Presented By
THE RT. HON. OWEN ARTHUR
Prime
Minister
And
Minister of Finance & Economic Affairs
BARBADOS
OCTOBER 22, 2002
The poet Ovid many years ago reminded us that "There is no excellence without difficulty".
Since I last had the honour to present the economic and financial policies of the Government of Barbados to this Honourable House, our nation had had to endure more than an ordinary measure of economic difficulty.
It may, however, be said of the Barbadian personality that our greatest character is to be found not in never falling, but in rising every time we fall.
And so, although the times have been tough and the challenges testing, our little nation has weathered its difficulties well.
I therefore have a report to make to this Parliament of the economic stewardship of a resilient and resourceful people, who have had to face adversity and have come away stronger and better girded for the economic battles ahead.
Fortified by such an experience,
I bring to this Parliament today policies which are intended not to beat the retreat
but to sound a clarion call to advance.
ECONOMIC PERSPECTIVE AND PROSPECTS
Historians will report that the longest period of economic growth ever experienced in Barbados came to an end in the year 2001.
After expanding, as planned, at an average annual rate of 3% over the previous eight years, the economy in 2001 contracted by 2.7% effectively taking us back to the level of activity realised in 1999.
Happily, Barbados would have, over the preceding period of expansion, stored up enough buffer resources, especially in relation to our foreign exchange reserves, to absorb such a reversal. There was therefore no need for us to rely upon the international financial institutions to mount a rescue mission on our behalf, as was the case in 1981 and again in 1991.
But it is important that we fully understand the causes of our recent reversal if we are to chart the proper course forward.
It must never be said that the economic decline recorded by Barbados in 2001 was a consequence entirely of the catastrophic events that have come to bear the mark of September 11.
Indeed, when last I addressed this Parliament on an occasion such as this, prior to September 11, 2001, it was to report evidence of a slow down in activity in our main productive sectors in the second quarter of the year, following a relatively positive first quarter performance.
It was evident before September 11 that our tourism industry was being very negatively affected by a sharp global recession, our international business and financial sector was still limping away from the heavy damage inflicted upon it by the OECD Harmful Tax Initiative, and that the application in 2000 of our international trade commitments, as agreed by Barbados under the Uruguay Round in April 1994, was taking a particularly heavy toll on the fortunes of our agricultural and manufacturing industries.
To the extent that such factors continue to be operative in setting the environment within which our material development takes place, to that extent our scope for orderly robust and sustained growth will be narrowly circumscribed, in the absence of a countervailing response on our part.
All told, however,the confluence of global recession, the OECD threat, the negative impact of trade liberalisation and the effects of the events of September 11th, was enough to trigger a recession which has lasted into the first half of this year.
Given the nature of the factors adversely affecting our economy, the brunt of the decline was felt most in those sectors which depend upon international demand. Indeed, the two leading sectors of our economy - tourism and international business and financial sectors which had respectively reported growth of 7.7% and 3.1% in 2000, suffered declines of over 6% in 2001.
Manufacturing and agriculture, exposed on the front line to the forces of trade liberalisation also realised substantial declines - in the case of manufacturing, by as much as 8.2%.
As is to be expected, this fall off in activity in the export sectors necessarily triggered a general softening in spheres of activity such as distribution and the construction industry which cater largely to domestic demand - making the recession felt across all of the productive sectors of the economy.
It would, however, be grossly erroneous to represent the performance of the Barbados economy in 2001 as a case of unmitigated gloom and doom.
Quite to the contrary, there was evidence of great resilience and buoyancy in certain vital economic indices for that year, reflecting the fact that we came to this cycle in our economic affairs better prepared than before to accommodate shock and adversity, and with a stronger platform on which to mount a sustained recovery.
Indeed, Mr. Speaker, the historical trend apparently is that every ten years a recession occurs in Barbados. It happened in 1981 and again in 1999.
On those two previous occasions, periods of decline
in the value of production were also accompanied by severe foreign exchange shortages,
balance of payments instability, rising and rampant unemployment, very high interest
rates, a surge in inflation, a tight domestic liquidity situation and a severe
fall off in investor confidence and private savings.
Indeed, we can still remember
with great anguish, the savagery of the economic and financial measures which
had to be instituted in 1991, under an IMF programme when not just recession but
general macro economic instability and disorder of the kind just described swept
the land.
The character of our recent economic management, however, has been such as to contain our economic decline largely to a fall in real GDP, while ensuring that across a wide band of indices of economic stability and performance the record has been distinctly positive.
As such, our foreign exchange reserves, even net of external borrowing, have mounted even during the recession to levels of comfort - $1.4 billion or over 6 months import cover - that far exceed safety requirements, and far above the $11 million recorded a decade ago. Unemployment which reached a record level of 27% in the 1991 recession has hovered around the 10% level in the recession of 2001 - a level of employment creation that would be regarded as impressive in Barbados at any time. Inflation has stabilised at under 3%, interest rates have been reduced to record low levels, energy prices have been contained to the lowest possible level, Government finances have been kept in sound order, and domestic savings have increased. Indeed, there now exists a large pool of domestic financial liquidity which, with the correct policies, can be pressed into service in support of stronger and sustained growth over the foreseeable future.
Mr. Speaker, the factors conducive to instability in the Barbados economy in 2001 were of a character that could have caused damage greater and more lasting than 2.7% decline in the real GDP.
That they did not was due largely to the institution of a package of Emergency Economic Measures as soon as possible after September 11th which not only mitigated their worst consequences, but have helped to set the stage for renewed growth at the earliest possible occasion.
Indeed, it is important that we remind ourselves of what it has taken to stabilise our economy in the wake of September 11th for the virtue that some of the policies may yet possess as part of the permanent way forward.
To begin with, the institution of a successful 100% Bajan Campaign as the counter to the negative effects of trade liberalisation on activity in the agricultural and manufacturing sectors established that there can be a stable, vibrant future for these sectors as a vital part of the Barbadian economy, without our having to breach our regional or international trade commitments to achieve such.
Secondly, the re-focusing and expansion of our tourism marketing effort, together with a new aggressive approach to tourism product development, all supported by carefully targeted financial support and relief to enterprises in our most important industry is a post September 11th initiative which has worked well and must be sustained.
Thirdly, despite the lamentations of the Jeremiahs, the Government moved early while the international capital market was still favourable to raise a substantial loan to offset any potential adverse disruptions to international travel and tourism and the flow of capital. No one knows how long the fight against terrorism will last, what tosses and turns it will take, nor what new forms of economic and financial risk and uncertainty it will engender.
What is certain is that we have provided for Barbados' foreign exchange needs to counter any reasonable contingency, such that our plans for renewed stable growth can now proceed apace without fear of balance of payments crises being a consequence.
Fourthly, in the economic environment after September 11th we have searched for and are coming close to applying the ideal mix of policies which balances the need to afford tariff protection to manufacturing and agriculture while not imposing excessive burdens on tourism and international business activity.
This balanced trade-off that reconciles the competing interests of respective sectors must be carried with us into the future to ensure the prospect of balanced growth in the economy.
Mr. Speaker, the initiatives to which I have just alluded have helped us to contain our most recent recession to tolerable proportions.
The information now available also indicates that the recession persisted into the first half of the year, when GDP is estimated to have contracted by 1.6%.
The evidence also, however, indicates that real economic activity picked up in the third quarter of the year, and the signals are that the recession is nearing its end. It is especially gratifying that there has been a growth in tourism arrivals in each of the last three months, and the prospects for the rest of the year are for a much stronger performance than the last quarter of 2001.
It is also significant that the manufacturing sector in the first half recorded growth for the first time in three years.
The immediate prospects in general for the economy is that the decline in real GDP for the year 2002 is expected to be about 1%, compared to a fall of 2.7% in 2001, growth of around 2% will be realised in 2003, and an annual average rate of growth of between 2.5% and 3% should be achieved between 2004 and 2006.
In short, after a recession stretching over twelve months and which triggered a cumulative decline in real GDP of about 4%, it is anticipated that our economy has gone back on a growth path as early as the third quarter of 2002, and should realise a growth performance over the next few years that compares favourably with the GDP performance over the past decade.
This is contingent on a resurgence of activity in tourism, continued growth in manufacturing and agriculture, an increase in private capital formation associated with the implementation of major new investments in tourism related capacity and housing, and major public investments in projects to expand to airport and seaport, to enhance our tourism product and capacity, to protect and enhance our marine and coastal environment, in housing, in the energy sector, and in education.
Our efforts to place Barbados on a sustained and sustainable growth path, however, will be accompanied and indeed may come to be constrained by a number of developments, many of which are beyond our immediate control, but which can have a considerable bearing on our economic fortunes.