While Barbados' financial institutions are relatively insulated from the international crisis, the country is making moves to buffet its economy against the longer-term effects of the global economic slowdown.
Amid concerns over the impact of the financial meltdown, Prime Minister David Thompson has announced the creation of a working group tasked with identifying strategies to help the country cope with the current economic challenges. The group, which will be chaired by former Barbados Central Bank Governor Winston Cox, will include various representatives from the country's business community as well as from the University of the West Indies. Their conclusions will appear in a report due to be submitted to the government before November 28.
"The government is committed to taking the necessary pre-emptive action to mitigate against any secondary economic and financial fallout. Therefore we'll aggressively stimulate some level of economic activity that will protect existing jobs and look to create new ones," Thompson said on October 29, addressing an economic conference on the potential impact of the crisis.
The biggest concern for the Barbados economy is tourism, as the threat of a recession in its two key source markets - Europe and the US - will inevitably curtail growth. The central bank estimates that total long-stay arrivals have remained flat over the first nine months of 2008, despite a strong showing in the first quarter, and although cruise passenger arrivals did increase by 11.2%, tourism growth was trimmed to an estimated 1.4%, half the rate recorded over the first nine months of 2007.
Additionally, hotels are already reporting lower occupancy rates and weaker advanced bookings for 2009, while other sectors, which benefit indirectly from tourism, including wholesale and retail trade as well as agriculture, are expected to be adversely affected, the central bank stated.
Concretely, a decline in tourist arrivals could spill over into the country's construction industry, reversing the boom experienced over the past few years. The report from the Central Bank stated that construction activity stalled over the first nine months of this year, especially on the West Coast, as the global credit crunch caused some international investors to pause for breath.
According to Professor Avinash Persaud, chairman of Intelligence Capital, Barbados should diversify its tourism market away from recently hard-hit countries such as the US, the UK and Canada, and focus instead on markets such as Sao Paolo, Moscow, Mumbai and Shanghai.
Similarly, the prime minister has committed to reorient the tourism sector, specifically citing South-South cooperation as a means to target non-traditional markets. "We can't continue to depend primarily on two economies - namely the United States and the United Kingdom," said Thompson.
Despite worries about the tourism industry, Barbadians can take consolation in the fact that the country's financial system is well insulated from the global crisis, as local financial institutions were not heavily invested in the kinds of toxic assets that are now plaguing international markets.
Horace Cobham, CEO of the Royal Bank of Trinidad and Tobago (RBTT), said that business operations by banks in Barbados were mostly of local nature. "We accept that there is a crisis of confidence in the international banking system, but that doesn't exist in the Barbados banking system; it is still open, you can still borrow," he told the local media.
According to Central Bank Governor Marion Williams, the country's economy is much better equipped today than it was during the early 1990s recession. One particular strength she emphasised is Barbados' high levels of foreign exchange reserves, estimated to be $1.4-1.5bn, as well as the country's tight monetary discipline, with the fiscal deficit now standing at around 3% of Gross Domestic Product (GDP), as opposed to between 6% and 7% in 1991.
"We have much greater foreign exchange, we have a fiscal position that is much stronger and we have the experience of 1991-92 about what to do," Williams told the local media.