The decision of the financial ratings agency Standards and Poors (S&P) to downgrade its ratings on the Barbados government’s potential ability to service its foreign bond repayments, seems to have come as a shock to both the government and the highest technocratic levels of public sector financial management. Minister of Finance Chris Sinckler has attempted to diminish this external judgement by referring to it as “disappointing” and an unnecessary “distraction.”
Governor of the Barbados Central Bank, Dr Delisle Worrell has gone even further, to suggest that S&P’s criticisms and consequent downgrading of the bonds to “junk status,” reflect a misunderstanding of the manner in which small, open economies function and need to be managed. Basically he has argued that once this type of economy maintains a stable exchange rate regime and is able to maintain a viable fiscal strategy – balancing revenue and debt – and a sufficiency of foreign exchange reserves, in the kind of negative external setting afflicting such economies at the present time, this is as much as can be done.
In that context, given the severe global crisis now affecting countries on which Barbados depends for its foreign exchange, he sees the task of the managers of the economy as prudently seeking to ride out the storm, and rejects any suggestion of use of a devaluation strategy. This he argues, would have no effect, since “we do not produce the things we consume.”
It would have been surprising if S&P’s strictures did not become a source of political contention, particularly at this time. General elections are due in Barbados in another six or so months (the last elections were in January 2008), and Opposition Leader Owen Arthur, having retaken the leadership of the Barbados Labour Party from Ms Mia Mottley and apparently made his peace with her, has been consistently severe in his criticism of the government’s economic policies. He has responded to S&P’s bad news by insisting that general elections should be called immediately, so as to permit the evolution of an economic policy unhindered by pre-election governmental manoeuvres and excesses intended to favour the DLP’s chances.
It is no secret that the Barbados economy, and its dominant economic activities – tourism and financial services – have been victims of the current economic recessions in the Western world economies since 2007-2008. Much store had been laid on a persistent development of the financial services sector, and for a few years it appeared that its returns could begin to rival, over the medium term, tourism revenues. But the attack on that sector led by the United States over the last decade (of which Antigua has also been a victim), would appear to have reduced the possibilities there). In the meantime, as indicated in the difficulties which some of the larger hotel groupings (for example the Almond Hotel group) and the obvious difficulties which a projected domestic enterprise involving the internationally recognized Four Seasons group has had, suggest that the country is having difficulty in enhancing the tourism stock through private sector investment.
Critics external to the political parties that have held office over the years, put some blame for the current situation in which the country finds itself, on excessive public expenditure by both the Democratic Labour Party and the Barbados Labour governments over the years. It will be recalled that at the beginning of the 1990s, the government of Erskine Sandiford came under severe pressure, resulting in the country‘s first recourse to the IMF and a consequent removal from office of the Prime Minister. Critics of Owen Arthur also suggest that a variety of public sector projects undertaken during his watch, aimed at sustaining employment in difficult external circumstances, have also been responsible for excessive public debt, in a perhaps underestimated present situation where foreign exchange is not as easily available as in the past.
Clearly, in the current controversy, the Barbados Labour Party opposition perceives an advantage in having an articulate professional economist at its head, while the government side is led by a Prime Minister, an attorney-at-law who seems to value silence, and a Minister of Finance not as notoriously proficient in the science of economics as Owen Arthur, and coming in to office under the relatively disadvantageous circumstances of David Thompson’s death..
Standards and Poors has referred to a “sluggish” future outlook for the economy and, if we can read between the lines of its statement, seems to have taken its position more as a warning to the government not to go financially wild in a pre-election period, and distort an economy that is marginally holding at present. Their fear, as they put it, is a potential government dependence on increasing “off-budget spending,” dependence on loans from institutions like the National Insurance Scheme for public sector pump priming, and a resort to increased taxes (through, for example, raising the Value Added Tax. For S&P this would constitute a squeezing of funds otherwise available for private or quasi-private sector uses.
The Governor of the Central Bank has insisted that S&P’s actual description of the state of the economy and the record of government’s actions in dealing with the economic recession, do not merit the reduction of the country’s bond rating to so-called “junk status.” This is particularly so in the context of S&P’s expressed view that “Barbados is slowly recovering from the severe impact that the global downturn had on the country’s narrow and open economy.” The import of the Governor’s view is that the country has limited instruments of response at this time, and that what is required is a patient advance towards recovery – a recovery permissible if the international economy doesn’t worsen.
For his efforts the Governor has received a not unanticipated response from the Opposition leader (given previous policy disagreements between these two reputable economists) – an insistence on his removal from office now.
No doubt both individuals await the results of the general election, though it is a pity that, not for the first time in our Caribbean, the professional is made to bear the brunt of the blame for those to whom the electorate has directly given the power and authority.
