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by Professor Justin Robinson
At the macroeconomic level, 2023 was another successful one for Barbados. The economy is expected to record real GDP growth of around 4.6 per cent, the second consecutive year of growth since the declines of 2020 and 2021 and a recovery of the real as opposed to nominal GDP declines since the COVID-19 pandemic.
I expectthis trend to continue in 2024 and that the economy will record real GDP growth of between 3 to 4 per cent. The major risk to the growth forecast is the effectiveness of the implementation of the capital projects which are expected to drive growth.
The majority of the population experiences the economy in the job market and the supermarket. The recovery also saw a recovery in the labour market with unemployment declining to around 8.5 per cent from 9.3 per cent in 2022.
The rate of inflation is also expected to moderate to 5.2 per cent in 2023 compared to the 9.2 per cent recorded in 2022. Of course, consumers should note that a lower rate of inflation does not mean falling prices but rather that prices are rising at a slower rate. This trend is expected to continue unless there are further external shocks.
The administration continued to be disciplined and effective in the management of the public finances. The all-important primary balance is expected to improve to a surplus of approximately 3.5 per cent of GDP from a surplus of 2.5 per cent in 2022, while the overall fiscal balance is expected to remain in deficit but improve to approximately -1.7 per cent of GDP from -2.1 per cent of GDP in 2022.
The debtto-GDP ratio is expected to fall 114.9 per cent of GDP compared to 122.3 per cent of GDP in 2022. One should note that some of this decline is due to inflation boosting nominal GDP as distinct from actual debt reduction. It remains to be seen if this trend can continue as inflation moderates. Foreign exchange reserves also remained at extremely high levels.
The failure of domestic investors to return in sufficient numbers to meet the majority of the government’s gross financing need remains a major challenge for the Barbados economy if we are to avoid a continued build-up of foreign currency debt.
In the Estimates of Revenue and Expenditures for the 2023/2024 financial year, the gross financing need (overall deficit plus repayment of principal on loans) was estimated at BDS $844 million. Of this amount, the government planned to borrow BDS$378 million locally and $466 million internationally.
The proposed financing mix continued the trend since 2018 where the majority of funding is foreign. Since 2018, we have paid down approximately BDS$2.9 billion in debt and added approximately BDS$ 4.2 billion of which BDS$3.2 billion is foreign debt. It is difficult for me to see this as a sustainable state of affairs even if such funding is at low interest rates and with long maturity dates because it means that in the future, Barbados will be faced with the need to refinance significant amounts of foreign currency debt.
At the microeconomic level, two issues stand out for me. Firstly, we anxiously await the impact of the changes in the corporation tax rates on the competitiveness of the important international business sector.
Secondly, the renewable energy thrust, which is a major plank of the administration’s economic strategy, appears to be stalled over the issue of battery storage and base load energy. A speedy and costeffective solution is crucial if this sector is to realise its full potential.
I think it is fair to say that the indicators all suggest that macroeconomic stability has returned to the Barbados economy since the instability of the 2013 to 2018 period, which is welcome news. Our major trading partners have so far avoided the recession forecasts which augurs well for Barbados, and the achievement of growth targets will likely depend on effective project execution.
There are growing concerns about the health of the Chinese economy and one must keep a wary eye on any negative developments in such a major economy. Inflation is expected to continue to moderate in line with declining inflation in the
United States and the United Kingdom. However, financing the deficit remains a challenge and as inflation moderates further improvements in the debt-to-GDP ratio will need to come from genuine fiscal discipline.
Professor Justin Robinson is an economist and Pro Vice-Chancellor of the Board of Undergraduate Studies at the University of the West Indies (UWI), Cave Hill Campus.
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