Can Barbados learn a few lessons from Jamaica?

For most of the past forty years, the opposite was argued, namely that Barbados had lessons for Jamaica due to its combination of fiscal prudence, faster growth, higher living standards, all combined with better education and much greater social capital.  Their stronger social consensus was particularly noteworthy under former Prime Minister Sandiford, who instead of devaluing their currency as the IMF demanded, cut both pay and the public sector workforce under a tripartite wage agreement of shared sacrifice for the national good between the government, unions and private sector in the early 1990’s.

This time, things may be different.  Until very recently, despite the global crisis, Barbados appeared to believe it could carry on with business as usual.  Yesterday, however, global rating agency Moody’s downgraded Barbados by a massive three notches to B3, equivalent to the B- rating their bigger competitor Standard and Poors has for Jamaica.  The next stop is C, implied by Moody’s retention of a negative outlook for Barbados, a massive blow for a country that not long ago was part of the elite club known as investment grade.

After a nearly two decade long boom, Barbados had become excessively reliant on the sale of luxury real estate to rich foreigners, international financial services and a dated tourism product, all of which suffered during the global crisis.  Since 2009, Barbados’ fiscal deficit has been moving in the opposite direction to that of Jamaica, reaching 11 percent of GDP, compared with Jamaica’s now balanced budget.  Jamaica achieved a primary surplus, excluding interest costs, of 7.5 percent of GDP last fiscal year, compared with a primary deficit of 4 percent in Barbados.  This is despite the fact that interest costs for both countries now represent roughly 30 percent of revenues at a time when Barbados’ debt to GDP ratio is about to exceed 100 percent.

Jamaica came to the realization that business as usual was no longer possible much earlier, in 2009, and with hiccups, has been a process of adjustment ever since.  This process of adjustment has accelerated over the last two years under the leadership of Finance Minister Peter Phillips.  Jamaica’s fiscal deficit has now been eliminated, the current account deficit is falling, and net international reserves and foreign direct investment are rising. Jamaica now has prospects for a turnaround, however difficult.

Barbados, having procrastinated, looks like it is only at the very beginning of an extremely arduous period of adjustment, almost certainly under the stewardship of the IMF, perhaps starting before the end of this year.  The key lesson here is that those offering themselves for public office need to show the leadership to take the tough decisions early when fixing them will be less painful, and have the discipline to see those decisions through so any gains from the pain are not wasted.

Jamaica has nothing to crow about however, as it also has many tough decisions still to take to achieve a sustainable fiscal adjustment.  Perhaps both countries can learn from, and help, each other, collectively tapping in to what seems the almost forgotten spirit of CARICOM and general Caribbean brotherhood.

Source: Caribbean360