For most of the past 40 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.
The country’s stronger social consensus was particularly noteworthy under former Prime Minister Erskine Sandiford who, instead of devaluing their currency as the International Monetary Fund (IMF) demanded, cut both the salaries 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 1990s.
This time may be different. Until very recently, despite the global crisis, Barbados appeared to believe it could carry on with business as usual. However, global rating agency Moody’s downgraded Barbados on Monday by a massive three notches to B3, equivalent to the B- rating its 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 near 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 per cent of GDP, compared with Jamaica’s now balanced budget.
Jamaica achieved a primary surplus, excluding interest costs, of 7.5 per cent of GDP last fiscal year, compared with a primary deficit of four per cent in Barbados. This is despite the fact that interest costs for both countries now represent roughly 30 per cent of revenues at a time when Barbados’ debt-to-GDP ratio is about to exceed 100 per cent.
In 2009, Jamaica came to the realisation that business as usual was no longer possible and, with hiccups, has been in a process of adjustment ever since. This process has accelerated over the last two years under the leadership of Finance Minister Dr 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, take the tough decisions early when fixing them will be less painful, and have the discipline to see those decisions through so that 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 into what seems the almost forgotten spirit of Caricom and general Caribbean brotherhood.
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