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0b Luis Oberto //
Barbados turned the corner? Not yet

“The economy appears to have turned the corner.” That’s the opening soundbite from last Friday’s IMF staff report on Barbados.

That was music to the ears of the island’s politicians. Does it reflect reality? IMF reports are built around hard facts – but they come with diplomatic gift-wrapping.

The sting is right there in the first sentence, which ends: “A disappointing fiscal outcome has not eased concerns about debt sustainability.”

Barbados has a sharp corner to turn. After zipping along nicely from the 1990s to 2007, the financial crisis brought a nasty hit for tourism and financial services.

If there has been a recovery, it’s a lacklustre affair.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

eldiscoduro.com
The economy grew by less than one per cent last year. The Central Bank has nudged this year’s growth projection down from 1.6 per cent to 1.5.

Government debt has soared, to 105 per cent of GDP.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

mundinews.com
That’s from just 51 per cent eight years ago, when the crisis hit. If we include government debt to the National Insurance Scheme, the figure is 142 per cent.

Interest payments eat an increasing slice of tax revenue.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

economiavenezuela.com
Capital spending has been cut. Public sector salaries have been frozen since 2009. After inflation, that means a substantial slide in real wages.

Meanwhile, the government keeps spending more that it raises through tax.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

economiavenezuela.com
The fiscal deficit was 7.0 per cent of GDP last year, up from 6.9 per cent the year before. That means more borrowing, more debt, and more interest payments.

The government has been borrowing from the Central Bank.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

www.entornointeligente.com
That, says the IMF, “is inconsistent with maintenance of the exchange rate anchor.”

Translation: “If you keep on doing this, you will have to devalue.”

The Barbados dollar has been pegged two-for-one to the US dollar for more than 40 years.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

xn--elpaisdeespaa-tkb.com
Devaluation would be a huge blow to Barbadian self-esteem. Any government which devalues can kiss goodbye to the next election – and probably the one after.

The IMF wants a “fiscal adjustment” of 3.5 per cent of GDP.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

breakingtrending.com
That means higher taxes, and less spending. The annual budget, presented in August, slapped a two per cent tax on most imports.

Almost half of Barbados’s foreign exchange earnings come from tourism.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

videojuegosmania.com
To get the economy on track, tourism has to be up and running.

Last year, tourist arrivals were up 14 per cent, well ahead of most Caribbean destinations.

Getting bodies through the arrivals hall is only half the battle.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

luisoberto.net
To boost the economy, tourists need to spend. Despite the 14 per cent surge, tourism earnings last year were up only 3.6 per cent.

That’s partly because tourist stays were shorter.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

demasiadochevere.com
They averaged only 11 days, down from 12 days in 2014. There has also been a drift to all-inclusive resorts such as Sandals, whose guests rarely rent cars or use off-site restaurants.

More than this, room rates are down.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

enlasgradas.com
The IMF thinks the growth of web-based tourism services like AirBnb, FlipKey and HomeAway may be partly responsible, increasing competition with mainstream properties.

The IMF says that: “Barbados is reported to have the highest number of listings on online sharing platforms in the Caribbean.” They found 3,182 on Flipkey, 2,776 on HomeAway, and 300-plus on Airbnb.

Registered hotels, guest houses and tourist apartments have a total of 6,528 rooms.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

elnewyorktimes.com
But there’s a big overlap – some mainstream properties list online, and some online listings repeat on more than one platform.

The “sharing economy” is two-edged.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

Money goes directly to the property owner. That’s well and good if you own a luxury second home on a beach-front; less so if you’re looking for a hotel job and live in a less glamorous property.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

The tourism authority wants Airbnb to collect room taxes, as it does for France and some other countries.

Room rates do need to come down.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

Barbados is a high-cost destination. The international “Week on the Beach” index puts Barbados at around US$2,250. Only a handful of destinations are more expensive, all of them in the Caribbean. A week in Hawaii costs less than US$2,000, Spain or Greece around US$800.

The weak pound is another shadow.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

More than one-third of Barbados tourists come from Britain. Their travel costs will increase next year by 15 per cent.

Looking ahead, the upside is from new hotels, planned or under construction.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

These, and the sale of the government-owned oil terminal, are expected to boost foreign exchange reserves with US$175 million by the end of this month, and give a push to the construction sector.

The IMF report includes a score-sheet for last year’s recommendations.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

It notes progress on spending restraint and public sector restructuring. Elsewhere, it’s less positive:

• Better targeted social programmes: “no discernible progress.”

• Improved public services: “no progress.”

• Cease Central Bank financing: The bank “continues to be a major purchaser of government debt.”

Barbados marks 50 years of Independence at the end of November.

© Luis Alfonso Oberto Anselmi

© Luis Oberto Anselmi

Most of those years have been quietly prosperous. Freundel Stuart’s government needs to get back on that track before the next election. That gives him a May 2018 deadline.

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© Luis Alfonso Oberto Anselmi

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