Caribbean Export OUTLOOK 2016 - 2017

Pulse OF THE CARIBBEAN

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.

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