On Sunday, in this space, it was argued that T&T requires an enlightened and responsible captain if it is to sail through the turbulent waters that have resulted from the collapse of oil and natural gas prices in the last quarter of this year.That editorial said that T&T needs leaders "who can face economic realities, however harsh, and communicate the need for sacrifice by all in the national interest, even if that call may cause negative political fallout."
It is clear that T&T is not the only Caribbean country that is in need of enlightened and responsible leadership.Last Friday, the US ratings agency Standard & Poor's downgraded the long-term sovereign rating of Barbados from "BB-" to "B," with a negative outlook. S&P said "the downgrade reflects continued large fiscal deficits, a high debt burden that continues to rise, and narrower financing options."
Barbados, like all other countries in the world, was badly affected by the global financial crisis of 2007 to 2009.But, even in a region in which the lack of diversification in the economies can lead to boom and bust financial fortunes, the Barbados economy has taken the longest to recover.Why?
It seems that the government there expects to continue implementing the same unsuccessful policies, while expecting different results.In responding to the latest S&P downgrade, Barbadian Prime Minister Freundel Stuart said his government remained firmly committed to its strategy for growth and development and that "the strategy has already begun to show positive results."
According to Stuart: "It is a strategy led by investment and outstanding entrepreneurship by the private sector, supported by government incentives and world class financial regulation and legal safeguards."The strategy is anchored on our fixed exchange rate to the US dollar, which is protected by an adequate cushion of foreign exchange reserves."
While S&P predicts that Barbados will grow very moderately in its 2015 financial year, the rating agency states: "Risks remain from the sluggish outlook for the country's main economic sectors, high unemployment, and potential spending pressures."Further, the rating agency predicts Barbados will experience a five per cent fiscal deficit in 2015–down from 10.1 per cent in 2013–and that its net general government debt burden would rise to 92 per cent of GDP in 2015 from 80 per cent in 2013.
Part of the country's problem, according to S&P, is that its "economic fundamentals remain weak," reflecting "competitiveness and other structural shortcomings" in Barbados.Despite this critique of the competitiveness of the island's economy, Barbadians both high and low have held on to their belief in the benefits of their fixed exchange rate to the US with the enthusiasm of religious zealots.
Barbadians appear to be doggedly unified in thinking that moving from a fixed to a managed, floating exchange rate will ruin the "narrow and open economy," in the face of tonnes of evidence to the contrary.The real challenge Barbados faces is that its economic fortunes depend on it attracting an increasing number of tourists every year–whereas the reality is that there has been little real growth in visitor arrivals in the last seven years.
While the island remains as beautiful and orderly as ever, the fact is that dollars, euros, pounds, pesos, yuan, yen and loonies do not go as far in Barbados as they do in other tourism islands.And while reducing the number of employees in the public sector and increasing revenue through new taxes may address the fiscal problem, there are real questions as to whether those policies will lead to more visitors spending more money, leading to increased revenue and employment.