an economy based on tourists how can we be doing well with the US and the UK not doing well?

    david’s point is valide the economies in the world that are doing well are the ones based on maufacturing, commodities and agriculture. Bim is not based on these. Bim has moved from these a long time ago and whatever bajan Truth says, the BLP was at the lead in saying services are the way to go.

  6. David Patrick Hoyos seems to think the BLP have the answer he is making a call in the business authority today.

  7. I find a lot of the debate strange. If a patient was very sick, is saying the patient had a good two weeks recently the same thing as saying the patient is back to good health? Some people want to take everything piece of good or decent economic news as some sort of spin by the government and its allies. they then take every subsequent piece of news as confirmation that information was being spun.

    I think yu would expect a patient recovering from a serious illness to be weak for some time and have good and bad days. As far as i know there are always setbacks on the path to recovery. I would be the first to admit that I don’ tknow if we are on a path to recovery.

  8. Lessons in reasoning and logic would not go amiss for some of you. The fact is that you cannot judge the impact of domestic policy by ASSERTING that you feel that all job losses, inflation, loss of revenue was SOLELY the product of the external. That would be to suggest that no steps were taken domestically, or all the steps were positive in their effect. Where are the facts that he has brought to prove that. It is infantile and stupid to pretend to be a trained economist and the basic truthful analysis is not done. it is downright dishonest. Further a read of the full S &P report would demonstrate clearly how the policies impacted the economy. Go and read and stop swallowing crap because someone says something that agrees with your position. I phrased it as a question because he must respond with integrity if he wants to earn trust.

    No I did not make a claim about how many people DLP hired, I do not have the full facts, I know that a large number were hired, but as I do not have all the facts, I would not make a claim. He is the trained eocnomist seeking to make a case that the BLP created the bloated civil service that now burdens the DLP without bringing or factoring in the facts about how many people DLP have employed over 3 years that they needed to borrow 500m every year to prop up current account spending. The honest thing to do and the position of integrity would be a comparative analysis of the hiring practice. He has not come here to give any factual position, he has come to make a case for the DLP regardless of what the facts are. and I will be damned if I let him make an ass of me or of innocent readers. He can titillate you losers who just want your party to win despite the facts.

    • @Bajan truth

      Is it not true that so far the BLP has used the argument that under its stewardship things were better?

      On St. John by-election night Bobby Morris challenged Mascoll how he would close the deficit and whether he would send home civil servants, he has not answered to date.

      Agree with Scout and others however who indicated that this government has made some decisions which were/are driven by political expediency and not economic realities.

  9. @Softman, excellent point. The only trouble, the public trust has been violated by alot of masqueraders who should be standing for truth. We had a CB governor claiming how hard it is to meet a 30m payment for the prison, in January, and now things smooth. Cha man. The debt smooth and not a problem. Minister of Finance tell people that growth occurred but you can hear, (I cannot prove it), that his figures do not square with the statistical service. When challenged he nor the CB gov. have not come out to confirm figures or changes. What de…And you wonder why people do not believe the economic news. 20,000 more tourists, and ready to exhale. Jordan from BTA or BHTA says the hotels did not see them annd earnings were down. Now what you want sensible people to think, I mean the ones that went school and want the truth.

  10. Pingback: It Is Very Easy To Forget: Short Economic Memories In Barbados | Barbados news

  11. You are ignoring the point that if 3000 people had been hired to the public service since 2008, the unemployment rate would not have gone up by as much. In fact it may well have gone down.

    I cannot see what is so controversial or partisan about the viewpoint put out by TE. he seemed to be saying that if after a moderate global recession in 2001 gdp in Bim fell by around 3.8%, would it be fair to blame bad policy for a drop of around 4.8% after a much more serious global recession.

    If I follow your logic Bajan truth, if policy had been good the decline in the economy would have been smaller than the 4.8%, or it might have even grown with our main source of tourists in a serious recession. You may be right. You seem to be falling into the massive global recession, barbados piloted by a skilled pilot escapes largely unscathed camp.” I am not so sure about that camp.

  12. I have not heard the governor say things are smooth. I heard him say that the 4th quarter of 2010 was good and the first quarter of 2011 was good. from being on the ground and on the word of the hoteliers it seemd so to me.

    Does it mean that the economy is back to health? I don’t think so, but it seems to be doing better than the same time last year, but clearly not well enough.

    Unlike a lot of people I am a proud bajan and I will not let my frustration lead me to run down the country and its technocrats. I don’t get the ins and outs of gdp calculations but I trust our technocrats to sort this out properly. We have decent instituitions and capable people in Bim.

    To me what i am seeing and what people don’t want to talk about is the fall out of building an economy almost exclusively on tourism and international finance. To my simple mind, in this current global state if what we rely on to pay thye bills are tourism and international finance, we will have trouble paying the bills, like we are now.

  13. Interestingly the two young people on either side are the ones talking restructruing. Mia in a detailed speech to the Chamber of Commerce and now Chris.

  14. close the deficit. Easy answer. When you come into power and a recession was already on the way, the last thing you do is riase your budget from 2.8b of last gov’t to 3.2b in first term, In order words do not create the deficit in the first place. And please this is the current account deficit not the capital account. Don’t raise your recurring expenditure by hiring more people year after year, then when your revenue falls you do not have an increasing debt. Don’t add fresh entitlements, camps, busfares, councils, and unnecessary expenses roundabouts, polyclinics. It widens your deficit. better to stimulate private sector let them hire the people, it is not on your payroll, and you get VAT and income tax as they spend, and make foreign exchange if possible.

    Now if you mucked it up and put yourself in a worse bind than need be what to do? RESIGN and call elections. Bahamas and Aruba face the same challenges but managing their fiscal position better than DEMS did. Don’t tax your people into oblivion, don’t build houses people not buying it ties up money you need for other critical activities. Don’t shut out your hundreds of small contractors from bulk of gov’t business it helps stimulate spending and jobs. if Jada business had been spread to 200 contractors, each would employ 20 workers, that is 4000 jobs, morons. Jada only wears one shirt at a time, drives one car at a time. 4000 people will buy 4000 shirts, 4000 snack boxes, and 4000 haircuts per month and 2 do’s for the madam, that is 8000. morons. It would keep other businesses spinnning, so they can keep their employees who would feel secure and buy houses. Banks would lend because people not defaulting..mekking sense.

    If you got it wrong and brought us to this point you sure as hell don’t know how to get us out. Damnnnnn

  15. The whole episode is beginning to really bug me. Notice how the various commnetators on the drug policy have ignored Prof. Fraser.

    It seems that if Sagicor buys Baico and Clico, and people get their money all the governance issues raised will be forgotten.

    Where are we really as a country and people? aybe in a democracy you get the leadership you deserve.

  16. With a budget presentation on the horizon, an electorate refusing to adjust lifestyles, a general election in the short term and its delivery to be made by a minister who occupies a marginal riding as part of a government managing in recessionary conditions – what do we think is in store for Barbadians?

  17. @Trained Economist

    I with you one hundred percent. A lot of person here talking about do this and do that. The govt made some small adjustment to health care and education and low and behold persons with politcal cutlasses sharpeened them on both sides. I wish i were as solid as you in putting over those points, but then again economic is not my strenght. Thanks for the balanced article.

    @Bajan Truth

    The govt had to cushion those persons at the bottom and therefore i agree with the free bus fare for children, It meant that parents had an additional forty dollars a month in savings for each child and the average poor person would have at least 3 children. Yo do the math..

    Bajan Truth, if you dont understand economic and developmental issues, you should do some meaninful research. Govt cant only layoff unappointed staff. it can prastice attrition. What is lacking in the the public service is leadersip who will introduce proper monotoring systems to cut wastage and theft etc.

    Have to rush off to work, but will respond to some of your other mouthings lster or tomorrow.

  18. @David
    You’re right. Same old same old from both sides regardless of the colour of the debate. Objectivity seems to be dead.
    I have yet to hear a BLP member say what they would do now (as opposed to what was done or is being done wrong) to help us in our current situation. They conveniently neglect to say anything and essentially do the same that the DLP has done past 3 years. Blame the other party. I look forward to the return of objective problem solvers and thinkers interested only (or at least primarily) in the protection and success of our great nation.

  19. `@observing

    How we long to see these jackasses put Barbados first and put aside partisan politics.

    Perhaps that is our problem …we choose jackasses who can’t think independently and must be lead always by an external force.

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