Caribbean & Central America - January 2014 (ISSN 1741-4458)

The ruling Democratic Labour Party (DLP) came to power in Barbados in 2008 and it secured re-election in a close-run contest with the Barbados Labour Party (BLP) in February 2013. In last year’s poll, the electorate marginally preferred Prime Minister Freundel Stuart’s promise of “stability through austerity” to the BLP’s expansionary promise of “a fundamental change in macro-economic policies” and a rejection of the “IMF-type model”. With the December 2013 announcement that 3,000 civil servants are to be laid-off by March 2014, the electorate is getting what it voted for, including an IMF-type model.

The IMF was in Barbados for an Article IV consultation from 3-13 December 2013. Following the visit, IMF mission chief Nicole Laframboise gave a gloomy assessment, saying “the Barbados economy continues to face considerable economic challenges…Weak exports and tourism arrivals, slow growth, and expansive fiscal policy have led to a sharp increase in public debt and fiscal financing pressures”.

One significant factor highlighted by the IMF was that the central government wage bill had risen to 10.3% of GDP in 2012/13. It noted that this was the highest in the region, and that this together with interest payments “limits room for investment spending”. It was in response to this that Finance Minister Chris Sinckler announced on 13 December that at least 3,000 civil servants were to be laid off by 1 March 2014.

The necessity for change was further highlighted on 20 December when Moody’s Investors Service gave Barbados a two-notch downgrade, from Ba1 to Ba3, citing poor economic growth, rising fiscal deficits, an increasing liquidity risk for the government reflected in its greater reliance on short-term funding, and the sharp decrease in foreign-exchange reserves.

After zero growth in 2012, the economy fell back into recession with a 0.7% contraction in the first nine months of 2013. The fiscal deficit rose sharply from 4.4% of GDP in March 2012 to 8% in March 2013 and looked likely to reach 10% this year. The public-sector layoffs are part of a plan to get the deficit down to 3.3% of GDP by 2014/15. On the question of the risk to liquidity, the government’s short-term debt is now running at 27% of GDP compared with 18% in 2012, 14% in 2011, and 7% in 2008. The deterioration is obvious. And on the foreign-exchange front, reserves were down by 30% in the first nine months of 2013 as the current account deficit moved up to 9.3% from 4.8% during the same period of 2012.

Moody’s warned that “Barbados’s rating would face further downward pressure in the event that the government is unable to achieve its fiscal consolidation targets, or if growth continues to underperform the government’s expectations, and debt ratios continue to rise as a result”.

The prime minister has tried to sugar the blow of the public-sector lay-offs as much as he can, saying that the government will not just “sit down and by the elegant flourish of a pen or pencil throw people’s lives into disorder”. He has promised: “A careful analysis will be done and we will try to make sure that this process is run as smoothly as possible, that households are disrupted minimally but that the government’s objectives are achieved”.

The difficulties involved in the task were highlighted by the decision on 14 January to postpone the announcement of who was to lose their jobs. Stuart said: “Because of the constraints under which we have had to operate in even generating the list…the Ministry of the Civil Service has taken a little more time…[and] we target now the end of the month.” But, he added, “that deadline though is not negotiable”.

The former diplomat and veteran commentator Ronald Sanders has warned that the difficulties being faced by Barbados are of concern not only for Barbados but for other members of the Caribbean Community (Caricom) for two reasons. Firstly, Barbados has long been held up as “the model of good governance and stability in the Caribbean” and so “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”.

The second reason is the fact that Barbados is the second largest importer of Caricom goods, and a cut in Barbados’ demand for goods (resulting, inter alia, from the 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”.