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Four key reforms to bring back economic growth to Barbados

January 17, 2020 by Kimberly Waithe - Laura Giles Álvarez Leave a Comment


It has often been said that times of crisis can often lead to opportunity for change. Barbados is no stranger to this concept, having faced macroeconomic challenges during the past decade, including low growth, high government spending compared to revenue collection, elevated debt levels and declining international reserves (see Figures 1 to 4). This has led to an ambitious set of reforms under the Barbados Economic Recovery and Transformation (BERT) plan, launched in August 2018, supported by an IMF Extended Fund Facility (EFF) program. While the economic landscape is improving with these reforms, the adjustment will continue to take place in the next few years, requiring continued commitment by Government and with continuing strategic support by multilaterals.

The Inter-American Development Bank (IDB) has accompanied Barbados on its development path for the past 50 years and continues to foster a strong partnership with the country. At the heart of our work lies a strategic vision which is regularly revised to reflect the country’s needs and reexamine where we can have the greatest impact. Our latest publication  Barbados: A Time for Change: Country Development Challenges presents a summary background analysis that guided the development of the 2019-2023 Country Strategy for Barbados. In this report, we identify four pressing issues that hamper growth in the country and where we consider the IDB Group would have greatest impact:

  1. Improving the business climate

An enabling business environment is key to promoting economic growth. However, the Barbados economy presents a weak business climate, ranking 128th/190 countries in the Doing Business Report (DBR) 2020, reflecting lower scores than regional peers such as Jamaica (71st), St. Lucia (93rd) and Trinidad and Tobago (105th). High trade barriers, regulation, and burdensome red tape represent key constraints to private sector operations. The report proposes interventions relating to strengthening the regulatory environment and government processes to foster a more open and competitive business climate, promoting innovation and greater use of technologies.

  1. Promoting greater access to finance

Survey data for Barbados shows that access to finance is a major obstacle to private sector operations. The country ranked 152nd out of 190 countries for access to credit in the 2020 DBR. High collateral requirements, some features of the institutional and regulatory framework, and prevailing gender disparities are highlighted as factors that inhibit accessing credit. These potentially limit investment and private sector development. Recommendations in this regard include expanding the range of financing instruments, particularly for small and medium-sized enterprises and promoting the use of technologies to reduce costs and increase market information.

  1. Supporting climate sustainability

Barbados is susceptible to the adverse effects of climate change, particularly to increases in atmospheric temperature, sea level rise, and changes in weather patterns. In addition to the material and personal losses generated by extreme weather events, natural disasters could exacerbate the country’s already burdened fiscal stance and hinder economic growth. Natural disasters would be particularly damaging to Barbados’ tourism industry, as most of its infrastructure is located near the coast. Promoting further climate change adaptation and mitigation measures, supporting the adoption of renewable energies to reduce Barbados’ dependence on fossil fuels and exploring new financing mechanisms to confront natural disasters would be key going forward.

  1. Contributing to a more sustainable macroeconomic and fiscal landscape

The current macroeconomic and fiscal landscape has been unsustainable, hindering investor confidence and weakening governance indicators. Both macroeconomic and fiscal challenges, as well as the current economic reforms, have externalities on the rest of the economy and thus on development. Given this constraint, the Country Development Challenges report suggests continuing implementing reforms to State Owned Enterprises, supporting the underlying structures for sound public financial management and prioritizing a tax expenditure reform.

Barbados faces a time of great challenges but also a time for change. Advancing reforms in the four highlighted areas could be essential to boost the economy to return it to a long-term sustainable growth path. Building on Barbados’ strengths and achievements, we at the IDB stand ready to continue supporting these efforts through financing, technical support and analytical insights.

In this Improving Lives in The Caribbean Podcast Barbados Country Representative, Juan Carlos De la Hoz Vinas and Country Economist, Laura Giles Álvarez discuss the findings and importance of the Country Development Challenges publication with Golda Lee Bruce.

 

You can check out more of our podcasts in the Improving Lives in the Caribbean series here.


Filed Under: Barbados, Economic Growth, Economy & Investment, Podcast Tagged With: Podcasts

Kimberly Waithe

Kimberly Waithe, a citizen of Barbados, is an economics consultant at the Inter-American Development Bank, Barbados country office since July 2014. Her responsibilities include monitoring and reporting on economic performances and prospects in Barbados and the OECS. Previously, she was a senior economist in the Ministry of Finance and Economics Affairs in the government of Barbados, from 2011 to 2014. She started her career there in 2008 as an economist. There she monitored and evaluated key planning and strategic documents for Barbados and reported on specific aspects of the economy. In addition, she assisted in the preparation of the annual Barbados economic and social reports along with the journal of public sector policy analysis. She has also published several research papers in international and local journals. Her research interest includes public finance and public policy, economic development, and energy economics. Ms. Waithe holds a Master’s degree in Financial and Business Economics and a Bachelor degree in Economics and Management (First Class Honors) from the University of the West Indies, Cave Hill Campus.

Laura Giles Álvarez

Laura Giles Álvarez is the Country Economist at the Inter-American Development Bank (IDB) in Colombia, having previously worked as a Country Economist in Haiti, Barbados, and The Bahamas. Laura started her career at the IDB as a young professional in the Social Protection and Health Division and the Economics Team at the Caribbean Country Department. Before joining the IDB, Laura worked as a public financial management consultant, where she designed and executed projects on macro-fiscal policy, expenditure management, and the budget cycle in Kenya, Mozambique, Timor Leste, and Angola. Additionally, she served as an ODI Fellow in the fiscal team within the Macroeconomic Policy Department at the Ministry of Finance in Timor Leste. Laura holds a double master's degree in economic development from the University of Carlos III, Madrid, and Lund University.

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We provide unique and timely insights on the Caribbean and its political, social, and economic development. At the IDB, we strive to improve lives in the Caribbean by creating vibrant and resilient economies where people are safe, productive and happy.

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