Caribbean Currents #012: Inflated Gains

A snore-worthy budget, grading the Mottley regime

Mar 28, 2024

March 27th, 2024 Edition

Commentary on the headlines from across the region.

🕒 Current Countdowns:
It has been 849 days since Barbados “transitioned” to a republic without a new constitution.
The March 31st deadline for the ratification of CARICOM freedom of movement is 3 days away.

The 2024 Barbados Budget

Much More Ado About Nothing

Silence descended upon all 430 square kilometers of Barbados last week as the country waited to see just how much more “sharing of the burden” the average citizen would have to endure. The national budget commenced with opening remarks from Prime Minister Mottley, and for three days she and her administration proceeded to pat themselves on the back and filibuster local TV broadcasts for several hours at a time, much to the annoyance of citizens who would have rather watched the ongoing school athletics championships. In what could truly have been an email, each minister introduced minor policy changes, and tax adjustments and took a swing at trying to frame a 7 billion USD debt as something not to balk at.

No New Taxes!

"I Am Altering The Deal. Pray I Do Not Alter It Further."
- Darth Vader, Star Wars Episode V

There’s no better gaslighting than government-sanctioned gaslighting. For the last half-decade Barbados has undergone a regime of delusion whereby the administration believed it could tax itself out of the hole COVID left in its finances… well the hole that COVID made bigger. Before the pandemic, a “Foreign Exchange Levy”, and sales tax scope widening were among the latest punitive policies enacted to stem FX outflows. It almost appeared that a new tax materialized annually or was slyly retrofitted to hide the dampening effects of scattershot economics. As one of the most heavily taxed nations on Earth, this year’s budget headliner was the lack of any new ones at all, the same as 2023. Instead, having already taxed what remains of its anemic middle class into submission, the government has proceeded to introduce a plethora of tax credits for businesses. That’s right, they monopolized the airwaves for several hours for three days to tell businesses that they could claim credits for game-changing projects like… using local art? A few other new green credits for vague environmental initiatives were paraded alongside extensions on VAT (value-added tax) reduction on services like electricity for another few years. It’s almost as if the powers that be are trying to convince the population that the current tax regime is normal.

4% Growth?

During the country’s 57th anniversary celebrations in 2023, PM Motley declared Barbados to be the 5th fastest-growing economy in the world. We believe she meant to say Senegal and simply misread every single IMF report over the last year that indicated such. Barbados is not even in the top ten fastest-growing economies. The only Caribbean state to break this list is Guyana, with an expected 26% growth for 2024, fueled by its recent petrochemical fortunes. According to the Central Bank of Barbados, the country should see 4% growth in 2024. Even this, however, may be a rather optimistic estimate with some economists questioning the previous year’s figures as well.

“If you take a look at appendix 6 of the same Central Bank report which has the actual absolute numbers, you will see that the foreign debt [in] December 2023, [is] almost twice as large as it was in the fiscal year 2017/2018. I believe that that is not an accident, because economists besides myself have drawn attention to the fact that the government has been, over the last five years, relying more on foreign debt than domestic debt. The foreign debt has been growing at quite a pretty sharp pace, which could have very serious implications 10, 15, 20 years down the road.”
Canadian-based Barbadian Economist Alex Forte on the 2023 budget

Barbados’ current growth may just be inflationary gains and the result of an economy springing back to pre-pandemic levels. This is good news but not true growth as touted by the central bank.

Artificial Reserves

According to the budget, Barbados holds just over BBD 2.9 billion (or 31 weeks of import coverage) in foreign exchange reserves as of 2024. This figure is often cited as an indicator of the country’s fiscal health, but the source of these funds betrays that fact entirely. A sizable portion of Barbados’ FX reserves is borrowed.

“The statistics also show that policy-based loan inflows, principally through the International Monetary Fund (IMF), bolstered foreign reserves, raising gross international reserves by BBD 227.2 million to BBD2,997.4 million at year-end, or 31.6 weeks of import coverage.” - Deloitte 2024 Budget Review

Essentially Barbados is funding its debt with even more debt. This tactic could have detrimental effects in the long term unless the government can correct course and establish new sources of foreign investment. Successive administrations have kicked the can on this glaring matter, failing to generate lucrative inflows to supplement a languishing private sector.

Final Verdict: 3/10

Much like the rating above, the figures in the budget were pulled from the thinnest of air as the Mottley government had nothing new to report. One segment of the budget broadcast even included the Minister of Technology, praising the 2018 debt restructuring for a bizarre two hours, made possible by the fact that there was no opposition present to yell “relevance?” The 2024 budget presented nothing new but rather, prompts questions about why the island's economists have largely remained silent on this anodyne display of government propaganda.

The Mottley Report Card, Part 1

May 2024 will mark six years of Prime Minister Mottley’s leadership in Barbados. The head of the Barbados Labour Party won by a landslide 70% of the popular vote which netted her party all electoral 30 seats on the island nation. Since then Barbados has weathered several challenges most notably a debt restructuring, a global pandemic, and the resulting financial fallout. After a snap election in 2022, Mottley would yet again lock the opposition out, securing all 30 seats and ensuring seamless rule for another 5-year term. Let’s look back at her tenure so far and review her government’s performance in facets of society that are pivotal to maintaining an effectively functioning nation.

Health Services: C

The island continues to rely heavily on the sole public tertiary medical institution - the 59-year-old, 400+ bed Queen Elizabeth Hospital. Located in the capital, the QEH has been the center of a greater ongoing debate surrounding social services and their associated costs. The aging institution and the structure within which it lies have been earmarked for replacement several times. As early as 2008, it had been estimated that US 800 million would be required to bring a state-of-the-art medical facility to fruition. These plans were shelved in light of the global financial crisis and a recurring lack of political will. In January 2024 the head of the QEH, Anthony Harris indicated that despite being in favour of new facilities, he does not yet believe it is time to deprecate the QEH just yet. Meanwhile, a former minister in the Ministry of Health shared the opposite sentiment.

The island’s polyclinics, small outpatient facilities intended to alleviate stresses on the QEH, have also come under fire for deteriorating conditions, poor service, and lack of staff which have resulted in long wait times and even instances of violence at some of the clinics.

Transport Infrastructure: D

This one requires a lengthy discussion all on its own, but let’s cover the basics. Barbados’ public bus system remains firmly incapable of servicing the population. In 2007 the fleet was just over 300 vehicles and had just been furnished with 70 new omnibuses from Brazil. Today the fleet size is so laughably small, that the ministry dares not to even report it. At its most dire, the fleet was rumored to be operating on fewer than 100 buses, and in 2019 the Transport Board would see its funding slashed by a third.

From the pandemic onward, the government sought to alleviate these shortages by allowing private service vehicles, like port taxis and buses, to obtain permits and ply routes under a transportation augmentation program (TAP). The TAP proved to be a viable short-term solution, though not without challenges due to blanket policies that the drivers found less than ideal.

In 2022 Barbados welcomed 30 electric buses from the Chinese automotive manufacturer BYD. The purchase was lauded as a step towards sustainable infrastructure as the largest electric bus fleet in the region. Two more deliveries would bring the electric fleet to 59. As of writing, there have been several damaging incidents involving these vehicles including a head-on collision involving two electric buses. Exactly how many of them remain operational is unknown.

Proposed tracking and tap-to-pay systems have been quietly unsuccessful. Most notably, the tap-to-pay facilities which were to be tied to the new Barbados ID, will likely not see any substantial implementation anytime soon, given the failure of both initiatives and the limited availability of the necessary hardware which has only been rolled out to the reduced public fleet.

Now as for the roads, this too will require a wider exposé. According to some metrics, Barbados possesses one of the lowest-quality road networks in the world. General neglect is to blame. The island has a particularly expansive network compared to its neighbors at over 1500km of paved roadways. A temperate climate with rapidly changing weather conditions and an active storm season means that the surfaces are subject to high stress. A government “mill and pave” program using financing from Beijing is underway. An estimated BBD 300 million is earmarked for restoring the hardest-hit roadways across rural areas and some in the city. The progress however is slow, and there does not appear to be any deviation from usual road surfacing methods to ensure any substantial longevity. The state of the coastal arterial roads also brings into question whether these funds will reach roadways of the highest economic priority.

To be continued…

So far, Mottley is scraping by with an underwhelming pass. Majority control of an impoverished government may not be everything it’s cracked up to be. At the end of the day, failure to generate necessary revenue to service obligations both internal and external has hamstrung the government’s capacity for maintenance and meaningful improvements. Stay tuned for the follow-up grades on housing, social services, and education.

Unsurprisingly, the Caribbean - a prolific rum-manufacturing region, also holds several spots in overall alcohol consumption globally. As of 2019, Saint Lucia and Barbados lead the charge in Caribbean alcoholism. Historically, Barbados has also had an intimate relationship with rum, being the land of its invention.

The drinking ages across the region vary by territory. Most islands maintain either 16 or 18 as the drinking age. Even the non-sovereign overseas territories have restrictions more closely aligned to those of their neighbors with age 18 limits. This reflects the cultural and historical significance of alcohol distillation and proliferation in everyday life. Alcohol is a mainstay in the tourism products of these countries as well.

This ubiquity has come under scrutiny in recent years as a contributing factor to many non-communicable diseases that are widespread throughout the region. Alcohol is also blamed for the high instances of violence in some territories, though as indicated in the graph above, both Jamaica and Trinidad have comparatively low consumption, but also boast some of the highest violent crime rates in the world.

CPSI Podcast of the Week

In this fascinating episode, we dive into a more nuanced discussion for implementing dollarization in Argentina. Nicolás Cachanosky joins our Executive Director, Rasheed Griffith, for a detailed and technical rundown of the steps needed to transition the beleaguered economy to the US Dollar.