The Barbados Economy In 2009 And The Prospects For 2010: A Commentary

When the Central Bank of Barbados released its latest economic review on January 11, covering the last quarter of 2009 and the year as a whole, I was called by the Nation to offer an immediate reaction. The 500 words offered were reworked as shown below and published on January 12 (or see link). The piece needs one clarification. 'Reserve cover' is the amount of a country's international reserves of foreign assets relative to its imports of goods and services, usually expressed in terms of weeks, which is not how the text reads (see red highlights). In Barbados' case, the forecast is that reserves will decline from 21 weeks in 2009 to about 17 weeks in 2010.

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Concern over dependence on foreign markets

HEAVY RELIANCE ON BRITAIN as a tourist market may spell trouble in the future for Barbados.

That was the view of economist Dennis Jones, speaking after the release of the Central Bank's report: The Barbados Economy In 2009 And The Prospects For 2010.

"For tourism, the governor said there will be a small contraction in 2010, with recovery beginning only in 2011. This assumes modest economic growth in Barbados' major trading partners (the United States and Britain). But . . . Britain is one of the few industrial economies to still be in recession," Jones said.

"One result of this weak recovery is that reserve cover (the amount of imports the country has stored) will decline in 2010 [which] is a notable negative going forward and should be watched carefully."

In his report, Governor of the Central Bank Delisle Worrell said net international reserves were projected to decline this year and foreign reserves cover may revert to the levels of 2008 - around 17 per cent.

Jones was concerned the island's growth was so dependent on foreign markets.

"Barbados will not be in paradise next year and, in the governor's eyes, when it gets there depends greatly on the fortunes of the North American and European economies," he said. "I cannot fault the governor for his realism, but I wish there was more that we could do but hope."

Describing the fiscal outlook as "bleak", Jones noted that the deficit widened to 8.6 per cent from 6.4 per cent in 2008 as the economy contracted more than expected.

"But this was a pincer move," he said, adding: "Tax income declined, in part due to a shrinking tax base, and corporate tax income was especially hit. But spending rose by three per cent, with wages soaring 11 per cent from 1.7 per cent in 2008, and spending on goods and services was up 12 per cent. Borrowing locally and from Trinidad helped fill the widening gap." (LW)

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The Governor, in the press conference held on January 12, noted his emphasis on maintaining the current fixed rate of the Barbados dollar to the US dollar and the risks to that posed by the projected decline in reserves (see Nation report).