A Tale of Two Cities – Lessons for Economic Recovery

Author(s): Central Bank Of Barbados

Created 17 Aug, 2018
Categories General Press Release
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The path to Barbados’ economic recovery will be a challenging one, but if the public is engaged and the government stands firm during difficult days, it will happen.

This is the opinion of Dr. Wendell Samuel, a Caribbean-born economist and former Deputy Division Chief for the International Monetary Fund’s (IMF) African and Caribbean II Divisions. While not offering any specific policy prescriptions, Samuel, who is the Programme Coordinator at the Barbados-based Caribbean Regional Technical Assistance Centre (CARTAC), drew on the experiences of two small nations, Antigua and Barbuda and the Seychelles, a collection of islands off the east coast of Africa, to outline how an IMF-supported economic recovery programme for Barbados could look.

Elements of a Recovery Programme

Samuel gave an overview of both countries’ programmes, noting that they comprised three main components – a strong fiscal adjustment that included measures to increase government’s revenue – the introduction of a new Economic Recovery Tax in Antigua and Barbuda and improvements in tax administration in the Seychelles, which eliminated several “nuisance” taxes and introduced VAT. These income generating measures were coupled with steps to reduce expenditure, and that combination resulted in both countries substantially reducing their deficit, the difference between what they earned and what they spent. In addition to this fiscal adjustment, both countries also underwent debt restructuring and made structural changes, specifically changing their tax administration and restructuring their state-owned enterprises.

Samuel was clear that the success of an economic recovery programme is based on more than deciding on specific measures. Much of it, he forewarned, hinges on having a skilled and committed public sector, particularly among officers in the Ministry of Finance and the central bank, who must ensure that reforms are kept on track and that targets are met:

“You need a cadre of skilled, committed public servants, and this is indispensable. These people are probably going to be working every weekend, more than 18 hours a day at times because that’s the kind of work that is required.”

The work of these officers and the decisions they have to make throughout the programme depend on them getting timely and accurate statistics, so the organisations and agencies providing that information have a similarly important function to perform.

Factors Affecting the Outcome

The veteran economist identified four other factors that stand to influence the outcome of any programme. The first is the need for consensus. To get the public fully on board, the authorities must speak plainly about what sacrifices people will have to make while at the same time motivate them by painting a picture of what a successful recovery will look like.

The government must also have the political will to stay the course in the face of strong opposition:

“You have to make decisions and you have to stand by them. You cannot make a decision and ask civil servants to implement them and then they don’t have the political cover…. You have to have the political will to know that some of the things you do are going to impact your supporters.”

Samuel believes that the open communication that is part of the consensus building process will help to reduce push back from the public.

Having the goodwill of international financial institutions, creditors, and donors is an asset to a country undergoing debt restructuring, since these are the entities the country will be negotiating with. Samuel, who was part of the IMF team during both Antigua and Barbuda and the Seychelles programmes reveals that a country can gain their support by fostering good relationships with them and keeping lines of communication open.

While the government can take action to garner public support and build positive relationships with creditors and international institutions and can ensure it follows through on the decisions they have made, it has substantially less influence over the final factor – luck.

To explain what he meant by luck, Samuel said that while both his example countries were tourist destinations, Seychelles was helped by its major tourist markets, Asia and the Middle East, experiencing strong economic growth, while Antigua and Barbuda’s source markets were in recession.

Advice for Barbados

Jumping ahead to what should happen post-programme, Samuel offered two recommendations to shore up the country’s economy in the long term.

First, he asserted that the private sector, not the government, should drive economic growth. The role of the public sector in this scenario is to create an environment that encourages business and investment. And second, while government should ensure its public sector remains efficient and well enough staffed to carry out its functions, it must not let its wage bill become too bloated. He recommended that government pay the same attention to state-owned enterprises.

As Barbados prepares to enter into an IMF-supported programme, Samuel advised the government to be open to all options, but to choose the one best fitted for the island’s economy. “The most technical solution is probably not going to be the most efficient one, and sometimes the second best is probably going to be good enough.” Above all, he said “it is important to stay the course. These reforms are going to bite. People are going to lobby to have things rolled back. The important thing is to continue pushing forward.”



Copyright 2018 by Central Bank of Barbados