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CeounryDepartmen-BAR Public Disclosure Authorized

LatinAm\nerica and theCaribbean Region!

FOR OFFICIAL USE ONLY

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o~~~~~~~~~~ '"-" Public Disclosure Authorized CURRENCY EQUIVALENTS

Currency Unit dollar (BDS$)

Since independence in 1966. the Barbados dollar was fozmally linked to the pound sterling (E) at a rate of 4.80 to 1.00. On July 1, 1975, the BDS dolle was aligned with the US dollar at a rate of 2.00 to 1.00.

US$1.00 = BDS$2.00 BDS$1.00 = us$0.50

GOVERNMENT OF BARBADOS

April 1 - March 31 FOROMCIAL USE ONLY

9LOSSAMYOF ASURZEVIATIONS

ACV Africa CarLbbean and PacLfic Group ATCO AgrLcultural Tradlng Company BADC Barbados Agricultural Development Corporation sEC Barbados mployers ConfeGeration BDPC Barbados Zxport Promotion Corporation BIDC Barbados Industrial Dovelops nt Corporation BLPC Barbados LLght and Power Company DxC Barbados MarketLng Corporation DBu Barbados National Bank DOD Biological Oxygen Demand BSIL Barbados Industry Ltd. B8TU Barbados Secondary Teachers Union BWU Barbados Workers Union CARIBCAN 's Preferential Trade SchAe for the Comaonwealth CARICON CARIFTA Caribbean Free Trade AssocLatLon CATCO Carlbbean Agricultural Tradlng Company CBS CBI Caribbean Basin Initiative CCPU Coastal Conservation Project Unit CD3 Caribbean Development Bank CST Comon External Tariff COCED Caribbean Group for Cooperation in Economic Development CIDA Canadian International Development Agency -PI Consumer Price Index CTO Caribbean Tourim Organization DSR Servlce Ratio ZCLAC Economic Commission for Latin Amerlca and Caribbean EDI Economic Development Inutitute EEC European Economic Community EmD Environmental Englneering Division ELRCD Employment. Labour Relations and Community Development GATT General Agrement on Tariffs and Trade WBC InternatLonal BusLness Companies IC? IndustrLal Credit Fund IDS Inter-AmerLcan Development Bank IMP InternatLonal Monetary Fund MAPF Mlnistry of Agriculture, Food and Fisheries MTN Multilateral Trade Negotiation NPZs Non-financial Publlc Sector Enterprises NTBs Non-trade Barriers NMPW National Union of Public Workers OZCD OrganizatLon for Economic Cooperation and Development OBCS Organization of Bastern Caribbean States PAH3 Pan-American Health OrganLzation SZx Single European Market SPP Sugar Producers Federation BSA Sanitation Services Authority UNDP United Nations Development Programme USAID Unlted States Agency for International Development UWl Unlversity of the

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Itscontents may not otherwise be disclosed without authorization. ANIADOS- COUNY DATASHEET

Area: 481 eq km Populations .255 million (1969) Density: 591 per sq lo Rate of growths 0.4 X (1969) Population characteristls Health

Crude birth rate (per 1601):t 16.e Infant mortality (per 1,061Iliv births): i. Crude death rate (pee 1.06f): 6.1 Populationper physician: 1123 Populationper nurses 223 Incoe dlstribution(1965-70) Transportend Comunication

X of national incom, highest iuintil.z 44 Population per passenger cart 8 lowestquintiltl 7 Populatlonper telo;Sons: 8 Accessto saf, water Fuel and power X of population - urbant 1I6 Energy consumption per capita: 1762 - rural: 100 Education Nutrition Adult illiteracyrate (X) s 0.7 Calorie Intakeas X of requiremnts: 1ff Primaryschool enrollment Per capita protein intake (g/day): 10 (X) of relevant age group: 16 Secondary school enroll ment: 98 OMPper capita (uJS 1989) aJ/ : 68at

GROSSNATIONAL PRODUCT, 1969 SNAREIN GROSSNATIONAL PRODUCT USS Mn X 1976-80 1961-85 1986-88 1988 OW at Market Price 1761.9 186.9 100.0 166. .0 166.6 Gross Domestic Investment 826.2 18.7 28.6 29.4 16.6 17.0 Gross Natio.al Saving 864.9 20.2 16.4 17.8 17.4 17.0 Current Account Balance -2.6 -0.1 -7.6 -8.8 -1.6 0.1 Exportof Goods, NFS 676.6 49.7 67.8 68.2 49.6 49.7 Importof Goods, NFS 924.1 62.7 68.1 67.9 52.4 62.7 JTPUT, EWPLOYMNTAND PRODUCTIVITYIN 1969 Value Added Labor Force V.A. per Worker

USS Mn x Thouc. X USe Agriculture 70.6 5.8 6.6 6.6 11769.2 Induitry 269.S 16.6 28.8 28.7 11328.5 Services 1102.4 76.1 70.8 69.9 16681.4 Total / Average 1448.4 190.0 106.6 166.9 12924.7 GOVERNMENTFINANCE Consolidated Public Sector Central Goverment BOSSMn Percent of CDP BDS8 Mn Percent of GOP FY89 FY66 FY89 FY69 FY86 FY69 Current Receipt. 1326.1 8C.0 86.9 967.6 25.8 26.9 Current Expenditure 1169.6 84.1 84.2 652.7 28.7 25.8 Current Surplus 166.8 1.9 4.6 184.9 1.6 8.9 Cxp:tal Expenditure 222.9 6.1 6.5 209.5 7.4 6.1 aJ World Bank Atlas methodology. BARBADOS- COUNTRY DATA SNEET Page 2 of 2

MONEY,CREDIT A PRICES 1986 1936 1987 198 1989 (MnB05S outstanding at end of period) Broad loney Supply 666.1 197.7 1027.0 1119.6 1916.4 fank Credit to Public Sector 227.9 234.4 262.4 291.2 263.5 Bank Credit to Private, Sector 908.7 941. 1626.8 1127.6 1280.0 (percentage or Index numbers) Broad Money as I of GDP at.t aa,9 36.2 38.1 35.6 General Price Index (FY69 a 100) 161.1 151.4 150.6 164.2 174.6 Annual PercentageChangso In: Coneral Price Index 4.9 0.2 1.6 4.7 6.8 Sank Credit to Public Sector -16.4 2.9 20.6 3.1 -9.S lank Credtt to Private Sector 4.0 3.6 9.1 9.9 13.5

BALANCEoF PAYMENTS MERCHAMWISVW TS (AVERACE1986-89)

-a. -- -- ~------lose 1987 1988 1989 W S Mn X (USS million) PrimaryProducts 72.8 18.3 Export of Goods, NFS 731.2 667.8 783.6 670.86 o/ Sugar 58.9 13.6 Importsof Goode, NFS 761.4 694.4 823.2 924.1 ManufacturedProducts 208.1 52.6 ------^ o/W Clothing 29.6 7.6 ResourceCap (defictta -) -29.2 -36.6 -59.6 -53.3 Re-Exports 116.3 29.1 o/w PetroleumProducta 67.9 17.2 Not FactorPayments -7.6 -24.9 46 44. --- -- Net CurrentTransfers 11.8 8.9 16.9 5.9 Total 895.7 100.0 Balance on CurrentAccount -18.6 -62.6 2.8 -2.6 DirectPvt. For. Investment 6.0 4.6 16.6 5.5 EXTERNALDEBT, DECEMBER81, 1969 bJ Net ULT Borrowing 8660 -11.6 76.2 -29.6 Disbursowents 114.1 28.5 109.0 16.6 Amortization 26.1 40.1 38.6 46.1 WS8 Mn Subtotal(Dlr.Inv.+Net MLT) 93. -7.0 68.7 -24.1 Public Debt, Inl. Quaranteed 566.9 Non-GuarantedPrivate Debt Other Capital (not) Total OutstandingA Disbursed 605.9 and Cspttal n.e.-. -66.8 64.6 -47.6 82.8 IncreaseIn Reserves C-) 6.2 -25.6 -41.4 -8.1 NET DEBT SERVICERATIO FOR 1989 ca Gross Reservesa/(end-year 164.6 148.0 138 154 PublicDebt, lncl. Guaranteed 16.8 Non- GuoranteedPrivate Debt Total OutstandingA Disbursed 16.3 RATE OF EXCHANGE Annual Average BRO/IDA LENDING(Dec. 31,1989) (endof period) __ -___ - 1966 1987 1986 1989 S8RO IDA WS 1.00 * BOSS 2.90 2.00 2.9 2.9 CUS Mn) BOSS1.00 * US 0.60 0.60 0.560 0.560 Outstanding&4Disbursed 86.2 0.9 Undisbursed 15.9 0.0 OutstandingIncl.Undlsbursed 61.1 0.6

IIncludes gold holdings. bij Long-termdebt. ej Debt servies, net of Interest oarned on foreign exchange resrvoe, as a percentago of Exports of Goode and NFS. ManmJD2MMUL5E2UUU2MWM

PREFACE

A large number of persons have contributed to this special economic report. The core team which visited Barbados and is responsible for preparing the report comptiseds

Sidney Chernick, Team Leader Carmen Scoseria,Macroeconomist (. Public Finance, Competitiveness) Alaudair Sinclair, Macroeconomist- Consultant (Industry,Exchange Rate, Trade Policy and Regional Integration) Coby Frimpong, Economist - Consultant (Sources of Growth, Pro4ections.Statistical Appendix) Frank Earwaker, Senior Economist (Access to External Finance).

Prince Taylor-Lewis,Senior Country Officer for Barbados contributed a background note on World Bank/BarbadosRelations. Ramon Lopez, (Consultant) assisted by Claudia Sepulveda developed the analytical framework for the tourism sector and advised on other sections of the report; Doreen Crompton provided a background paper underlying the discussion of the environment;W. B. Johnson provided a briefing paper on Agriculture;and Desmond McCarthy and Ashok Dhareshwar contributed the section on external shocks and adjustment. The team benefitted from +-hework of a concurrentWorld Bank mission comprising Joon Bo Shim (MissionLeader), John Nash, Mark Dorfman and Vipul Tandon. Ginger Reich edit%d the macro-projections. Apart from World Bank staff, a valuable overv@- paper was contributedby Keith Worrell and Joan Gibron of the Caribbean .,evelopmentBank (CDB), and Edward Agostini of the Inter-AmericanDevelopment bank (IDB) provided valuable material on the natural resource environmentof Barbados. Finally, a special acknowledgement is due to Jose B. Soko;.who took a special interest in the preparationof this report and contributedmuch more than is required by his normal duties as Lead Economist for the Caribbean Divi ton.

Barbados has attracted a great deal of attention from economic analysts both within the country and outside it. Apart from the regular evaluations of economic developments in Barbados prepared by the international agencies - the CDB, IMF, IDB, ECLAC, UNDP and the World Bank - there is considerableoutput from government ministries,the University of the West Indies (UWI at Cave Hill) and the Central Bank of Barbados. Indeed, the latter institutionhas established an outstandingeconomic research group that has published a large volume of papers analyzing the structure and functioning of the Barbadian economy. Much of this applied economic research was made possible by a comprehensiveand credible set of economic and social statistics with the Barbados StatisticalService the leading source. The preparation of this Report has benefitted greatly from this large body of analytical work and quantitativeinformation. The Report has also drawn on the assistance of many public officials, private sector entrepreneurs,trade unionists, aid agencies' personnel and other individuals in Barbados who readily agreed to meet with one or more mission members to convey their views and informationon Barbadian economic issues. TABLE OP CONTENT8

coUuTaYDATA

sU.MAYOF FINDINGS AND lcTon ...... i

I. INIROIDUCT 0N...... a. L

A. Origins of the R*-pcort- Graduatlon Policy ...... L

B. World Bank - Barbados RelatLons . . . . 9 . . . . 2

C. Structure of the Report ...... 3

PART A - - PAST

UXI* RES. PATTERNS AND SOURCES OF GROWT OP OUrPPm SINC 1966

Introduction * ......

A. Some CharacteristiLs of Barbados Growth, 1966-1989 . . . 5

B. Sources of Growth ...... -. *. 15

C. Welfare Implications of Economic Growth ...... 18

D. The "Cost" of EconomicGrowth ...... 20

B. Conclusions . . . . 22

III. .ACROBCONWIMCZaNs&lr ...... 23

A. Exchange Rate Policy ...... 23 Introduction ...... * 23 Exchange Rate Policy in Barbados ...... 24 Nominal Exchange Rate Adjustments in Other CARICOM Countries ...... 25 Real Effectlve Exchange Rate Trends in Barbasdos ...... 28 The Short-Term Balance of Payments PositLon . . . . 29 Conclusions ...... 30 -2-

Table oa Contents (Continued) Pag2 No.

B. Fiscal and Monetary Policy ...... 31 Introduction ...... 31 Flscnl Deficits and Their Financing ...... 31 MonetaryPolicy ...... 34 Conclusions ...... * * 35

C. Revenue/ExpendLture and Incentive Policies ...... 36 Introductlon ...... * ...... * . 36 ExpenditurePolicy ...... 36 Expenditureby Function ...... * .. . 39 Transfers and Public Enterprise Policy ...... 41 Revenue and Incentive Policy ...... 42 Conclusions...... 46

D. Investment and Its Financing ...... 47

S. The Labor Market ...... 49 Introduction...... 49 LaborSupply ...... 50 Labor Demand ...... 52 Labor Market Institutions ...... 55 Wage Determination Process ...... 57 Outcomes Industrial Harmony and Wages ...... 60 Conclusions...... 62

P. Trade Policy and Reglonal Integration ...... 63 Introduction ...... * . 63 The Caribbean Common Market ...... 63 Concluslons...... 65

IV. BhMA W..EDBN&.= ...... * . ... . 66

A. Agriculture ...... 66 Introduction o...... *...... * 66 The Role of Agriculture...... 67 Sector Policie ...... 70 Prospects ...... 73

B. Industry...... 73 Introduction ...... 73 Nain Trends ...... 73 Trade and Incentlve Policies ...... 79 Institutions and Incentives ...... 81 Prospects ...... 82 -3-

Tble of Contents (Continued

C. Tourism . . . . .* ...... 83 Introduction ...... CI Growth Experience...... 84 Cruise Ship Activity ...... 87 Main Problems . . . . . , ...... 89 External vs. Domestic Factors ...... 93 Prospects . . 9 . 9 9 9 99 9.9 9 9 9 96

D. International Business and Financial servicea . . . . 97

PART B -- TRE FUTURE

V. ZERGING PROBLEMS. OPPORTUNITIES AND UNCERTAINTZIS . . . 100

Introduction...... 100

A. Liquidity Problem . . . .99.99 99. 101

B. Environmental Degradation ...... 103

C. Changes in the International Trading Environment . . . 112

VI. POISCIES VOR SUSTAINED DEVEIOPMEWT ...... 115

Intro.uction ...... 115

A. Macroeconomic Policies for Adjustment ...... 115

B. Policies to Maintain Competitiveness ...... 116 Exchange Rate Policy ...... 118 FiscalPolicy ...... 119 wage Policy ...... 121 Trade Policy ...... 0...... 9.9*122

C. Sectoral Policies for Sustained Growth ...... 123 AInriculture . . .1 . . . . . 2...... 126 Tndustry...... 126 Tourismonal B a Fn Si . 127 International Business and FlnancilalServl;es'. 128 -4-

Table of Contjnts (conti.ued)

D. Policies to Protect the P':ysLcalEnvironment . . . . . 129

3. Access to ExternalFinance ...... '30 External Borrowing strategy ...... 132 Recent Developmeats and the Current Predicament . . 134 Prospectf for Financing ...... *. . . .. 135 Recommended BorrowingStrategy ...... 140

F. Future Scenarios - With and Wi-thoutPolicy Actions . . 141 ExternalEnvironment ...... 142 The High Growth Scenario ...... 142 Financing Requirements . . v ...... 144 The Low Growth Scenario...... 146

ABUZZ: Tourism (Technical Annex) ...... 9. 9. . 148

STATISTICAL APPUSIX ...... 154

MAP$ IBRD 20365 MARBkOSSa REOURENHN! tOR SUSTAINED PEVLOMENT

This special economic report forms part of the graduat. %nstrategy for Barbados initiated in 1984. The report reviews current and pnompective economic developmenta,evaluates the economic performar.ceof the Barbadian economy since gaining independencein 1966 and outlines the policy requirementsfor sustainingdevelopment through the 1990s.

Barbados is a sm-allisland economy, with a history of political and social stability, and a reputation for sound economic managemontt it has had a comparatively successfuleconomic and social developmentexperience over a quarter century of independence. Output growth at 3.2% a year and a slowly growing population at 0.5% per capita have pushed the per capita income level to US$6,370 in 1989 - the highest among the World Bank's active borrowers. At the same time, Barbadian living standards have risen Rteadily and today are among the highest in Latin America and the Caribbean.

For a long time, the production and export of sugar was the mainstay of the Barbadian economy and is still the main agriculturalcrop, which in 1989 accounted for 13.5% of exports. But with the decline of Barbados' ce mparative advantage in this activity and the establishment of an economic environment favoring private initiative and risk taking, the sugar industry gave way to tourism (togetherwith linked service industries)and light manufacturirgas the dynamic growth sectors during most of the period since independence. In the 1980s, however, Barbados' external competitiveness has been severely weakened because fiscal incentives granted and industrial promotion policies have proved insufficientto overcome the effects of macroeconomicpolicies which appreciatedthe real exchange rate and a trade regime which produced a pervasive anti-exportbias. Investment in both the private and public sectors declined, manufacturingoutput tapered off and exports declined, while agriculture,essentially sugar, continued its secular decline. Moreover, employment growth was unable to absorb the new labor force entrants and the displaced agriculturallabor, so that unemployment,which was already at the double digit level at independencein 1966. rose to a level approaching 20% of the labor force. Only tourism managed to show positive growth in output. But even here, underlying weaknesses in the industry -- sustained high levels of domestic costs (labor, utilities and highly lOrotected intermediateinputs) and reduced quality of accommodation-- have resulted in reduced industry profits, and even more telling, a reduced share in Caribbean tourism.

The slow, but steady erosion of Barbados' competitivenessduring the 19809 was exacerbated by the emergence in FY90/91 of serious internal and external imbalances. By early 1991, some of the key performance indicators- the fiscal deficit, foreign exchange availabilityand Central Bank lending to the public sector, for example - had reached crisis proportions. The new budget presented on Aprll 2, 1991 introduced revenue measures to reduce zhe fLical deflilt. The Governmenthas indLcatedthat co:plementaryexpenditure reduction measures wlll be implementedto restore a sustainable balance in the flsoal and external payments accounts and to improve Barbados, competitLveness.

Apart from the urgent macroeconomicconcerns that Barbados must address, its future growth prospects will also depend on tackling a number of longer-term structural deficLencLes. One is the growlng environmental degradation that threatens the natural resource base and the economic llfellne of Barbados. Another is the elimlnatlon of long-standingmicrosconomlc dlitortlons;thLs means providLng a more market-determinedand transparent lncentlve system for private Lnvestment and for output and employment growth. In turn thi. wlll entall liberalizlngthe trade regime, removlng impediments to labor mobllty and implementLng a formal lncomes pollcy all aimed at restoring international competltlveness.

Thls is an enormously challengingreform agenda. Assurlng its successful implementationwill require a vigorous and sustained effort on the part of the Barbadian authorities,the Barbadlan private sector, as well as the provLsion of flnanclal and technical assistance by multllateral and bilateral donors. lUIfhUT OF FINDINGS AND 3CIINAIN

Barbados is in the process of "graduating"as a borrower from the World Bank. This economic report forms part of the graduatior process. The purpose of this report is to evaluate the economic performance of the Barbadian economy since independencein 1966 -- especially the role of national and sectoral economic management - and outline the priority policy requirementsfor sustaining development through the 1990s.

The structure of this report is as follows. Following an introductorychapter, Part A is given over to an historical review and evaluation of Barbadian economic development since the mid-1960e. The key question addressed there concerns the sources of Barbadoo'comparativelygood performance. Part B provides a bridging section between the past and the future. it identifies emerging problems -- some associated with changes in the internal environmentand some associated with changes in the external environment. Part C outlines the requirementsfor svstaining social and economic progress - the actions that must be taken to maintain, if not enhance the high living standards already attained by Barbadians.

QoImLI

Whoever first coined the phrase "small is beautiful" must have had Barbados in mind. It is the natural beauty of this small Caribbean combined with a highly educated population that have been the main factors in Barbados' comparativelysuccessful developmentexperience over a quarter century of independence. Despite its small size - a population of 255,000 and an area of 431 square km.- and a relatively narrow resource base. Barbados recorded a trend rate of real output growth of 3.2% since 19665 and with the population growing at an average of only 0.5% a year, per capita output has advanced at the comparativelyrapid rate of about 2.7% a year. By 1989. per capita GNP reached US$6,370, the highest among the World Bank's active borrowers. Associated with this income growth was a steady improvementin the distributionof income and social welfare - in educationalattainment. housing, and health and nutrition standards. In terms of living standards, Barbados ranks among the highest countriesof Latin America and the Caribbean.

During this period, Barbados in common with many other non-oil exporting developing countries, had to contend with two steep increases in the price of petroleum which, in turn, resulted in sharp deteriorationsin its terms of trade. The last oil price "shock" in 1979/80 provoked a long and deep global that resulted in negative output growth rates in Barbados in 1981 and 1982, accompaniedby abnormally high rates of . From 1983 to 1986 there was a strong recovery led by tourism. Thus, the severe economic shocks experienced by Barbados during the first 20 years of independencewere managed with considerableacumen; the macroeconomicpolicy responses were sound and timely, and the ecno'my displayed considerable resilience. - Li -

This comparativelysuccessful developmentexperience can be traced, in broad terms, to such ingredientsas:

* strong leadership of a consensus society committed to orderly and equltable social change;

* the creatlon of an enabling environmentwhich fostered private initiative and rlsk i;akingt

* a commltment to flscal prudence around which there emerged a large degree of political consensus;

* provision of a supportive publlc soclal and economic lnfrastructure and a competent and dedicated civll service to implement policies;

* harmony between economic growth and human resource development as reflected in a long period of investment in high educational standards; and

* the provision of financial and technical asslstance ln support of Barbados' development programs.

Since the early 1980s, however, the Barbadlan economy has begun to show signs of "weariness" and the dynamlsm that characterized the economy in earlier perlods has not been in evidence. Investment in both the prlvate and public sector declined, manufacturLng output tapered off, while agriculture. essentially sugar, continued its secular decline and dralned an increasing volume of financial resources from the rest of the economy. Only tourism, mainly aided by a favorable movement in the US$/f exchange rate, continued to prosper. But even here. long-stemming underlylng weaknesses in the Lndustry began to emerge, weaknesses whlch were reflected in a loss of market share to competitors in the Caribbean region. Serious internal and external imbalances in the economy became evident in 1990 and by early 1991, some of the key performance indicators had reached crisis proportions. The new budget presented on April 2. 1991 lntroduced revenue measures to reduce the flscal deficlt, and expenditure reductionmeasures are also expected to be implemented. Restoration of sustainable internal and external balances and improvementof Barbados, competitivenesswlll require correctlve pollcles along the lines outlined below.

Pattern of Outrnt-Growth

The pattern of Barbados' economic growth slnce independenceln 1966 can be summarLzed as follows:

* tourLsm, growing at a rate more than twice that of total output, was the major dynamie sector in the economy;

* the Barbadian economy has undergone a structural transformationin whlch services (includinggovernment, tourlsm and tourLim-linked actlvltles)have become the domlnant component of total output; - LLL -

* contrary to expectatlons from a shlft ln output to servlces (labor-uslng) that employmnt would grow quLckly, lt actually grew modestly at only 1% a year over the 1966-89 period and at a slower rate than the labor force, therefore resulting ln a hlgher rate of unemployment at the end of the perlod compared wlth the beginnLng;

* the analysiL of the sources of growth ln Barbados shows that although labor's share in output is roughly three times that of capltal, the latter's contributlonto growth over the 1966-89 period has been almost twice that of labor; thli impllee that despite the shLft in the structure of productlon to servLces over the period, the production mode has been more capltal uslng than labor usLng; and

* output growth in Barbados has been accompanied by widespread Lncreases in soclal welfare and reflected ln the steady advance of all the social lndlcators.

Sectoral PerformanceaPliLces and

agrLculture

Three major trends have dominated the agriculturalsector over the last 25 years; the first is the decline of the sector's contributionto the output and employment of the economy; the second is the decline ln profitabillty,or, more accurately,the Lncrease ln losses of the sugar sub- sector; and the thlrd is the failure. despLte much effort, to diversify the sector and establish viable alternativesto sugar. The declinlng fortunes of agriculturecan be attrlbuted to the lnabilityto compete wlth other activity sectors for labor, and to the rapld lncrease in the value of land for non- agriculturaluses; the decline ln sugar was also due to declining yields in both the field and factory. What is more, within the Caribbean CommunLty (CARICOM), Barbados has been hard put to compete with other countries such as and , which are better suited for agriculturalpursuits. By April 1991, about three-fifthsof the way through the 1988-93 Plan period, tsiereis little or no evidence that the Government'snew recovery program with diversificationas the major thrust -is being effectively implemented.

There are two fundamental Lmpedimentsto the effective implementatienof the new recovery program. First, about 80% of the arable land li owned or controlledby sugar industry interests. Second, the industry is subsidized at a level which yields private benefits in excess of those attainable from other agriculturalactivities. Unti thie subsidy is eliminated, the diverelficationof agriculture in Barbados will remain hostage to the sugar industry interest..

With the aging of the farm populationand the failure of the sector to attract entrepreneurs from the younger generation,agriculture appears to be heading for a continuingdecline. Reversing this trend would entail enormous cost in terms of major lnvestments,additional subsidies and protection. The cost would be difficult to justify. What seems a more realietic strategy is to aim for a smaller, leaner and more efficient sector, - iv -

one which produces specLalizedtropical products for export and a range of items that effectively compete with imports for the tourist industry and one ln which all land use deciLions would incorporatetheLr ecological impact as one of the dimensions in the evaluation. It would also require a revitalizatLonof the public institutionsengaged in promoting agricultural development.

For M&qgX&this would mean gearing down to a production target level of approximately80.000 tons for the next few years, until the future structure of the internationalsugar market and preferentialarrangements become clearer. Even at this target level, and after cutting out the ecologically least suitable areas so as to reduce costs at the margin, it will be necessary to vigorously lmplementthose elements of the Government's recovery program aimed at reducing sugar production costs and improving efficiency. Towards this end, the Government. after a year of pilot testing, will undertake a major revamping of the current inefficientcane pricing policy based on price differentials by ecological zone to one based on sucrose content. At the farm and factory level, increasing yields and reducing costs will also require:

e improving the use of herbicides and fertilizers,cane stands, soil drainage and soil compaction,and controllingcane diseases and pests. This, in turn, will require intensive training by extension agents arid others, directed at both the farm managers and labor to ensure proper soil and crop management techniques;

° increasing the on-farm mechanization and improving the maintenance of existing farm equipment but recognizing that the greatest single obstacle to increasing and improvingmechanical processing is the proper preparationof sugar land; and

* reducing the cost of processing at the factory level through equipment upgrading and refitting in the remaining factories.

Beyond the next few years, the optil..'size of the sugar industry and the level of government support will have to be reconsidered. The impending changes in preferentialtrading arrangementsin agricultural products offer the prospect that Barbados will have to give up sugar as a viable industry. In this event the case for re-examining the role of such agencies as the Barbados Sugar Industry, Ltd. (BSIL), Barbados Agricultural Development Corporation (BADC), Barbados Marketing Corporation (BMC) and even the Ministry of Agriculture and Fisheries itself, would be very much strengthened.

With respect to agricultural diversification in the future, a basic proposition that should guide any and all proposals for viable opportunities to replace (or complement for a time) sugar, is that any further alienation of *green land" should be evaluated in light of the environmentalimpact the new land use would have. This means introducingmeasures that will require envlronmental impact studies as a standard procedure for large land transfers. Measures should also be introducedto deter the excessive use of fertilizers, herbicides and pesticides. Among the measures that seem especially relevant - vi -

the Single European Market (SEM) in 1992. the future of manufacturing ln Barbados La likely to mirror the past general stagnation ln output, alleviated by the periodlc growth and decllne of a few footloose enclave LndustrLes and by the hothouse growth of a small sub-sector or two which receLves especlally strong protectlon from foreign competltion. Rislng real wages wlll contlnue to put pressure on proflts ln the sector, and productivltygalns will not be able to offset these real wage increasesbecause of the small scale of local and regional markets. In this scenario,total employment ln the sector would be expected to fall slowly over time.

Offsetting this picture to some extent are Barbados' favorable cllmate for foreign investment, includlnggood lnfrastructureand an educated labor force, and relatlve stabillty and growth in the CARICOM market at present. However, other Caribbean countrLes offer equally favorable Lncentives to investment,and much lower hourly wage rates. CMRICOO has proven to be an unstable, uncertain market in the past decade, and exports to the Organlzationof Eastern Caribbean countries (OECS),which have been stable up to now, depend to a significantdegree upon the continuationof preferentialmarket access for their bananas and sugar.

Even with the appropriatepollcy reforms, export competitiveness will require the developmentof new product lines or sub-sectors. A recent export competitiveness and marketing analysls has identified a number of potentLal new products for development in Barbados. While the analysis is sophlsticatedand detailed, lt is not a substitute for entrepreneurswilling to identify and produce profitable lines of output. Export marketing under current conditions is hazardous, and entrepreneursare llkely to choose the safer areas of productLon for the local market, or of investment in real estate, so long as the incentive system remaine unchanged.

TourLsm

Tourism is the main provider of foreign exchange earnings, the main source of growth of the economy and a major employer. It currently contrlbutes 12% of GDP, over 20% of total employment and 60% of export earnings. Thus, a strong performance by the tourism sector is a prerequisite for the sustained development of Barbados in the future.

Over the period 1985-89, tourism in Barbados benefltted substantlally from the sharp fall of the US$ agalnst the £ sterling and total tourist arrlvals rose by close to 30% over the four years. In splte of this improved performance ln recent years, Barbados has continued losing ground as compared with other major Caribbean destlnations, a process which began in the early 1980s. Increasingly, Barbados has been facing stiffer competition from other Caribbean destinations,such as the OECS countries, which have placed heavy emphaesi on tourism and expanded and improved their hotel capacity and infrastructure,while and the have devalued their exchange rate. Thls heightened competition has made the tourism industry in Barbados much more sensitive to changes ln domestic policies.

The increasedcompetition notwithstanding,hotel capacity in Barbados over the last ten years has stagnated, and refurbishingand ares the permanent zonLng of some parcels of land exclusLvely for park land and recreationalpurposesl strict enforcementof land use regulatLons by the Town Planning Board; and the treatment of capltal galne from land sales as a tradlng galn and subjectLng them to th. corporation tax.

Apart from the envLronmentald$mension, developLng a dlverslficationprogram will requLres

* establlshLngthe framework for cost-benefltevaluation of alternative crops in an open market tradlng system;

C lncreasLng the developmentof LrrLgdble land for lntenslve cultivationof hlgh value crops; and

* developing routlne research for crops such as yams, sweet potatoes, onions, carrots and tomatoes, and rlgorously re-examinlngthe prospects for peanuts and Sea Island cotton from both the economlc and ecologlcal standpolnt.

Industrv

The manufacturlng sector in Barbados, when measured in terms of employment, is characterized by a relatlvely large number of small fLrms. Among the larger flrms are found the enclave companles, Lnvolved ln offshore manufacturlng for extra-reglonal markets But most are domestic flrms whlch are engaged in import substitution, often operatlng at a regional level. and in producing llght manufactured goods for the local and CARICOMmarkets. Manufacturing output (excludlng sugar unless otherwlse noted) grew slowly from 7.0% of GDP (at market prices) ln 1970 to a peak of 11.5% in 1984, but then fell off quite rapidly to 6.8% in 1989. These output trends were closely related to the exports of manufacturedproducts, which as a percent of GDP at market prices increased from 8.0% in 1976 to 21.8% ln 1984 thereafter falling sharply to 5.3% in 1989.

The manufacturingsector Le hlghly protected. Protection is provlded by an escalating tariff structure which generates high levels of effective protection on domestic value added, and by a complex system of stamp duties, consumptlon taxes and non-tariff barriers. Recent price comparisons of products in Barbados and the U.K. show much higher prices on average in Barbadoo for food and beverages, textiles, chemicals, paper and printing, metal products and other products. All these products are produced ma'.nlyfor the local or regional market, except textiles. Productlon for export. however, is constrainedby current tariff policy. Effective protection rates for domestic sales are much hlgher than effectlve protectlon rates for export sales within the same manufacturingsub-sector, giving strong incentives for manufacturing firms to produce for local consumptlon. Deopite these high levels of offective protection on domestic value added, the manufacturing sector has been virtually stagnant since 1976. Exceptlons are conflned to relatively small sub-sectors,such as wooden furnLture.

Without a major reform of the trade regime and a concerted effort to establish wider links wLth European firms and markets in anticlpation of - vii -

renovation have lagged. Consequently,the quallty of accommodationshas deteriorated. Since Barbados has traditionallysought to attract the hlgh end of the tourLsm market, this development in worrisome. Furthermore,according to a recent survey, Barbados is perceived as having a poor price-value relationship,both in terms of lodging as well as restaurant and other services. In terms of overall cost of vacations,Barbados generally ranks among the highest in the region.

Domestic cost factors have reduced the profitabilityof tourism relative to other sectors of the economy, which ln turn has reduced its capacity to compete effectively for capital and other resources to expand output and productivity. Average wageo for hotel workers over the past two decades have risen at a faster rate than the rest of the economy. This is especially critical for the hotel and tourism industry where labor cost representsa high share of total cost. High wage costs have also affected port services. Freight handling is the main cause of high port coets and makes Barbados one of the most expensive ports in the Caribbean. Furthermore, trade policy in Barbados is characterizedby a high degree of protection for import substltutionand by an anti-exportbias. Trade policies affect the cost level of the industry. Prices of tradeable intermediateinputs (notably processed foods and furniture)and indirectly,prices for non-tradedgoods and services (transportation,restaurant meals), which are a sizable component of tourism expenditure, tend to be higher as a result of a structure of incentives which provides high levels of protection against imports. The protection of the non-tourist economy, in turn, increases the relative profitability of import substitution activities, and since these activities often compete with the tourism sector for capital and other resources, the flow to the tourism sector is to that extent, negatively affected. The concern is that policies which induce even moderate increases in the cost of tourism now have a greater effect on the performanceof the industry than 10 years ago, when Barbados enjoyed a higher degree of market power in the Caribbean region.

Throughoutthe 1980s, Barbados consistentlylost its share of Caribbean tourism stayover arrivals. During this period external factors have shown wide fluctuations,while domestic costs in Barbados have been rising steadily vis-&-vis major competitors. To quantify the relative impact of external as opposed to domestic factors on the loss of external competitivenessof Barbados, an empirical study using regressionanalysis was undertaken. The results of the study show that domestic cost factors have played the key role in determining the loss of competitivenessof the Barbados tourism sector. The policy implicationsof these results are quite clear; if Barbados is to compete effectively in tourism, it will have to reverse the process of rising domestic costs relative to the rest of its Caribbean competitors.

As of 1991, the only way for the tourism sector of Barbados to recover internationalcompetitiveness is through a substantial improvementof the relative profitability of tourism within the economy. This will require the implementationof consistent fiscal,monetary, wage and trade policies to reduce the relative price of non-tradeablesand reverse the process of rising - viii - domestic (US$ adjusted) costs relative to its major Caribbean competitors. Barbadoscannot continue to rely on pieccmeal incentives to offset the dlitortions stemming from the current flical deficLt and the current trade reglme. only a far-reachingpolLcy effort wlll help Barbados to reverse the downward sllde of internal and external competitivenessand hence its increased vulnerabillty to exogenous shocks.

InternatiQnal Business and Finaicial 8ervices

The lnternationaland busLness services sector comprises companies engaged ln offshore banking, management consulting, insurance, foreign sales and internationalbusiness that are registered in Barbados, but sell their services outeide the country. The attraction of Barbados for these companies is its locatlon, well-educated labor force, a well-developedinfrastructure includingworldwide telecomrunicatLonsfacllities, and a mLnimum regulatory and tax burden imposed. It is a small but rapldly growing activlty sector. It offers considerablepotential for generating employment opportunitiesand tax revenue. LegLilation is belng prepared to codlfy existing rules and regulations and to provlde some additional benefits. With the advent of the Single European Market (SEM) in 1992. a joint private-publicinitiatlve to open connectionswith European investorscould be rewardlng.

nerainaProblems

Policy making ln Barbados today takes place within an environment very different from that of the past. on the external front, Barbados faces increased competition from alternativeCaribbean tourism destinations, uncertainties about the emerging new or strengthenedtrading blocks and reduced availability of external financing. Domestically, Barbados faces serious short-run macroeconomic imbalances coupled with a greatly increased debt burden and structural deficiencies which endanger foreign exchange earning capacity and the future growth potentlal of the country.

Adiustment Issues and Policieas

For most of the period since independence,Barbados, record of macroeconomic management has been commendable. It has successfully maintained a fixed exchange rate vis-&-vis the USS with the support of complementary macroeconomlc policies. The authorities managed to contain fiscal deficits within a range that could be financed internally and externally without difficulty, implemented a monetary policy that generated a tolerable rate of inflation compared to the U.S. and secured an increase in foreign exchange reserves in most years. In the early 1980s, Barbados was affected by the suspension of the CARICOMMultilateral Clearing Facility, yet the fixed exchange rate parity was not threatened. However, throughout the decade of the 1980s, expansionarydemand management policies contributedto a progressive deteriorationof Barbados' external competitivenesswhile increasing the debt burden and dependency on external financing. Consequertly,a sharp increase in the fiscal deficit in FY90/91 combined wlth reduced tourist inflows, resulted in wide imbalances in internal and external accounts that call for urgent stabilizationmeasures. - ix -

The adjustment measures reqired to stabilize the Barbadian economy have to focus on the two main Lmbalancem. The first is the need to sharply reverse the fiscal deficit in the public accounts and reduce the inordinately large volume of government borrowing from the Central Bank. In the current state of uncertainty, the reduction in the fiscal deficit is paramount. The second is the need to rebuild the foreign exchange reserve stock. These two lines of policy action are mutually supportive. A reduction in the fiscal deficit will reduce the preosure on imports and hence contribute to an increase in reserves.

Reducing the fiscal deficit will require a major cut in expendituresfor FY1991/92. The main emphasis should be placed on reducing current expenditure levels, specificallythe wage bill. Considerationshould also be given to a freeze on civil service hiring or even a cutback in the current high level of public sector employment, a postponementof the negotiated 3% across-the-boardincrease In civil service salaries for 1991. and the reduction of the subsidies provided in agriculture,housing and transport. Capital expendituresshould be cut or postponed in such a way as to protect the maintenanceof the existing capital stock and high priority economic and social infrastructure,and leave room for dealing with the environmentalproblem. In summary, the short-run stabilizationprogram should focus on expenditure reduction measures which are at the same time consistent with the long-run objective of restoring Barbados, external competitiveness.

Current revenues are already high in Barbados and raising them fu:rthercould have an adverse impact on incentives. But given the size of the deficit, and the need to reduce absorptlon it will be necessary to raise revenues in FY1991/92 through a combinationof an increase in the consumption tax on both domestic and foreign goods, increases in personal and corporate income tax rates, and possibly divestment from selected public enterprises. If public expenditure and revenue levels can he restructuredalong the lines suggested here, it should be possible to restore a viable balance in the fiscal accounts by the end of FY1992/93. On the external side the Government will have to secure lines of credit, preferably from internationalfinancial agencies to provide balance of payments support, allow the replenishingof reserves and generally, to "lubricate"the adjustment process.

The new budget presented on April 2, 1991 introduced revenue measures to reduce the fiscal deficit. The Government has indicated that complementaryexpenditure reductionmeasures will be implementedto restore a sustainablebalance in the fiscal and external payments accounts and to lmprove Barbados' competitiveness.

Protectina the Envlironment

There is by now sufficLent evidence to confirm that Barbados is facing a serious environmentalproblem. The results from intensified monitoring and a range of scientific studies all point to the degradation of the marine ecosystem, comprising an interrelatednetwork of reefs, near-shore fisheries, beaches and the coast. The sources of the degradation include land-based pollution -- soil erosion, sewage effluent, and liquid and solid wastes from households, hotels and commercial activities. oil slicks, cruise and cargo boat waste are major sources of marine pollution. Since the main x economic actlvities in Barbados depend, to an unusual extent, on natural resource *xploitation,envlronmontal degradation at the current rate will soon* lf lt has not already, reduce the output and employment generating capacity of the Barbadian economy. it iu a matter of urgent concern.

The analysis of environmentallusues in Barbados leads to the incontrovertibleconclusion that the councry's capacity to sustain economic growth is being eroded. Unfortunately, in many instances,the solutions are not yet known, and even the exact causes of the degradationare not fully understood. The process of environmentaldegradation is still reversible, but already constitutes a serious negative externalLtywhich warrants intervention to correct it A concerted effort by the Government, the private sec"or and donors to address the priority areas of environmental degradation is a matter of utmost urgency.

Within the enmironmental program enunciated by the Barbados Government, it is recommended that urgent consideration be given to the following actions:

C incorporate (through the appointment of knowledgeable staff) the environmental dimension in economic planning, in all public investment decisions and in natural resource management;

* legislate a National EnvironmentalProtection Act that is forward looking, provides a wide range of incentives as appropriate and has strong surveillanceand enforceable regulatory provisions covering (a) the treatment and discharge (includingsiting and maintenance of outfall pipes) of sewage effluent by private hctels; (b) the dumping of solid waste; (c) the utilization of chemicals in agriculture; and (d) the importation, use and disposal of toxic chemicals;

e review the system of incentives to encourage environmentallybenign decisions in the private sector;

* strengthen (with staff, measuring equipment and independent laboratories) the monitoring of marine and fresh water quality and establish a baseline data system for close tracking of changes;

* preserve the Scotland District because of its attractiveness to tourists and because it serves as a groundwater catchment area contributingone-fifth of Barbados, groundwater reserves;

* seek technical assistance from internationalor bilateral agencies on outfall pipe placement for treated and untreated effluent - a major source of marine pollution and reef destruction;seed money should be sought to finance networking,training, data base collection and informationexchange parties working in this area in the Caribbean;

* review existing physical planning rules and guidelines with a view to encouraging designs appropriateto a small island with limited land space and resources,prevent new hotel sitings too close to - xL -

the beaches, and foster the deslgn of sewage systam for small- scalo use; and

* strengthen and formalize the inter-LnstLtutLonal Comiittee to serve as an overaLght body on the design and implementation of the onvlronmental protection action programs lt should be glven the capaclty for polLey maklng and for the technlcal review of projects and for programsu the strengthened Committee is a preferred alternatlve to the creation of a super MLnLstry of the EnvLronment.

Longer-Tern lssues and Pollcies to Restore Coaoeti¶Lunns

Barbados La a small open economy wlth a reduced domestlc market, limited natural resources and heavily dependent on lmports and the export of services. As such, the level of export competltiveness is crucial to maintaining external balance and sustainedgrowth.

During the 19800 Barbados' external competitivenesswas severely weakened. Merchandlse exports peaked in 1984 and have stagnated thereafter, since speclfic fiscal incentlves and industrlalpromotlon polLcLes proved lnsufficientto overcome the effect of macroeconomicpollcies which appreciatedthe real exchange rate, and the pervasive anti-exportbias of the trade regime as a whole. The effect of these policies is evldent ln the tourism industry, whlch loot ground vis-&-vis its major Caribbean competitors throughout the 1980..

Domestlc cost factors have been at the root of the loss of internationalcompetitiveness of Barbados as prices increased faster than in the U.S. and in major Caribbean competltors. Both macroeconomlc imbalances and mLcroeconomic dlstortlons have contributed to thls outcome. Expansionary demand management pollcles relnforced by wage pressures stemming from labor market distortions have resulted in Lncreauee ln aggregate expenditure and in the appreciation of the real exchange rate vLs-&-vis Caribbean competitors over time. Microeconomic pollcies failed to correct labor market rigiditLes which have been a major factor underlying the long-run trend of real wages. Moreover, trade and tax polLcLes, through a complex set of lncentives and government interventionspromoted the development of an LneffLcies. import- substitutingsector. Restorlng competitivenessto the economy is a key challenge for Barbados over the next few years; it means first, addressing the macroeconomic imbalances,and second, increasing the role of the market as a basic mechanism of resource allocation by implementinga more neutral economic incentives framework. Thli also lncludes re-examinlngthe functionlngof the banking and financial sectors.

Exchange Rate PolLcy

The flxed exchange rate system has clearly brought benefits to Barbados; lt provlded a stable framework in which the economy was able to achieve an envlable growth record over more than two decades. Nevertheless, Barbados' real exchange rate has appreclated against both the US$ and the currencies of important regional competitors. In the absence of a strong adjustment effort, therefore, the short-term balance of payment pressures - xii -

summarized above, as well as longer-term real exchange rate equilibrlum concerns, mlght make the malntenance of the current nomLnal parlty to the US dollar dlfflcult.

Movement ln the real exchange rate (RER) is not by itself sufflcient to prove that lt le of, lts equillbrlum path, since the equillbrLum RBR will move ln response to economlc growth or exogenous terms of trade shifte. The actual equilibrlumRER at any polnt ln tiLe or over tlme li not suuceptLbleto preclse measurement. Nevertheless,two major factors suggest that the RER of Barbados may have unduly appreclatedin the 19809. Flrst, the ever-increasingindebtedness in terms of foreign currency meane that, other things belng equal, the RER would have to depreclate to generate even larger debt servicing payments. Second, the loss of its share in Caribbean tourism and the virtual stagnatlon of manufacturLngoutput ln the 1980s point to a lose of competLtivenessboth ln tourism and manufacturLngcrlng to an RER which has appreciatedagainst other Caribbean competltors.

Glven the fact that Barbados has had a flxed exchange rate sLnce independenceand the many advantages such a system provldes, lt is reasonable to assume that the Government will want to keep the current parlty unchanged. It has to be recognlzed,however, that obtaLnLng the zealdepreciatlon needed to restore competitiveness to the economy wlthout movlng the now.Ln!l parlty will require a sizeable reduction in nomlnal expenditure levels and a large degree of fiscal, monetary and wage restralnt both in the publLc and prlvate sectors. The polltical feasibilLty of exerclslng such restraint se a crucial Lssue Ln this context; lt wlll require an understandLngby the Barbadlan soclety that some reduction in real wage levels mlght be necessary and thelr acquiescence to the measures for achLeving lt.

Fiscal Policy

Current expendituredata polnt to a secular Lncrease of expendlture levels in the Central Government. This expanslon is worrlsome since lt has intensifiedmaLnly over the last flve years, a period when government services were not being substantLallyexpanded. Two main variables explaLn thLs Lncrease: interest payments on the publLc debt and the wage bill. Combined, they represent close to 60% of total current expenditure and Lmpose a constraLnt on fiscal flexibilLty.

Rising interest payments are the result of Lncreased public debt levels incurred in financing the deficit. The secular rise in the Government'swage bill as a proportLon of GDP is maLnly related to job regrading and Lncreased employment levele rather than lncreases Ln base wages. In effect, while throughout the 1980. public sector wage Lncreasesdid not outpace lnflatLon, government employment rose from 34% of total employment over 1977/79, to 37% over 1980/84 and 38.3% over the last five years. Given the polLtical sensLtivityof reducing wage and/or employment levels in the public sector, thLs trend creates diffLcult choices for future e.:penditure reduction efforts.

ConeLderatLonsof type and quality of government services are often neglected when implementingexpenditure reductLon and/or publLc wage polLcLes. In Barbados, publLc sector wage policy through regrading and across-the-board - xLLL -

percentage wage lncreases has aimed conaLstentlyat reduclng the dLipernlon of salary ranges on grounds of equlty. Increasing employment beyond the necesaLties of a glven servlce and reduclng wage dLipersLon can have very adverse effects on the qualLty of servLce provlded, through overcrowdLngand the dLiLncentLveto retaln highly quallfLed manpower. Furthermore,narrowing of the wage scale for the publlc sector provldes a model that tends to be followed ln prlvate wage negotiatlons.

The trend towards compressLonof current expenditure in 'other goods and servLces"also needs to be carefully revlewed. Although stll lnclplent, thle trend could have serious adversa effects Ln the medium term by reducing the qualLty and effectlvenessof government servlc-e as well as the maintenance of Lnfrastructure. As many studLes have demonstrated,malntenance of the exletlng capital stock can have much higher rates of return than now lnvestment.

Wlthln thle broad guldellne, expenditurepollcy should alm at a slzeable reductlon of the publlc sector wage blll both through wage and employLment policles. In the short run, a wage and salary freeze will need to be consLdered and ln the short and medlum run, a ceLling on publlc wage settlements needs t_ be lmplemented. Thls wlll reduce the publlc sector wage bill as well as lnform the rest of the economy of the serlousnessof the adjustment effort needed on the wage front to enable Barbados to lncrease lts external competLtLvenesuthrough an "Lnternaladjustment program."Y Employment levels in the public sector need to be carefully revLewed to streamllne non-essential manpower and/or servLces, wlth the reductlon of publlc sector employment through attrltlon as a flrst step. As regards non- wage expendLture,the maintenance of exLsting capltal stock should be protected while all low prlorlty investment projects should be postponed.

The need to lmprove Barbados's economlc efficLency and phase out the fLical defLcLt will lmply a strong effort to ratiotnalize public servLces. The Government li in the process of implementLnga comprehenslvereview of public sector functlons. Besides elimlnatlng overstafflng and overlapplng and/or dupllcatlon of servlces, thls revlew will aim at improvLng efflclency and the flnancial posLtion of publlc sector enterprlsesand reduce Central Government's transfers through measures to lmprove cost recovery and prlvatLzatLon of publlc enterprlses. In thle context, emphaels needs to be glven to lmprovement of the efflclency of the port whose hlgh costs Lmpose a heavy drawback to Barbados' lnternational competltlveness.

Durlng the 19809, Barbados' tax system has undergone a major shlft from direct to lndlrect taxatlon. The main weakness of the current revenue and lncentivespollcy ln Barbados li related not so much to this shlft towards lndirect taxatlon ln ltself but rather to the lack of neutrallty and transparency ln the structure of taxatLon ln Barbados, and lts Lncreaelng complexity. The lack of neutralLty of the system li clearly exemplifled by

1/ n"Internal adjustment program" refers to adjustment of the real exchange rate through fLscal, wage and monetary restralnt rather than uslng the nomlnal forelgn exchange parity as an inetrument. - xiv -

trade and consumptlontaxes which result in a heavy anti-export bias and dlecriminatesbetween inputs and factors of production.

While vertical equity considerationswere taken into account in the design of Barbadoe' consumptiontax, the neutrality aspects were hardly considered. In fact, the Barbados consumption tax is far from a "pure" consumptiontax, since it discriminatesin favor of consumptionof local goods and against imported ones. Consumptiontaxes should be modified so that the same rate is applied to a given good regardless of whethor it is imported or domesticallyproduced. Furthermore,the tax is not collected consistentlyat the retail stage and while recently many intermediateinputs and raw materials were exempted by special order, distortions still remain.

The Barbados tax system has also relied heavily on numerous special provisions and exemptions to partially compensate for allocative distortions introduced by the consumption and trade taxes, and many regulatlons provide incentives to specific activities and new investment. Among these are tax holidays for new enterprises. The system has progressivelybecome less transparent over time and it is difficult to assess the tax burden of different economic agents. The fact that many of these special provisions are not automatic but need to be applied for on a case-by-case basis makes tax administration more complex and costly and creates a degree of administrative discretion which magnifies the distortions introducedby the tax provisions themselves.

The tax burden in Barbados is high by any standard. Broadening the personal income tax base or a wage tax can be considered as a transitory measure until more permanent expenditure reduction measures can be put in place. Nevertheless, the challenge for tax policy reforms in Barbados over the next few years will be to simplify the system and eliminate the distortionary effects of trade and consumption taxes. More broadly, enough anomalies have been created that a comprehenslve review of the tax system would be desirable, in particular if the trade reform is likely to result in a loss of revenue.

Wace Pollcy

To reverse the process of rising domestic costs against its Caribbean competitors,Barbados will have to place special emphasis on public as well as private sector wage restraint. Nominal wages in Barbados have closely followed the domestic CPI index. Nevertheless,to enhance external competitiveness under the current exchange rate system, domestic real wages will have to fall. Given the current moderate lnflationarytrends in the world economy, sufficient depreciationof the real exchange rate by means of aggregate demand policies would require wages and prices in Barbados to remain essentially constant or even decline to achieve a significantreal devaluation.

The Government does not have an articulatedwage policy, but the fact that public sector wage settlementsare taken as a guideline, if not a determinant for wage settlements in other sectors of the economy, is a near equivalent to a powerful wage-administering role. Therefore, public sector wage restraint is a cruclal element of the adjustment effort. Two unions - - xV-

the National Union of Public Workers (NUPW) and the Barbados Workers' Union (BwU) - cover almost all unionized workers. Given the high degree of market power of Barbados' unions. it io crucial to secure their support for the program. It is universally agreed that the leadership has bargained responsibly in the past, thus, there is every reason to expect that the unions, apprised of the severity of the situation, will understand the need for restraining the size of wage settlements in order to restore the previously successful framework of economic management and to keep the current exchange rate system intact.

Besides the level of wages, a major labor market issue relates to other components of labor costs such as hiring/firing legislation, and increasing rigidity in union job descriptions, which contribute to higher costs and to lower quality of services provided. These regulations also serve to impede labor mobility and the restructuring of the economy that the policy reforms are intended to set in train. Furthermore, unemployment benefits in Barbados are relatively generous, and hence, reduce the incentive to actively search for another job once a worker is laid off. The National Insurance Scheme also needs to be reviewed from the standpoint of its impact on labor cost and mobility. Thus, reducing the financial burdene of employing labor (including severance pay and mandatory national insurance contributions). reducing unemployment benefits, and revising legislation affecting dismissals are critical steps towards containing the growth of labor costs and increasing ',abormobility and employment.

In sum, wage restraint and the removal of labor market distortions are crucial to a successful adjustment effort. Moreover, these policies could also have positive efficiency effects on the economy and help reduce the high level of unemp!'rment. Towards this end, it would also be desirable for the private sector o, take a more pro-active role in influencing the curriculum of the educational bystem so as to help ensure that its output responds better to functional contixt needs.

Trade Policy

The traa. policy of Barbados over the years has reflected various pressures: the req irement to raise revenue to finance government expenditure, the dcsu.re to protect domestic agriculture and industry, and the need to generate suOZicient foreign exchange to pay for imports. As a member of CARICOM, Barbados cannot impose tariffs independently, but CARICOM regulationLsallow countries such a range of other trade restricting instruments, including stamp duties, consumption taxes and non-tariff barriers, that Barbados has been able, to a large extent, to determine the degree of openness of its economy. As a result, trade taxes in Barbados are extremely complex and rely heavily on differential tariff rates as well as quantitative restrictions. In general terms, trade and consumption taxation has aimed at protecting the Lmport-substituting manufacturing sector and has resulted in a high degree of anti-export bias and dispersion of effective protection levels across different sectors of the economy. Ultimately, it ie the Barbadian and tourist consumer who pays for thie protection.

Thus, trade policy should aim mainly at substantially reducing the anti-export bias of the trade regime by: (a) reducing the protection of - xvl -

Lmport-substLtutLngactlvltles, and ensuring that all exporters (lncludlng tourLem and other services) have access to imported Lnputs on a free-trade basisa (b) o'lmlnatlng dLstortLons arLsLng from the system of fLical lncentlves by phasLng them out fLrst for heavlly protected Lmport-substLtutLng actLvLtLes and then later, when they are no longer neoded, to offset the reduced level of protectlon for other actlvltles as well; (c) maklng the necessary changes ln the institutionalarrangements affectLng the tradable sector (LncludLngCustoms, the Barbados Industrlal Development Corporatlon (BIDC) and the Barbados Export Promotlon Corporatlon (BBPC)1, to ensure the most offlclent provision of export- and lmport-related servlces.

Zavesteent and Its FLanaina

Gross domestLc Lnvestment ln Barbados grew rapldly throughout the 1970. and early 1980. but after a sharp drop ln 1984 lt has remalned stagnant at well below its hlstorlcal levels. Prlvate Lnvestmentwas the major component of the decllne. Lack of flnanclngor cost of funds have not been identifled as constraintson lnvestment ln Barbados, and the regulatory frameworkgovernlng lnvestment has remained unchanged slnce the mld 1970s. Rather, the fall ln Lnvestment *lnce the mld 1980. has been determined by the lack of attractive Lnvestment opportunLtLes in the traded sectors whlch accompanled the loss of competltlveness of Barbados during the 1980.

Gross national savlngs rose from an average of about 13% of GDP over 1974-78 to about 17% durlng the 1980s as a result of a strengthenlngof domestic savings ln the early and mld 1980c and steady private transfer inflows. In recent years, however, expansLonaryflical polLeLes have contributedto a reductlon ln gross domestlc savings from a range of 15%-17% durlng the late 1970c up to the mLd 1980. to an average of 14% of GDP over 1986-88. A modest recovery of gross domestlc savlngs ln 1989 was caused by a strong public sector savLngs effort equlvalent to 4.5% of GDP. Prlvate savings performance contlnued to deterlorate. In 1990, public savlngs deterioratedsharply and became negatLve. Thus, lt wlll be crltlcal to adopt policLis that wlll reduce public consumptLonand encourage prlvate savlngs to flnance a rlilng share of lnvestment.

Access to External Vinance

Durlng the decade of the eighties there was both a major lncrease ln the scale of external borrowLng by Barbados and a considerable diversificationof the currency composLtLonof the debt. Gross external borrowlng averaged US$67 mllion a year ln the second half of the decade compared wlth US$32 mllion a year ln the fLrat flve years. Almost all of thli increase was due to a rapld expansLon of borrowlng from the capltal markets. A large part of thLs borrowlng contlnuedto be ln pounds sterling and ln US dollars from tradltlonalsources of flnance ln the and the Eurodollar market but also, beglnnlng ln 1985, a number of lssues were made ln yen.

These yen bond iesues marked an lmportant departure from the Government'sprevious borrowlng practlce. As a result of thli LnLtLative, - xviL

Barbados (since it does not earn export revenues ln yen) became exposed to a substantLal forelgn exchange rlsk. It is estlmated that the real offectlve cost of the first bond lssue (whlch matured in 1990) was 24% per annum ln dollar terms compared wlth a nominal Lnterest rate of 7.7% ln yen terms - the difference being attributableto unfavorableexchange rate movements. In order to reduco such foreLgn exchange risks Ln the future it is recommended that the Government concentrate lts borrowing in currencies that reflect Barbados' sources of export earnLngs (i-.e, US dollars, Canadian dollars and pounds sterling). Loans ln other currencles should be suitably hedged at the time they are contracted.

In the late eLghties, some 66% of Barbados' gross external borrowlng came from the capital markets and thle relatively heavy dependence is a potentlal source of vulnerabllitybecause internatLonalfinanclal LntermediarLesare apt to hold back on soverelgn debt for the slLghtest reason. Project related flnance is more robust in that respect. It is recommended,therefore, that the Government make fuller use of lts large public investment program (whlch currently exceeds US$100 mllion) to shift lts borrowlng strategy more towards project related flnance wherever possLble. Suppliers credits - provlded competLtivebLdding li carried out - and export finance are two sources that are used very little at present and that could be expanded advantageously. In addltion, there are likely to be areas of investment where the Government may be able to assemble LnnovatLve flnanclal packages from dlverse sources tallored to the specific needs of the publlc investment program.

The maintenance of confldence will be a key factor ln sustaining access to lnternatlonalfinancial markets. Thus far, Barbados' good credlt rating has remained strong. There is nevertheless,concern ln the internationalcommunlty regarding the current flscal and exchange rate problems confronting Barbados, and flnancial lnstltutlonsare following the sLtuation very closely. Slnce sound flscal management is an important indicator of creditworthLness,a lot wlll depend upon the firmness with which the Government takes correctlve flscal action.

Growth Prosnects

The successful implementatlon of the measures described above would, in the short term, go far towards adjustLng the economy. Moreover, shift ln relative prices favoring tradeableswould lead to lncreased utillzation of tourism resources and, ln the medlum term, to capacity expansion in tourism as well as a redirectionof manufacturlng towards finding a niche in the world market in the context of effLcLent export-oriented growth.

On balance, the economy is projected to grow at an average annual rate of 2.3% durlng 1991-94, led maLnly by the tourist and lnternational business sectors. For the perlod 1995-99, GDP is projected to recuperate its hLstorLcal growth rate and reach an average annual rate of 3.5%, as capaclty expanaLon increases the growth potentlal of tourlsm and the manufacturlng sector rebounds. The eliminationof the fLical deficlt together wlth improvementsln the overall balance of payments are projected to reduce external flnancing needs and lmprove Barbados' debt servicLng requLrements. - xviii -

Predicated on the timely adoption of the above measures, debt servicingis not projected to impose an undue strain cn the economy. The debt service to export ratio is projected to decllne from 15% in 1990 and 1991 when balloon payments fall due -- to a range of 8 to 10% throughout the projection period and the interest burden ratio with respect to CDP is projected on average to remain the same throughout the period at a sustainable 2% to 2.5% of GDP. Gross internationalreserves are expected to rise gradually to the equivalent of about three months of imports.

Conversely, in the absence of a strong adjustment effort, further loss of competitivenesswould mean that Barbados would not be able to protect the comparativelyhigh levels of economic and social welfare attained in the past.

Aaenda for Action

The conclusion from this evaluation of Barbados' past and prospective economic development is clear; unless the authoritiesretake control of the key macroeconomicpolicy levers and restore the enabling environmentthat prevailed during the first twenty years of independence,it will be impossible to sustain the past rate of economic and social development. This entails some very difficult choices and inevitable economic sacrifices,which the Government is currently considering. Specificallythe recommended action agenda comprises:

3 restoring a viable macroeconomic framework and providing a more market-determined and transparent incentive system to enable the private sector to undertake new investment and contribute to sustained output growth;

* a review of the tax structure with a view to enhancing its efficiency and elasticity so that in the longer run, the comparatively high current tax burden can be reduced;

* implementation of a liberalized trade regime along the lines under discussion with the World Bank and described in Chapter III Section F;

* removal of impediments to labor mobility and implementation of a formal incomes policy that will allow the economy to restore internationalcompetitiveness;

* introducing the requisite legislation and speeding up investments to halt the degradationof the physical environmentand ensura its protection in the future;

* a review of the role of government in the future developmentof the Barbadian economy with a view to reducing its very large claim on available resources, selling off some of its assets, and privatizing some of its enterprises;in particular, the functioning of ttseBridgetown port, the publi.cinstitutions engaged in transport, industry and agricultural activities should be examined - xlx -

wlth a vliw to ensurlngtheir offectLve contributlonto the economy;

* a revliw of the structure and currlculumof the educational system ln light of the global revolutlon in communlcatlonsand the heLghtened premlum for storing and manlpulatlnginformatlont and

* deslgn a medlum-term flnancing strategy wlth explicit objectLves for external financlng includlng the balance between project and non-project lending, the structure of maturltles and the preferred currency composltlonof the debt.

Given thie enormously challenglng agenda of reforms, publlc irvestment and lnstitutlonalrestructuring, it is vitally important that the requListe actlons be taken wlth some assurance of the continuationof reasonable access to a wide range of sources of development finance, especLally where thle comes with technical asesitanceattached. I tRoDUCrION

A. Orlains of the Report - Oradutaion Polil,

1.1 Barbados is in the process of "graduating"as a borrower from the World Bank.y The process was initiated in 1984, ten years after becoming a member of the Bank, on the grounds that Barbados' per capita income actual (and potential) access to private capital markets and economic management capacity were such as to inspire confidence that the country could maintain a satisfactoryrate of economic progress without the financial assistance of the World Bank.

1.2 This economic report forms part of the graduation process. Its purpose is to evaluate the economic performanceof the Barbadian economy since independencein 1966 - especially the role of national and sectoral economic management - and outline the priority policy requirementsfor sustaining development through the 1990s.

1.3 The prospect of graduating as a World Bank borrower implies that Barbados has had a comparativelysuccessful developmentexperience. Despite its small size (populationof 254,700 and area of 431 square km.) and relatively narrow resource base, it has recorded an average annual rate of growth of output 2f 3.2% per annum over the last 25 years. This is far superior to the growth experience of its partner CARICOM countries and to the developing countries as a whole. And with population growing at only 0.5% per year, per capita output has advanced at the comparatively rapid rate of about 2.7% per year. By 1989, per capita GNP reached US$6,370, the highest level among the World Bank's active borrowers, and well above US$4,080, which is the trigger level initiating the IBRD graduation process. Associated with this income growth was a steady improvement in the distribution of income and social welfare - in educational attainment, housing, and health and nutrition standards. In respect of average living standards. Barbados ranks among the highest countries of Latin America and the Caribbean.

Graduation of borrowers is a firmly established principle and a long standing practice of the World Bank. It reflects the member country's achievement of a comparatively advanced level of development, but does not imply that the development process is complete or that all problems have been resolved. The operational rationale of the graduation policy is to reduce the volume of Bank resources -- lending and staff -- going to the higher income member countries which have access to alternative sources of financing and technical assistance, and make these resources available to the lower income member countries. - 2 -

S. World Bank - Barbados Relations

1.4 Barbados became a member of the World Bank in September 1974. Since then it has received ten loans totalling US$67.5 million. These provided assistance ln Education. Tourism, Industry, Power, Highways and Agriculture as well as a Technical Assistance Project for the Agriculture and Energy sectors. In addition, Barbados has benefitted from funds channelled by the Bank through the Caribbean Development Bank (CDB).

1.5 The implementation of the Bank's assistance program has been, with a few exceptions, problem free. Project completion reports and audits by the Bank's independent Operations Evaluation Department conclude that the developmentof the Barbados economy ha. benefitted substantiallyfrom the comprehensive portfolio of investments supported by the World Bank. Moreover, project implementation performance has, on the whole, been better than the aver&je for most other countries similarly placed. However, there were two exceptions to this conclusion. One was a loan for a Tourism Project which experienced substantial cost overruns as a result of a number of factors - some subject to control and others not. The second case was an Industrial Development and Export Promotion Project where there were differences over the rental rates for project-financedstorage facilities. These two cases notwithstanding,the Bank has had a substantialfavorable impact on Barbados' social and economic infraetructure.

1.6 The Bank has maintained a continuing dialogue with the Government on its economic policies and developmentpriorities. The Bank has also assisted in organizing subgroup meetings under the auspices of the Caribbean Group for Cooperation in Economic Development (CGCED). In recent years, the economic and sector work programs on Barbadoe have been carried out in the context of the annual economic memoranda prepared for the CGCED. The work program focussed on the constraints inhibiting economic growth and the measures needed to improve performance in the productive sectors of the economy. In agriculture, the work was aimed at identifying ways and means of promoting non-traditionalagriculture and diversifyingproduction away from sugar. In the energy sector, several possibilitieswere examined for enhancing energy conservation. In the tourism and industrial sectors, the Bank has financed specific studies to examine the reasons for recent declinee in performance and to identify steps to be taken to improve Barbados' overall internationalcompetitiveness and performance. In the housing sector, the Bank had formulated measures for reducing annual subsidies and for improving performance of the sector, but the proposed project intended to implement such measures did not materialize. More recently, the Bank's efforts have focussed on needed measures to improve the overall performance of the financial and trade sectors.

1.7 This brief review of the Bank's relations with Barbados suggests that the Barbadian authoritiesregard their membership in the Bank as having yielded benefits that could not be readily had elsewhere and that retaining access to the Bank's flnancial and technical assistance is highly deeirable. -3-

This Le evidenced from the effective use that Barbados has made of Bank resourcesin support of its development efforts and also, the repeated reprosentatLonsmade by succesoivegovernments against the proposal to graduate Barbados from future Bank lending. Since, as this report will show, Barbados contLnues to face a number of short-term and stractural development problems, the clrcumstances are rlpe for the restoration of a policy and instLtutional development dlalogue that will benefLt Barbados.

C. Strgture of the Regort

1.8 The structure of this sconomic Report is as follows. Following thli Lntroductorychapter, Part A is given over to an historicalreview and evaluation of Barbadian economic developmentsince the mid-19600. The key question addressed there concerns the sources of Barbados' comparativelygood performance. Here is a small, highly open island economy which, because of limited natural resources,has had to rely increasinglyon services and on "screwdriverwmanufacturing activities to generate a rising level of Lncome. There are many countries with these identical characteristicsto be found in the Caribbean, in the South Pacific and off the African continent. They all experLenced the backwash of the growth decades of the 1950s and 1960. and all have had to contend with the severe economic shocks of the 1970s and early 1980s that rocked the global economy and gripped most developing countries in a state of depression throughout the decade. Yet overall, with the exception of a few countries such as and Fiji, they have done less-well than Barbados, and some have done poorly. What was different in Barbados? Was it good national and sectoral economic management - i.e. well-formulated policies, implemented in a timely and effective way? Was it a favorable external environmentor a favorable internal environment (i.e. a wide consensus on social goal. and on the ways to achieve them and a harmony of purpose between the public and private sectors rather than conflict) that contributed to this overall good record? Or was it a matter of good luck?

1.9 Part B provides a bridging section between the past and the future. It identifies emerging problems - some associatedwith changes in the external environment and some associated with changes in the internal environment. The difficult task is to distinguish between economic difficultieswhich are transitory and unlikely to affect Barbados" future growth path and those more deep-seated structural changes that require timely corrective responses if the future rate of social and economic progress is not to be severely dampened. Where some of the identified problems simultaneously present themselves also as opportunities,they are described and their potential benefits for Barbados evaluated.

1.10 Part C outlines the requirementsfor sustaining social and economic progress - the actions ¶hat must be taken to maintain, lf not enhance the already hlgh living standards attaLned by Barbadians. The discussion is organized around four interrelatedrequirements. First, is the urgent need to address the imbalances in both the external and internal accounts that have emerged in the last two years. The diagnosis of the imbalances suggests that some far-reachlngstabiliz&ation measures to reduce the public sector deficit - 4 - to a sustainable level and to replenish the foreign exchange reserves will be required. Second, an an open service economy, there is the need to formulate and Lmplement a macroeconomic and sectoral policy action program that will seek to restore domestic and internatlonal competitiveness. Third. is the urgent need to tackle the threat of environmental degradation affecting the marine ecosystem and the soil. And fourth, is the need to ensure continued. if not expanded, access to international capital markets. A final uection sote out two scenarios illustratingthe likely future contours of development to the year 2000 one illustrationis based on the assumption that appropriate policies are implemented in a timely manner, and the second is based on the assumption that no new policy program is implemented.

1.11 For the busy reader, a summary of the team's findings and recommendationsis presented at the beginning of the report. -5-

PART A-- p

ZI PTTR AND SOULC3S OF OT GROT H SINCE 1966

,IntrQdution

2.1 Over the past quarter of a century, the Barbadian economy has grown apace. Real output (GDP at market prices) grew at 3.2% a year over the period 1966-1989. a rate higher than most other small island countries for which data are available. This growth rate is especially impressive when expressed in per capita terms -- 2.7% a year -- because of the low 0.5% year rate of population growth.Y

2.2 The purpose of this chapter is to describe the trends and patterns, of this rapid growth and to identify its major sources so as to better understand the factors that could contribute to sustaining it in the future. In Section I, the recent Barbadian experience is outlined and compared with that of similar small island countries. Section II presents, for the period 1966-1989, an analysis of the sources of output growth attributableto the two main factors of production - capital and labor. The effects of sectoral shifts of labor productivityon output growth are also analyzed. Section XII sets out the implications of the growth process on the economic and social well-being of Barbadians. This over#iew of historical trends lays the ground for a detailed analysis in subsequent chapters of the macroeconomicand sectoral policies which have influencedthe growth process and generated improvementsin economic welfare.

A. pS_U Characteristicsof Barbadom growth. 1966-1989

2.3 ggtggt. The good comparativeperformance of the Barbadian economy in terms of GDP growth is indicated in Figure II-1 and Table 11-1. Barbados, over this period, performed better than its Caribbean neighbors and most of the ielands in the Pacific and Indian ocean wlth the exception of Fiji and Mauritius. Of the three countries that achieved rapid growth, Barbados experiencedthe least volatility in its growth rates. This was due in part to differences in the severity of the external shocks that affected the countries and in part to the efficacy of the policy responses to the shocks.

1/ All growth rates are calculated on the basis of least-squareestimates. - 6 -

LguraII-Is P3R CAPITA INCOM OF IL3CTD ISLAND 3COUOI3SU, 1966 AND 1989

Usl (Thousands)

7. E1I~ / ...... __. / 8

4

2f A ()- -9---- - I-7__

Mauritius Fiji Barbados Jamaica Trinidad

Per Capita Income 1966 g 1989

sourcet World Bank.

2.4 The economic development trend described above was not smooth and steady, but was rather cut up by periods of growth and periods of decline. In common with much of the developing world, Barbados grew rapidly between 1966 and 1971. with GDP rising at an average annual rate of 6.6%. Within a buoyant internationaleconomic environmentthe major stimulus came from a large inflow of private foreign capital, att-acted by profitable business opportunities in tourism and manufacturing. The period of high growth came to an end in 1972. when the inflow of private capital began to decline, followed by a precipitous deterioration in the terms of trade. Between 1972 and 1974. real GDP decreased at an average annual rate of 0.8%. The period 1975 to 1980 saw a strong recovery bolstered by the rise in incomes in the OECD and the depreciationof the real effective exchange rate. Tourism and manufacturing grew rapidly and agriculture had some good years with respect to production and price. Public infrastructure, principally utilities, expanded and GDP growth averaged 4.2%.

2.5 The Barbadian economy was subjected to another external economic shock in the early 1980., when the world economy went into deep recession. Barbados' terms of trade again deteriorated,primarily because of the increase in oil prices. Moreover, Barbados' real effective exchange rate appreciated sharply with the consequent detrimentaleffects on manufacturingand tourism. -7-

ZakLLZkLs GDP0GROWU aND VAAZA5LZ!T ENDUE FOt SNCTE COUMNUINS (in constant 1974 prices and percent)

Variability GDP Growth Rates Indee Countries 1966-89 1966-89

Barbados 3.2 1.26 Fiji 4.1 1.53 Jamaica 1.0 3.97 Mauritius 4.5 1.34 Trinidad 1.5 3.48

A/ The variability index is defined as the standard deviation of output growth divided by the growth rate.

Sources World Bank and National Sources.

Barbadoe recorded negative growth in output in 1981 and 1982. In the face of domestic financial crises and increaslng domestic Lmbalances, Barbados successfully implemented a stabilization program of fiscal and monetary measures which was supported by an IMF Stand-by Arrangement amounting to SDR 33 million. This successful experLence contrasted sharply with that of many developlng countries attemptlng to implement stabliLzatLon programs. It earned Barbados a reputation for good macroeconomLc management and enhanced access to the internatlonalcapital markets in Tokyo, London and New York. From 1984 to 1989 [see Table 8.5 (SA)), there was a strong recovery in touriem receipts, although the sugar Lndustry continued to languLsh and manufacturing output also levelled off.

2.6 In order to capture the cycllcal movements ln key varLables and thelr proximate causes, the period 1966-89 has been divlded lnto three sub- periodst 1966-73, 1974-81. and 1982-89. These perlods have been selected to show changes between the lowest points ln the output growth cycles as lllustrated in Flgure 11-2. - 8 -

FigLroI1-2i ODP GROWTU RAM58, 1966-1990 (percent)

N) 10

4 2 0 -2 -4

-6 '-T 1988 1978 1982 1989 Period

Real GDP Growth

Sjurce: World Bank StatisticalAppendix; Barbados Statistical Service.

2.7 The sectoral compositionof output growth shown in Table II-2 suggests the followingpattern: over the period 1966-89, the agriculture sector, continuinga pre-independencetrend, declined in importancein the Barbadian economy as its output growth and its share in GDP plummeted. This is attributable largely to the decline in sugar area cultivated, lower yields, and to high production costs (see Chapter IV, Section A). At the same time, the output of the manufacturingsector, whlch had registered rapid growth during 1966-81, could not be sustained;the industry was badly hit during the later part of the 1980s when three major foreign-ownedcompanies closed shop and pulled out of the country. Tourism emerged as the dynamic growth sector in the economy, registering growth ra1:es more than twice that of total output throughout the period. Over the last 23 years then, the Barbadian economy has undergone a structuraltransformation in which services have become an evan more domlnant component of output.

Z/ The reasons for the pull-out of the foreign-ownedcompanies have not been officially announced,but it is a common impressionthat among the factors weres more attractivefinancial incentlvesprovided elsewhere in the Caribbean; the expiration of tax holiday periods; and for Intel, the reorganizationof the distributionsystem of computer chips by the multi- national parent company. _ 9 -

Box #1 Barbados:AdiusaMent to Etal Shocks

In recent yearsthere have beena numberof majorexternal shocksIn the word economy. includingthe oil-price shocksof 1973 and 1979-80, the global recessionIn the early 1980s, and the increase in interest rates In most of the first half of the 1980s. Since 1985. there have also beensome favorable shocks, Includingthe pick-upin globaldemand and improvementin the import price of oil. Various countries have adjustedto the shockswith varying degreesof success.

Typical optionsavailable to policymakersto adjust to unfavorableshocks are: to stimulate exports.to encourageimport substitution,and to reducethe pace of economicactivity. In addition, an easy optionchosen by many countrieshas beento accomodateunfavorable shocks by resortingto Increased externalfinancing. Worldwideexperience suggests that the modeof adjustmentchosen by a country determinesnot only the successof the adjustment exerciseitself, but also its ability to utilize the subsequent favorabledevelopments in the globalenviroment. Thus, it is instructiveto examinethe externalshocks sufferedby Barbadosover the period 1979 onwards and the adjustmentsthat were madein response.

Barbadosis a smallopen economy and henceespecially vulnerable to changesin the global economicenvironment. Overthe period 1979 to 1981, Barbadossuffered an adverseshock amountingto about 2.8% of GDPper year,primarily due to the increaseIn oil prices,but also to a deteriorationof non-oil terms of trade. The responseof the authoritieswas to introducea modestincrease in the domesticprice of fuel, in 1980. But the current-accountbalance deteriorated rapidly, from US$-27.1 millionin 1980 to USS- 125.3 millionin 1981. While there was somereduction in fuel imports in 1980, the main modeof adjustment was accommodationthrough relianceon externalfinancing. An IMf Stand-byArrangement amounting to SOR 33 millionwas negotiated,and its successfulimplementation in tum strengthenedBarbados' creditworthiness in the internationalcapital markets. Though the magnitudeof the currentaccount deficit declinedfrom the 1981 peak, it remainedhigh through 1983. The authoritiessought to restraineconomic activity and as a consequence,GDP declined by 1.9% in 1981 an'1even showeda sharperdecline of 4.9% In 1982. While the currentaccount deficit improvedin 1982 and 1983, the full effects of the higher gasolineprice and the contractionof economicactivity took hold in 1984, and the currentaccount turned positive.

Barbados,compared to many other developingcountries, appears to have taken significant export promotionmeasures over the 1982-84 period. They enabledthe country to emergefrom the 1981-83 globalrecession, weakened, but neverthelesswell-positioned to take advantageof the glcaal recovery. Thus, Barbadosregistered a healthygrowth rate of 3.5% in 1984. However,export performanceappears to have slackenedoff since then, a phenomenonassociated with adversedomestic wage and price movements.

With the advantageo. hindsight,this brief analysissuGgests that an earier and firmer policy moveto passon the fuel price increases,and to addressthe impendingbalance of paymentsdifficulties by seekingto stimulateexports earlierand sustainingthem later might haveallowed Barbadosto take fuller advantageof the growth pick-upin the internationaleconomy. - 10 -

Zak1a..lZZt CEAMSUS IN SC IORALCOMPOSXIXON OF TOTAL OUTPUT, 1966-89

Averl e Real Growth Rates in 1974 Prices Averac SectoralShares Agri- Manufac- Tour- Oth- Agri- Manufac- Tour- Oth- culture turing Ledu ersW GDP culture turing ism ersd

1966-73 -1.9 2.3 7.5 3.2 2.8 14.3 10.0 8.1 67.6 1974-81 0.0 5.0 6.2 1.9 2.6 10.3 11.5 11.5 66.7 1982-89 -1.3 0.9 5.4 2.4 2.5 8.7 10.7 12.6 68.0

1966-89 -1.5 2.2 5.9 2.3 2.6 11.1 10.7 10.7 67.5

A/ Tourism also includes commerce. This is the definition em,_yed in calculatingvalue-added in this sector. 3' Includes government and all other activities except the ones stated above. 1 GDP here is at factor cost.

gigrce: World Bank} StatisticalAppendix; Barbados StatisticalService.

2.8 Population an, Labor Force. A highly successful family planning program and large net emigratLon to the , Canada, and the United Kingdom during the 1960s and 1970s moderated population growth to an average annual rate of 0.5%. This in turn was reflected in moderate rates of labor force growth. The structure of the labor force has undergone considerable change, one is the increased participation rate of females and a second is the higher numbers of high school graduates among job seekers. Over the period as a whole, female participation rates rose from 45% in 1966 to 61% by the end of 1989.

2.9 The growth of output was associated with only a modest rate of advance in employment, averaging 1.0% per year over the the 1966-89 period. Employment in manufacturing rose to a peak in 1980 and declined thereafter; over the whole period, lt averaged a rate of growth of 1.4% per year. Employment in agriculture declined continuously at an average annual rate of 4.6%. This outmovement of labor from agriculture, together with the slow growth of employment in the tourism sector of 0.3% per year compounded the unemployment problem. In contrast, employment in the public sector grew at an average of 3.0% per year and appeara to have served as the employer of last resort. - II -

ELaul 11-3 DZR5RU5'TZONOF LANOR BY OUCTOR, 1966-09

/~ ~ __. .__...... ~~I!I../. 1 _

30- '*

20 _ - /

100 1 ... ___. i ._

166-73 1974-81 1982-89 1966-89 Periode

AgricultureO Manufacturing LEJ Other Tourism GGovernment

Bourget Barbados StatisticalOfflce.

2.10 The slow growth of employmentLn the productive sectors over the 1966-89 period le attrLbutable to a number of factors. one Le the changing pattern of output; as shown Ln Figure 11-4, the more dynamic growth sectors, such as tourism, have been less labor intensive than the agriculture sector which experienced a deep contraction. Another ls the rise in especially real wages, in the period between 1975 and 1989. On the whole, real increases wage were associated with slack employment growth and a rise in unemployment (see Chapter III, Section E below). A final factor concerns functloning of the the labor market where hiring and firLng regulatlons contribute to labor immob$lityand, consequently,wage distortions. High real wages and labor market rigidities have reduced incentives to invest ln Barbados and where investment has been undertaken, it is llkely to have encouraged entrepreneurs to rely more on capital-uslng and less on labor-using tochnologies. The net result of these factor is reflected ln a slugglsh employment growth and an Lncrease in unemploymentfrom a rate of 12.2% in 1966 to 15.5% in 1989. - 12 -

reg.JZ- OU aD LIDR GRON5 BY 3CTOR, 1966-89

, ._ ...... _ ...... _ ...... _ , . _ _ _......

2 0 -2 -4

-8 *---~-~-r------1- - - ___ Agriculture Manufacturing Tourism Period

M Output Growth IM Labor Growth

8oure-s Barbados Statistical servlce.

2.11 Ca2ltal Stock and Investment. The capital stock is defined as the sum total, at constant prices, of all past investments in plant, machinery, buildings and other capital assets, less the capital consumption (or depreciation) of these investments. Over the period as a whole, as shown in Table II-3, the capital stock grew at a high average annual rate of 7.0.Y Much of this growth was accounted for by buildings and construction which outpaced the growth of machinery and transport equipment. The increasing capitalization of the Barbadian economy parallels the changing structure of production of the economy. Broken down over the sub-periods, however, the capital stock growth rates show a declining trend. From a rate of 8.9% between 1966 and 1973. it fell to 5.0% ln the period 1982-89. Betwuen 1966 and 1973, the capital-output ratio averaged less than 2:1. As may be seen from Table I-4, this ratio rose through the three periods identified here. Over the same periods, when the capltal-output ratio was rising, both the capital stock and the GDP growth rates were falling. An increase in the capltal/output ratio is a natural outcome of the economic growth process.

t/ The sries on capital stock used in this study was provided by D. Boamah, Director of Research, Central Bank of Barbados. - 13 -

However, given the magnitude of the capital/outputratio's expanslon ln Barbados lt mlght reflect possLble lnefflclenclesLn the use of capltal ln the form of excess capaclty. Inded, there is some evldence that slnce 1980 at least, enterprLsoe Ln manufacturLng, lncludlng sugar mlls, were operatLng at well bolow their normal capacity; and bed occupancy rates Ln tourLem were comparatlvely low ln the fLrst half of the 1980.

Table 1I-3i CAPITAL, INVU8!NUT AND GDP GROWTS RATES, 1966-89

Real Growth Rates (annual oercentages)

Capital/Output Not Ratlo Capltal Stock Investment GDP

1966-73 1.4:1 8.9 6.0 2.8 1974-81 2:l 8.6 21.0 2.6 1982-89 3:l 5.0 3.0 2.5

1966-89 2:l 7.0 7.0 2.6

A/ This growth rate is calculated on the basis of GDP at factor cost.

_ourIa StatLstLcalAppendix; IconomLc RavLew, Central Bank of Barbados, issue 1985; and mLssLon estimates.

2.12 The rate of growth of the capital stock, of course, le a functlon of the rate of annual addltlons ln the form of net capltal formationor net Lnvestments. Over the perLod as a whole, the rate of growth of lnvestment averaged 7.0% per year. In the first period, investment grew at an average annual rate of 6.0%. and much of it was accounted for by private aector activities in tourism. The Lnventment in tourism was very largely financed by private capital inflows. Between 1974 and 1981. there was a rapid expanslon of lnvestment ln the publlc sector and manufacturlng,with financlng coming mainly from foreign equity participation, international financlal instltutLons and bllateral sources. InvestmentdurLng thli period grew at 21% per year and reflects the lumpLness of investmentsin oil production,electricity generators and telephone switchlnggear and transmLssion facliltles. In the thlrd perlod, however, the rate of growth ln Lnvestment fell to 3.0% per year, a decline attrlbutableto reduced hotel constructlonand refurblihlng,the slump ln the manufacturLng sector and excess capaclty. - 14 -

2.13 Liscaland Mon-tary Policies and Economic Growth. AccompanyLngthe growth ln output was a commLtment by polLcy-makersto malntaln a stable fiLcal and monetary pollcy stance. Over the perlod 1966 to 1989, the flical deflclt averaged 4.6% of GDP, and as shown ln Flgure II-5, was closely correlated wlth output growth. The defLcLt was flnanced by a combinatlonof external and domestLe borrowing. Overall, reliance on net external borrowlng to flnance the deflclt has tended to fall. On an annual basLi, net external borrowing averaged 3.4% of GDP between 1977/78 and 1981/82. and 1.7% between 1987/88 and 1989/90. Not domestic flnancing as a percent of GDP fluctuated around 2%. Inflatlon, a good measure of the effectivenessof monetary policy, averaged 8.5t per year and was falrly consistent wLth movements in output growth rates. The poriods of slower economlcactlvity colnclded wlth high Lnflationary epLiodes suggesting the use of expansionarymonetary policy to stimulate the oconomy ln tLmes of recessLony.

FEiure 1I-S FISCAL DEFICIT, INFLATION AND GDP GROWTH, 1966-89

)

30O

20

10

-10 -y r '1 - T rr-1 'r~r- r~rtv r'T 1906 1973 1982 1989 Period

Real GDP Growth 1 Fiscal Deficit 1] Inflation Rate

80ureot Barbados StatLstLcalOffice.

j/ For a more extenslve dlecusslon of fLscal and monetary pollices, see Chapter III, Sections B and C. - 15 -

S. sources of growth

2.14 At root, the rate of growth of output is dependent on the basLc factors of production - land, labor and capltal - and on the technology and organLsatLonal skills employed in combinlng them for productlon. Labor and capltal are the more readily measurable conventlonal factors whlle the other contributlng factors are captured as a resLdual. There iL a wldely used methodology for isolating the factors contributing to growth and thli is

FnaurL 11-6 COMTRZXXOKIOF FACTORSAS PURCUEFOF GDP GRowrn, 1966-89

t abor

Resldunl capil-I ~~~~~~~~12.3

Sources olOrowth

sourcet Barbados Report Term estimates. employed here'. In order to assess their individual contribution to growth. the first stop is to estimate the share of labor and capital as a measure of

~/ To estimate the shares of the factors of production, the neo-classical Cobb-Douglas production function with constant returns to scale was used. For a discussion of the methodology and the estimation of the productlon functlon, see B. DeniLon, Accounting for United States Sconomic Growth, 1929 - 1969, Brookings InstLtute, 1974t T.A Wilson, the Sources of Zconomic arowtht An Empirical Analysi of the Canadian Experience in Studies of the Royal Comission on Taxes, Number 24, 1968; S. Bowles, sources of Growth in the Greek Economy, 1951-1961 (Draft) Project for Quantltative Research in Economlc Development and Development AdvLsory Service, Canter for InternatLonal Affairs, Harvard University. - 16 -

thelr average productivity;these estimates are then taken am approximations to thelr relative marglnal product.

2.15 For the entireperiod, the average share of labor in output as estimatedfrom the productLon functlon is 78.3% and capital's share in output averaged 21.7%. With labor and capital growing at 1.0% and 7.0% respectively, the percentage contrlbutlonof labor to output amounted to 30.1% and capltal'e contributlonto output accounted for 57.6% whlle the residual, comprising all the other contributing factors accounted fc- 12.3% of the lncrement in output.

2.16 The content of the resldual, often termed the "8010w residual" after the economist who developed thle model. is still not well understood, but for the estimates developed here there are a number of known elements. The employed labor force measure used in the calculationwas not adjusted for the number of hours worked per year. Glven the shift of labor out of agrlculture, it is reasonable to expect average hours worked to have increaged6J.on the other hand, there was a decline in standard working hours over the period to the current almost universal 40 hour week plus four weeks vacatlon for employees with five or more years of experience. Second, the growth effects of the improved health of the labor force over the period, which would allow an increased average number of hours worked and a higher inteneity of work per person hour, s&avenot been measured. Third, the failure to account for the increasingaverage age of the employed labor force giv.-- the labor input index a downward bias, if the observed positive correlation between age and earnLngs reflects real productivityincreases associated with the greater experlence of on-the-job training. Finally, the increased average level of educatlonal attainmentV has not been factored in. Combined, therefore, these productivityenhancing factors would raise the contribution of labor if they were to be incorporated in the labor measure of Lnput used above. Another important factor whlch ie not measurable directly is the contribution of technological change.

hi Thle is based on the assumption that agrlcultural employment is seasonal. As a consequence, the total numbers of hours worked in the agriculture sector is assumed to be lower than in the other sectors.

Z/ Improvementsin the quality of the labor force brought about by increasing the skill level of workers through educatlon and training can be estimated in two ways. One approach is to regard the lmprovementof these skills as the acquLsition of human capital and estimate the rate of return of this form of investment. A second approach is to use earnings and education data to estimate relative productivityweights and from this estimate the growth rate of the education weighted-laborforce. Data limitations prevent employing elther of these approaches to Lsolate ths importance of the educatLon system for output growth. In other country studles, the educatLon factor emerges as a signLficantcontributor to output growth. - 17 -

2.17 The contrLbutLonto GDP growth of the maln sectors is shown ln Table 11-4. The results there suggest that over the perlod, agrlculture has contlnued to be a drag on total output, and that the propelling forces have shLfted to manufacturingand tourLem and more recently to tourlsm alone. If ln additlon to output growth, the generatlon of forelgn exchange is included ln the analysi of the dynamLc sector, then tourLim has become the mainstay of the BarbadLan economy.

I*l-SI-4s SECTORALCOTRIBUTION TO OUTPUTGROWTH, 1966-89 (in percent)

Agrlculture Manufacturing Tourism Others Total

1966-73 -9.7 8.2 21.7 79.8 100 1974-81 0.0 22.1 27.4 50.5 100 1982-89 -4.5 3.9 27.2 73.4 100

1966-89 -6.4 9.1 24.3 73.0 100

Source: Mlsslon eetimates.

2.18 The contribution of lntra- and lnter-sectoral shlfts of labor to output growth ls shown ln Table 11-5. The growth of aggregate output per employed person is partitloned lnto lnter- and lntra-sectoral shiftsV. over the period, Lnter-sectoral shifts of labor dld not contribute slgnlflcantly to growth in output per worker. On the average, shLfts ln labor among the sectors actually accounted for a 3.6% decllne in the productlvityof labor suggesting that there may be little or no substitutabllityamong workers in the core sectors especlally between agricultureand tourlsm. The lndlcations are, rather, that over the period 1966-89, Lntra-sectoralshifts of labor were the sole determinant of labor productlvitygalns, and ln turn, intra-sectoral shifts ln tourism were most important.

j/ The growth of aggregate output per person partltloned into between-sector and within-sector combinationsls obtalned from the followlng formula:

6(P/L) - E(6Pi/LL)(Li/L)+ Z(Li/L)(Pl/L) 0.193 - 0.200 - 0.007

where P/L represents average labor productlvity, 6 represents the change over the perlod, and PL/LL represent average productlvltyln the ith sector and Li/L average relatlve share of total employment in the ith sector. For the results for the Barbadlan economy, see Table 11-7. - is -

Sfle II-Fit sncrCS OFr Cs^zOL SEIPrt in LaBOR PRODUCTIVITY, 1966-89 (percent of total)

Sector Intra-Sectoral Inter-Sectoral Total Change Chang* Change

Agriculture .053 -. 020 -. 033 Manufacturing .020 .012 .032 Tourism .127 .001 .128

Total .200 --0°? .193 Perc-nt 103.6 - 3.6 100.0

Sources Mission estimates.

2.19 The above analysis leads to the following conclusions concerning the sources of growth in Barbados. First, although labor's share in output is roughly three times that of capital, the contribution of capital to growth over the periodhas been almost twice that of labor. This suggests that despite the shift in the structure of production to services over this period. the production mode has been more capltal-using than labor-using. This suggests further, that lf the economy contlnues to grow on the pattern of the past, and labor market distortlonsstill persist. it will be difficult to reduce the current high level of unemployment and the attendant social problems that it entails. Second, the contributlon to growth of the residual is comparatively low at 12.3%. If the standard adjustmentswere made on account of the quallty of education, experience, and number of hours worked, the residual would be even smller. Clearly, this would indicate that the residual has not played as significant a role in output growth in Barbados as it has ln other countriesV. Third, the analysis suggests that there has been little or no productivity enhancing shifts of labor among the core sectors. Finally, technical change appears not to have been a major factor in output growth over the period.

C. Welfare Inlications of Economic Growth

2.20 The comparativelyhigh and divereifled output growth in Barbados has been accompaniedby an increase ln social welfare; this is reflected in the steady advance of all the social indicators.

J For example, the contributionof the residual to growth accounted for 46.5 percent in Canada; 32.0 percent in the Unlted States; 23.6 in ; and 13.2 percent in areece. - 19 -

2.21 Incom Dpstribution . One of the immediate consequencesof Barbados' economic success li the increaso ln average incomes and wealth among Barbadians. Between 1966 and 1989. oNP per capita rose from VS$370 to US$6,400 (Bank Atlas methodology). Thli LmpressLverise in incomewas also widely sharedjudglng from occaslonal studies and informedobservation. Barbados' small land *Lsi and high population density along with an egalltarian Ldeology mliLtated against the accumulatlon of large private landed estates,a major source of inequality in many Latin American countries. It is a wldely held view in Barbados that higher education is the main vehicle for accumulating wealth and promoting upward social mobility.

2.22 Educational Attainment. Compared to other countries Barbados has afforded its citizens superior access to the professions and to economic advancement. Illiteracy is almost non-existent; the enrollment ratio in primary education is 100 percent; secondary education is free and universal; at the tertiary level, education is also free although restricted by competition. What is especially noteworthy is that the educational attainment among women is comparatively high and consequently they are found in large numbers among the top managerial and professional levels of the public and private sectors of Barbados.

Table X1 js COMPARATIVEEDUCATION INDICATORS, 1985-86 (in percent)

Illiteracy Rate Enrollment Ratios of adult population Primary Secondary Higher

Barbados 0.7 110.0 93.0 19.4 Jamaica 3.9 106.0 58.0 4.2 Trinidad 5.1 95.0 76.0 4.2

Memorandum Item

Latin America & Caribbean 16.1 109.0 54.0 19.8 Middle Income Countries 29.0 104.0 49.0 14.0 High Income Countries 1.0 102.0 93.0 39.0

Bourcet UNESCO, Statistical Yearbook, 1988.

),/ In the absence of reliable budget studies, it is difficult to make definitive statements about the changing income distribution in Barbados. There are some scattered studies, but these do not provide a consistent aeries over time. - 20 -

2.23 Health Car- Economic growth ln Barbados has also been accompanLed by the *stablilhment ot a universal health care system, wlth consequent avident Lmprovement ln the health of BarbadLans. Comparative lmprovements ln the delivery of health services and lncreased health standards are shown ln Table 11-7. Furthermore, longevlty patterns and age distributions differ only mA rglnally from those ln advance, economLes, whlle the causes of morbldlty are also qulte sLmilar.

Tabl- 11-7i HEALTH AND NUTRITION INDICA5OR

Medlcal Central Protein Infant Personnel Government Supply MortalLty (per 10.000 Expenditure (grams per Rate o2oulatlon)- on Health caplta (per '000) Doctors Nurses as t of Total per day) 1987 1984 1984 Expendlture, 1986 1987

Barbados 13.9 9.4 31.1 11.4 85.0 Jamaica 17.4 4.9 15.8 7.8 56.0 TrLnidad 29.8 10.6 29.0 15.9 73 0

Mmorandum It Latln Amerlca 44.7 9.2 4.6 5.3 n.a. Middle income 65.0 2.0 7.5 4.8 76.0 Hlgher Income 9.0 21.0 55.0 12.9 91.0 n.a. - not avallable.

Source: The World Bank, World Tables, 1988-891 WHO. World Health Statistics, 1988; IMF. Government Finance Statlstlcs Yearbook, 1988; United Natlons, ECLA, Statistlcal Yearbook for Latin America and The Caribbean. 1988.

D. The 0Cost of sconomlc Growth

2.24 The development experlence of Barbados has produced substantial soclal welfare benefits for the Barbadian people. But this success has also been accompanLed by certaln socLal costs One such cost has been the depletlon of Barbados, limited and fragile natural resource base; another has been the additional unemployment generated sLnce independence; and the third - a cost Ln a rather different sense - has been the distortlon in resource allocation Lmposed on the Barbados economy by the subsidized sugar price. - 21 -

2.25 InvironmntallProblems. There is now sufficient evidence to confLrmthat Barbados'maiLne ecosystem has been subjected to lncreasing stress over the past two decades at let .The sources of the degradation can be traced to liquld and solid wastes from households, hotels, agriculturaland industrial entreprise, ship. and commercial activities. Since the main economlc activities in Barbados depend to an unusual oxtent on natural resource exploitation,continued environmentaldegradation at the current rate will soon reduce the output and employment generating capacity of the Barbadian economy.

2.26 Unemloyment. The healthy record of economic growth has not been translated into a corresponding increase in employment opportunities. The high level of unemployment in Barbados - a level which has grown from below 10% in the early 1960. to about 17% on average in the latter half of the 1980. - is explained by a combinationof factors. Apparently the shift in the structureof output in favor of services failed, on a net basis, to reduce the unemploymentrate. Tourism, it appears, is not as labor intensive an activlty in Barbados as is commonly assumed. This is one of the implicationsof the sources of growth analysis discussed above. Labor market factors that contribute to the level of unemploymentare the comparatlvelyhigh real wage and benefit payments so that the relative factor price comparisons entering into the choice of technology would favor capital-usingtechniques. Moreover, labor market distortions, in the form of costly severance regulations, tend to reduce labor mobility and push up wages. Apart from output structure and labor market factors, the unemployment level reflects a high premium aseigned to leisure (or a high reservationwage) and a strong occupationalpreference in job search. There is a small but rapidly growing lnformal sector where the preference for lelsure can be satisfied with part-time work and odd jobs. The extended family eystem in Barbados also facilitatesextended periods of job search or leisure. Finally, the education system, essentially still tinged in favor of academic achievement,plays some part in forming job expectations that the labor market cannot satisfy.

2.27 The high unemployment rate constitutes a cost to society and is almost certainly a contributingfactor to the increasing social tensions in Barbadian society and to anti-social activities. The latter, an indirect social cost, is reflected in the increasing incidence of crime in Barbados. According to government statistics,the number of crime cases increased from 7,079 in 1980 to 10,876 in 1989. The evidence shows an upward rise in property crimes, averaging about 22.6% of total crimes in 1980-83 to 24.3% in 1987-89. For the same period, though, vlolent crimes as a percent of total crime declined from 4.9 to 4.3%.

2.28 PreferentialTrade Agreements. Although not in the same category of social costs as the above two factors, the artificiallyhigh price paid for sugar exports has been inlmical to the rational transformationof the Barbadian economy. The EEC and U.S. sugar quotas have transferred sizeable - 22 - resources to 8arbadns.e But by providing them ln the form of a pgrodut ggJsLft, the agrLouitural sector was locked Lnto a crop wlth limited growth prospects and ln which Barbados does not have a comparative advantage. Thle form of "foreign aid" has helped shore up an uneconomlc actlvlty snd slowed lts adjustment to altered market aLrcumstances. The sugar preferences yielded prlvate beneflts, but have lmposed a soclal cost by dLetortLng the warranted pattern and pace of economic developmnt ln Barbados Investments ln the sugar sub-sector that turned out to yleld low and declinlng benefits dliplaced alternative investmentopportunities that could have ylilded superlor benefits. Conslder how much more effectlve the resource transfer mlght have been had lt been provlded in the form of foreign ald ln support of an agreed development program.

B. Conclusi2as

2.29 Thio revlew of past trends and patterns of output growth suggests that the slow growth of employment ln the productlve sectors over the 1966-89 perlod La attributableto the changlng pattern of output, hlgh real wage rates and rigidLtLes ln the labor market. ConcernLng the sources of growth ln Barbados, the analysLs lndlcates, flrst, that although labor's share ln output is roughly three times that of corpLtal,the contrlbutlonof capltal to growth over the period has been almost twlce that of labor. Second, lf the standard adjustmentswere made on account of the quality of educatlon, experience,and number of hours worked, the analyses suggests that the resldual dld not play a signlficant role ln the determlnatlonof output growth in Barbados as it has in other countrles. Thlrd, the analysls suggests that there have been llttle or no productlvltyenhanclng shlfts of labor among the core sectors. Flnally, technlcal change appears not to have been a major factor ln output growth over the perLod.

2.30 Barbados, economlc and soclal developmentexperience over the past 25 years has been enviable. Nonetheless,there are some fundamental deficlenciessuch as high real wages and labor market distortlonswhlch promote increasing capltal intensLty in the p.oductlve structure that will have to be corrected if the past advances ln economic and soclal welfare are to be sustained. In broad-brushterms, production and the factor combLnations used wlll have to shlft towards fosterLngemployment creating and ecologically benign activLtLes. This lmplles a restructuringof incentive systems towards neutrality among the varLous actlvity sectors. Economic agents should be enabled to respond more directly to market slgnals and less to government directives. The rest of the report will address, in some detail, these structural deficiencLes.

jj/ It is estimated that the EEC preference. alone were worth about Us$ 78 million to Barbados over 1980-86. World Bank, "CarLbbeanExports: PreferentlalMarkets and Performance",Report No.7207-CRO,May 27. 1988, p.23. - 23 -

A. *Zchag.2 Rate policg

Introduction

3.1 This section looks at the theory and practice of exchange rate policy in Barbados. Barbados has had a fixed exchange rate since independence and before. This system has brought advantages. However, Iong run factors may be causing a change in the equilibrium real exchange rate,yand short run pressures may make maintenance of the current nominal rate very difflcult if not impossible. As will be dlicussed, while a nominal devaluatlon might play a role in achieving a new equilLbrium,short term and long term measures of internal reatraint are likely to produce a better growth and inflation outcome.

3.2 Barbados has maintained a virtzialLy :.xed rate vis-&-vis the U.S. dollar even in situations where a nominal devaluation might have been expected to be implemented. Since Lndependencein 1966, the Barbados dollar (BDs$) was formally linked to the pound sterllng (E) at a rate of 4.80 to 1.00 . By 1970 the BDS$/E link generated a BDS$/US$ rate of 2.0053 to 1.00. Subsequent devaluatlon of the pound against the US$, especially in 1975, resulted in a BDS$/US$ rate of 2.1838 on June 30, 1975. On July 1, 1975, the BDS$ was formally linked to the USS rather than the pound, and at a rate of 2.0038 to 1.00. RestoratLon of the 2 to 1 rate required an upward namlnrl revaluation of approximately9%, and represented a real revaluationof approximately30% based on comparativechanges Ln prLces ln Barbados and the U.S. from 1970 .o 1975 (See Table 1II-1). Since July 1. 1975 the only adjustment in the

jj A country's real exchange rate is defined as the relative price of tradeable goods with respect to non-tradeablegoods and represents a measure of internationalcompatLtiveness. A real exchange appreciation reflects an increase ln the domestLc cost of producing tradeable goods and, barrLng changes ln relatlve prices Ln the rest of the world, a deteriorationof the country's internationalcompetitLver.eno. See Sebastian Edwards, "ExchangeRate Misalignmentln Developlng CountrLess Analytlcal Issues and EmpLrLcal EvLdence." CPD Worklng Paper. 1986, World Bank. - 24 -

BDS$/US$ rates was a minor adjustment in 1977 to a formal rate of 2.0113 to 1, the rate that has been maintaLned to the present despite a serLes of external shocks, lncludlng the oll shock of the late 1970s. the recessLon of the early 1980s, and the sharp rlie and subsequent fall of the US$ vls-&-vls other major currencies Ln the latter 1980B.

Exchaneg Rate PolLcy iL Barbados

3.3 The fixed exchange rate pollcy clearly brought bonefits to Barbados. The Barbados Government adopted prudent flical and monetary policLes as a recult of the need to maintain the exchange rate Lnk, and these policles were accompanLedby an Lmpressiverecord in terms of overall growth, as described ln Chapter II. InflatLon,at least since 1975. has been much lower than in CARICOM countries that have not maintalned their exchange rates (Soe Table 111-3). A fixed exchange rate is not a guarantee of economlc growth, of course, but ln comblnatlon wlth polltlcal stabillty, sound economic management and growlng world markets for tourLam, it has provlded a framework in which the was able to achleve an envlable growth record. This needs to be emphasLzed when short term preesures and crLses brLng forth suggestLons for exchange rate adjustment ln Barbados, particularly when the adjustment is recommended to restore sectoral competltlveness (i.e., ln manufacturing)rather than overall competitiveness. The exchange rate is too importanta pollcy Lnstrument to be used to attempt to resolve a problem in a small sector of the economy such as manufacturlng,since the rigative spill-over effects on the economy as a whole would outweLgh any marglnal gains to the lndlvidual sector targeted for lmprovement. The usefulness of exchange rate adjustments ln restoring overall economy-widecompetitLveness le discussed below.

3.4 The theoretlcal case for a flxed exchange rate for a small open economy rests on the propositlonthat nomlnal devaluatlon is llkely to have a short run effect on real output but a long run effect on lnflatlon. Dynamlc factors relatlng to expectatlonswill ensure that successive devaluations brlng short term galne ln output for a shorter and shorter perLod, and hence, a faster or acceleratLngrate of LnflatLon. BusLness confidence is eroded, and politLcal and economlc stabliLty are undermined.

3.5 A nomLnal devaluatlon will work to lmprove the level of output and the trade balance to the extent that lt results in a real devaluatlon. In the case of a small open economy, where prLces of exports and imports tend to be flxed ln terms of foreign currency, a real devaluatlonrequLres that the prlco of traded goods rlse relatLve to the prlce of non-traded goodsY

LI A nomlnal devaluatLonmay improve the trade balance but reduce the level of output ln cases where the "real balance" effect li tho only effect that operates. For a summary of the theory of small open oconomles see R. E. Caves and Others, World Trade and Payments, 5th edltion, Scott, Foreman/LlttleBrown, 1990. - 25 -

While Barbados probably has some ability to alter the price of its maln export product, tourlem, in terms of us$, since tourlsm is an lndustry wlth a highly differentlatedproduct, it is a reasonable first approximationthat Barbados is a small open economy in the sense that lts terms of trade are determined externally. Thus, a nominal devaluatlon requlres that prlces of traded goods ln Barbados rlse relative to the prices of non-traded goods, in order for real effects to occur, i.e., for the trade balance to improve and for real output to rise.

3.6 In practical terms, a nominal devaluationwill only work lf money wages do not rise by the extent of the devaluation. If money wages rise by the extent of the devaluation,real wages in terms of traded goods will not fall, and real wages in terms of non-traded goods almost certainly will not rise, the result being there is no change in the lncentive to produce tradeable goods. The unemploymentrate in Barbados is high, suggestlng that money wages might not rise proportionatelyto a nominal devaluation in the short run. Thus, a nominal devaluationwould generate an incentive for tradeable goods output to rise in the short run, posslbly without a reductlon in non-tradeablegoods output if unemployed resources were to be used. If. on the other hand, labor market rigidities reduce the scope of downward adjustment of real wages and tight fiscal and monetary policies do not accompany the change of the nominal parity in the longer run, the real impact of the nominal devaluationwould be eroded by internal wage and price movements, and the result would be simply a higher price level.

Noi$nal Bxchange Rate Adluatments in Other CARICOI Countries

3.7 Some idea of the possible impact of exchange rate adjustments on Barbados can be obtained by an examination of the experience of its main CARICOM partners. Other CARICOM countries revised their currency links at roughly the same time as Barbados, but at rates which represented nominal depreciationsvis-&-vis the USS, despite the fact that thelr rates of inflationup to 1975 were less than those experlenced by Barbados (see Table III-3). Jamaica linked its currency to the U8S on January 1, 1973 at a rate representinga nominal devaluationagainst the US$ comparwd to 1970 of about 9%. Guyana's llnk was set on October 1, 1975 at a nomlnal devaluation of 28% as compared to 1970. Trinldad and Tobago's currency was linked on May 1, 1976 at a rate about 20% below the 1970 rate. The rate for Jamaica representedan appreclationof lts real exchange rate slnce 1970, but at a rate well below that for Barbados in 1975. Guyana's nomlnal rate represented a substantialreal devaluation,and Trlnldad and Tobago's real rate was virtually unchanged (see Table 111-1).

3.8 Since June 1975, the BDS$ has held onto lts link wlth the US$ whereas Guyana, Jamaica and Trlnldad and Tobago have not, as seen ln Table III-l. The Barbados link has been retained desplte conslderable appreciatlonvle-&-vLe the US$, and in the face of the oll shocks of the 1970s, the severe recesslon of the early 1980s, and the gyratlons of the US$ wlth respect to the currencles of other industrial natlons throughout the 1980s. It has also held ln the face of severe short-run dliruptlons to lts trade caused by the frequent nomlnal devaluatlons of lts CARICOMpartners. - 26 -

ZBILCIZZ-L XXCBANGERADM5 FOR SELCTED CARDXBA COUNTXRES, 1970-1989 (1970 * 100)

Nominal Exchang2 Rate Real Exchanoe Rate 1970 1975 1982 1989 1970 1975 1982 1989

Guyana 100 128 150 2056 100 140 103 248 Jamaica 100 109 214 658 100 *86 89 113 100 118 120 212 100 101 75 76 Barbados 100 100 100 100 100 67 55 46

Note: Real exchange rates are based on consumer price index comparisons for each of four Caribbean countries with the U.S. wholesale price index; a decrease indicates a real appreciation.

Source: Calculated from International Financial Statistics; 1989 figures are for June.

3.9 Guyana illustrates the short run benefits but potential long run difficulties of using nominal exchange rate adjustments, difficulties that can ultimately nullify the effectiveness of devaluations for small open economies, especially if complementary monetary and fiscal policies are not implemented. After linking its currency in 1975 at a rate which represented a substantial nominal devaluation with the USS, Guyana devalued its currency in 1981. 1984. 1986. 1987 and 1989. The 1975 nomLnal devaluation generated a real devaluation for about four years, but the real effects of the subsequent devaluations were dissipated quickly in about one year owing to internal inflationary spirals. The high real exchange rate in June 1989 shown in Table III-1 simply reflects the very brief period of time since the four-fold devaluation of that year. Jamaica's devaluations in 1978/79 and 1983/84/85 were sharp enough to provide an initial real depreciation which lasted three to four years but at a high cost in terms of internal inflation (see Table III-3). Trinidad and Tobago devalued in 1985 and again in 1988. owing to the drop in oil prices. Trinidad and Tobago's real exchange rate appreciated virtually continuously from 1972 to 1984. an overall appreciation of almost 40%. The devaluations of 1985 and 1988 had the effect of restoring the real exchange rate to its level of 1980. - 27 -

ZIDLII:F2 REAL EFF VE EXCHANG Rh=3 XIICES FOR SEECTMED CARIBDEAN COUNTRI18, 1978-1990 (1980 - 100)

Trinidad and Dominican Year Barbados Tobago Jamaica Repu.lic

1978 98.8 105.1 104.2 100.3 1979 98.8 103.6 111.3 102.6 1980 100.0 100.0 100.0 100.0 1981 91.8 90.9 93.9 98.7 1982 84.8 82.0 90.5 97.3 1983 80.8 71.6 95.8 102.9 1984 76.6 62.4 137.1 140.9 1985 75.0 59.7 156.8 128.8 1986 80.5 86.2 145.9 137.7 1987 85.4 93.0 147.8 165.0 1988 88.0 99.2 146.6 197.0 1989 84.6 100.5 136.8 157.9 19901 90.0 97.3 152.3 165.8

A/ The nominal effective exchange rate index measures the change over some base year or period in the exchange rate of a country's currency in relation to a weighted geometric average of exchange rates for the currencies of selected partner- or competitor- countries. The reaI effective exchange rate index is defined broadly as a nominal effective exchange rate index adjusted for movements in national price or costs indicdtors of the home country in relation to its partner- or competitor- countries. b/ 1990 is period average for January-September 1990.

Note: An increase in the index represents a real depreciation.

Sources IMF. - 28 -

ssazEffect . Uxh aeTrends in Barbados

3.10 Calculationsof real effective exchange rate indices (REBR) by the IMF are available from 1978Y These lndiLe- give trade with the U.S. a weight of 39%, the UK 22%, Canada 17%, Trlnidad and Tobago 5%, and several other countries the remalning 17% (see Table 111-2). Barbados' REER appreclated sharply along wlth the US$ to 1985, and then declined throughout the last half of the decade. By 1990 the REER had appreciated about 10% above its level of a decade earlier. However, compared to 1984, the year in which the graduationexercelo for Barbados began, the REER has depreciated by 17%.

3.11 Barbados' RBER has followed a pattern dLfferent from other Caribbean countries. Trinldad and Tobago experiencedeven sharper fluctuationsin the 19808. as the REER reflected both the fluctuationsLn the US$ and the impact of oil price changes. In Jamaica and the Domlnlcan Republlc, the REER was roughly constant to 1983, but increased sharply in 1984, and has contlnued to rlse to 1990. Barbados' competltivepositlon has, by this measure, deterioratedsharply as compared to Jamalca and the Domlnlcan Republic, and shows a slight deteriorationvia-a-via Trinidad and Tobago.

3.12 The real appreciationof the BDS$ vls-k-vle both the US$ and the currencLes of important regLonal competLtor. ralses the question of the long run equllibrium RBEER. Movement ln the REER li not by itself sufficientto prove that it is off its equilibrium path, since the equilibrium REER will move ln response to economlc growth or exogenous terms of trade shifts The actual equillbrlum REER at any point in tlme or over time is not susceptible to precise measurement. Nevertheless. two factors suggest that the REER of Barbados may have unduly appreclatedin the 1980s. The ever increasing indebtednessln terms of foreLgn currency means that, other things being equal, the REER would have to depreclate to generate even larger debt servicLng payments. Second, the share of Barbados in Caribbean tourism has fallen, indicatlnga loss of competitivenesson a regLonal baslsY As dLocussed ln Chapter IV, domestic policies have played a key role ln the loss of competitivenessof Barbados' tourism during the 1980's. The virtual stagnatLonof manufacturingoutput ln the 1980c may be a further lndicator of a loss of competltlvenessowlng to an RBER whlch has appreciatedunduly. Furthermore,trade lLberalizationwould also requLro a depreciatLonof the real exchange rate.

~/ Tbhi measure serves as a proxy for cross-countrycomparLsons of real exchange rate changes ln the absence of natlonal accounts deflators measurLng the relative prlce changes of tradeablesvla-k-vli nor- tradeables. (See Chapter IV. 8ectlon on TourLim, footnote 17). j/ See SebastLan Zdwards, 1986. op. clt. - 29 -

ZNML.ZZ3 CONSUMEPR aCs INDX FM SELECT=D CARISDEAN COUNTRZXU, 1970 TO 1989 (197010o)

1970 1975 1980 1985 1989

Guyana 100 145 264 647 2531 Jamaica 100 201 544 1171 1777 Trinidad and Tobago 100 185 340 609 853 Barbados 100 235 391 566 657

8ources InternationalFinanclal StatLitLcs; 1989 figures are for June.

The Short Term Balnace of Pavmnts Position

3.13 In the short term, devaluation cannot be ruled out as an option, if for no other reason than that a country can be faced wlth no choice but to devalue. This is true even if long run equLlibrLum considerations do not support the case for devaluation. A country which has virtually exhausted its foreign exchange reserves and which has no ready access to forelgn credit can be forced to devalue in the sense that its citlzens, in order to obtain foreign exchange, will offer more of their own currency than the par or offlcial rate, and there will be no counterforce of government or Central Bank sales of foreign exchange to stabilize the forelgn exchange rate. Speculators, seeing the absence of foreign exchange reserves and of access to credit, will ensure that the price of foreign exchange rises above its official par value. Capital controls are generally ineffectivein preventing such speculative forces from driving up the price of foreLin exchange, as are more general exchange controls on capital and current transactions. In a small open economy such as Barbados, a run on the Barbados dollar by speculators,both internal and foreign, would be impossibleto contain. especially given the recent depletLon of reserves and increased difficulty in accessing the internationalcapltal market.

3.14 in early 1991 prospects for maintainingthe exchange rate parity appeared to be as problematic as in 1981. In the early 1980., Barbados was affected by the ouspenslon of the CARIOON MultilateralClearing Facility (CKCF)c. but because of the availabilityof external financial resources the

J/ See "The Caribbean Common Markett Trade Policies and Regional Integration in the 1990s", Report No. 8381-CRG. The World Bank, December 1990. Participants in the CMCF includedt Barbados, Belize, OECS, Guyana, Jamaica and Trinidad Tobago. In 1974, the facility amounted to US$ 40 million apportionedamong members according to their special economic circumstances. Thlo credit limit was progressively increased to a total of US$ 100 million. The facllity began to run into difficulties Ln early 1982 and was suspended at the end of March 1983. - 30 -

exchangerate parity could be maintained. Whlle there are long term factors which may have contributedto the current pressure, such am a sustalned fLical deflclt, the resultlng increase ln debt and the reductLon of competltlveness in tourlim and manufacturlng,the key short-term factor has undoubtedly been a sharp lncrease in the fLical defLcit fLnanced to an unprecedented extent by borrowing from the Central Bank. The recesslon year of 1981 provldes an llluminatingcontrast. The fiscal defLcLt ln 1981 increased sharply to BDS$182.1 million, of which BDS$21.9 million or 12% was flnanced by the Central Bank of Barbados. In 1990, the *estimatedflical deficLt rose sharply to BDS$258.8 mllion, of whlch BDS$159.7 million or 62% was fLnanced by the Central Bank. MonetLzatLon of debt to thle degree engenders fears of devaluatlon, capital flight and strong pressure on foreign exchange reserves, all of whlch have occurred in Barbados ln recent months.

3.15 The fixed exchange rate system has functionedwell because the Government has exercieed monetary restraint. Thls restraint appears to have broken down, at least temporarily, ln 1990 and 1991. However, even wlth monetary restralnt the REER has appreclatedrelatlve to lts maln Caribbean competitors,suggestlng that Barbados will need to undertake long term adjustmentpolLcLes ln addition to surmounting its short term pressures. The options open to treat both long term and short term problems are the same, i.e., reduce aggregate nominal expendituresin the economy, mainly through fiscal and monetary restraint,or devalue. The reduction of aggregate expenditure involves reducing public expendltures,both current and capital, and lncreasingtax rates. In thle context, wage pollcy plays a cruclal role. These polLcLes are polltlcally dlfflcult to achleve. Devaluatlon la sometimes seen as a softer optlon, but lt carrles lts own polltlcal rlsks, generates higher prlce levels, and requLres, ln order to be effective, complementary monetary and fiscal policLes to reduce aggregate expendltures.

3.16 Given the current moderate inflatlonarytrends ln the world economy, suffLcLentdeprecLation of the REER by means of aggregate demand policies would requLre wages and prlces ln Barbados to remaln essentlally constant, or even decline to achleve a signlflcantreal devaluatlon. The situation becoma more difficultwhen the US$ appreclates against European currencles, however, slnce depreclationof the REER ln this case would requLre wlde wage and prlce reductlons in Barbados, dependlng on the degree of appreclatlonof the US$ and the relatLve inflation rates.

Concusons

3.17 In order to malntaln a flxed exchange rate a country needs sound complementarymacro pollcles internallyand a favorable external environment. To date Barbados has not experlenced the kind of external shock that would blow the exchange rate off course, as was the case in Trinidad and Tobago. Internally,Barbados has, untLi recently, followed relatively sound monetary and fiscal polLcies, and has avolded an excesslve bulldup of external debt. These polLcies are analyzed in Bectlon B below. While there is no one factor that explalns the current vulnerablilty,the key factor appears to be the sharp lncrease in Central Bank financlng of the flscal deficit. Other factors lnclude a slow-down of economic growth, short term government budgetary pressures, an Lncreasing debt burden, perceptions of capltal flight, a long term real appreciation against the US$, and increased regional competltlon ln tourlim and manufacturLng. Government policy in both the short term and the - 31 -

long term will need to encompass an informed and flexible management approach if tho fixed exchange rate system is to be maintained, drawing on lessons of the past on the one hand but recognizing and reacting to the changed environment and the new opportunities on the other.

B. Fiscal and Monetary Plicey

itroduction

3.18 Fiscal and monetary policy in Barbados have supported the maintenance of a fixed exchange rate regime since the time of independence. Fiscal deficits have fluctuatedwith the state of the economy, but have shown no upward trend over the period. Monetary pollcy has also been soundly managed, with foreign exchange reserves tending to increase in line with the economy. However, in 1990 and 1991 a sharply lncreased fiscal deficit has been largely financed by the Central Bank giving rise to strong pressures on the exchange rate. This section provides an analysis of these long term trends and of the short term pressures generated in 1990 and 1991.

Fiscal Deficits and Their iFnancina

3.19 Fiscal policy has been quite consistent over the period 1968/69 to 1990/91. Over the entire 23 year period, current revenues of the Central Government averaged 25.1% of GDP, current expenditures23.4%, current surplus 1.7%, capital expendituresand net lending 6.3%, and the overall deficit 4.6%. As can be seen in Table III-4, figures for each of the years from 1968/69 to 1990/91 are very close to the period average. Both current revenue and current expenditureshave trended slowly upward as a percent of GDP. but the largest upward shifts were very early and very late in the period. From 1969/70 to 1987/88 there is virtually no upward trend in either measure. Capital expendituresand net lending have also shown a elight upward trend. The overall fiscal deficit has been more volatile, ranging from 0.5% of GDP to 7.6% of GDP, but shows little evidence of a trend. Fiscal deficits of 7% of GDP and over tend to be associated with both declines in current revenue as a percent of GDP and increases in current expendituresas a percent of GDP: see, for example, 1973/74, 1976/77, 1981/82, 1987/88 and most recently, 1990/91. These deficits represent in part automatic stabilization in the system.

3.20 In the past the overall deficit was financed by a combination of external and domestic borrowing, and from a variety of sources: Trinidad and Tobago, multilateral agencies, foreign commercial banks, the Central Bank, domestic commercialbanks, and the National Insurance Fund are among the most significant borrowing sources.

3.21 Table III-5 summarizesthe manner by which the fiscal deficit has been financed since 1977/78. In the period, 1977/78 to 1981/82. for example. the fiscal deficit averaged 5.1% of GDP. This deficit was financed by net external borrowing (3.5% of GDP) and net domestic financing (1.6% of GDP). The table also shows gross external financing,which includes amortization payments, and the degree to which commercialbanks financed gross external borrowing. Finally, the role of Central Bank financing in net domestic - 32 -

fLnancing li shown. The difference between gross and net external flnanclng La a measure of the lncreaelngburden of amortlzatLonpayments.

Tablel11-4i COUURAL GOVERNMUNTFINANCES, 1968/69 - 1990/91 (percent of GDP)

6lU S!g Z70 71/fl 72/73 774 277 75/76 76/77 fl 76IWO aireat .3vemAe 20.9 23.9 24.2 25.0 23.9 22.4 22.6 24.4 24.2 24.6 27.6 ouwzet EeMtute 16.2 22.0 22.6 22.3 22.2 24.6 22.6 21.5 24.3 23.4 23.0 irreat altnjlwt1oit C-) 2.7 1.9 1.4 2.7 1.7 -2.2 0.2 3.0 -0.1 1.1 4.5 aiPitel eaditre and lNt landing 3.2 3.6 4.6 5.1 4.9 5.4 5.6 5.6 6.9 6.5 6.5

Ovee Supltus Deficit (-) -0.5 -1.7 -3.2 -2.4 -3.3 -7.6 -5.3 -2.7 -7.1 -7.3 -2.0

Ouzeat bJaditure 22.6 25.1 22.8 24.0 23.2 24.1 26.0 23.7 26.7 25.2 25.0 27.7 _ reat Blufph/Deficit C-) 3.7 3.1 1.9 0.9 2.4 0.7 0.7 1.6 -0.8 3.2 4.0 0.5 eit.al teAdtur Sad Not Lening 6.4 6.4 9.1 6.6 6.5 7.0 6.6 7.4 6.6 6.0 6.1 7.3 Overall Surplus Deficit C-) -2.7 -3.3 -7.2 -5.7 -4.1 -6.3 -5.9 -5.6 -7.5 -1.6 -2.2 -6.6

I/ m:ted. BOU6 Dnlalated fzm Tabes 2.3 ad 5.1. n standard Tablo 1. and Tableo 1. central Sak of larbados Inmal Statistical Digest. 1990. riea1 yOa 1990/91 eat.jtaa aXe frc. the Winietry of Vinrnce of Sarbadoc. PiFee Iear 1966/69 Is ceme-ed to c1az yaw 1968 GP at maket pUice. etc. Prcntae say not add becue of rounding.

3.22 Overall, reliance on net external borrowing to finance the fiecal deficit has tended to fall. On an annual baeis. net external borrowing averaged 3.4% of GDP between 1977/78 and 1986/87. and 1.7% between 1987/88 and 1989/90 (see Table III-5). Net domestic financingas a percent of GDP has fluctuated around 2%. However, gross external borrowing. which includes amortizatlonpayments, has tended to increase as a percent of GDP, putting asme pressure on the overall balance of payments, since external borrowings are being used to finance debt repayment rather than to add to the flow of foreign exchange available for other purposes. This is clearly the case in 1990/91, when net external borrowing was negative.

3.23 Central Bank financingof the fiscal deficit was not a significant factor ln Barbados from 1981/88 to 1989/90. Natlonal Insurance Fund financing was the key element in net domestLc financing from 1981/82 to 1985/86. allowing central bank financing to be negative in several years. The sharp Lncrease ln Central Bank financing of the fiscal deficit Ln 1990/91, to the extent of 4.6% of GDP, ie well above that of any previous year. Reliance on the domestlc commercial banks haa been heavy in some periods, particularly in 1990/91. On the foreign side, commercial bank borrowing has been very important in some years. Commercial banks provided 39% of gross external borrowing from 1977/78 to 1981/82, 33% from 1982/83 to 1986/87 and 42% from

W The Financial Administration and Audit Act (CAP 5) was amended in December 1990 to increase the limit of temporary advances to the Governmentby the Central Bank from 10% of estimated revenue to 17.5%. - 33 -

1987/88 to 1989/90. Comercial bank borrowlng tends to be hlgh cost and short term (e*e StatisticalAppendix Table 5.1).

3.24 In general, there have been no extraordinary fluctuatlonsLn borrowing, except for the recent call on the domestic banklng system, includlng the Central Bank. Nevertheless,the steady accumulatlonof debt has resulted ln an ever lncreaslnglnterest cost as a proportLon of government current revenue. In 1968/69. Lnterest payments by governmenton domestic and foreLgn debt took 4.8% of government revenueu Ln 1977/78. 7.6%. By 1989/90 thL ratio had rlson to 12.2% (the ratio peaked at 13.7% Ln 1987/88). In addltlon, the proportlonof externalinterest payments Ln relatLon to total interestpayments has grown sharply from 16.3% in 1977/78 to 28.8% ln 1982/83 to 44.2% in 1989/90. AmortlzatLonon external debt has also Lncreased, from BDS$l0 mllion ln 1977/78 to BDS$125 million in 1989/90, the latter flgure beLng over 2½ times that for any prevlous year. These trends suggest that a more conservatlve long term flscal pollcy ls requlred along the lLnes shown ln Table III-4 for 1988/89 and 1989/90, L.. a slgnlflcant Lncrease ln the current surplus to cover at least half of the expendltureson capital and net lending. ThLs ln time wlll slow down the growth ln lnterest payments as a percent of government revenue and provlde lncreased stabillty to the exchange rate.

Tabisl 111-St FINANCINGOF PISCAL DEFICIT: SITERNAL AND INTERNAL SOURCES, 1977/78 TO 1989/90 (annual averages ln Barbados dollar million and percent of GDP)

77/78 - 81zS8 8ZJ83 - 86/7L 7i/88- 89/90 1990 a/ BDS$M % BDS$M % BDS$M % BDSSM$

A-verageFiscal L 3j 5 1 116.5 i3 78 veflcl£

Not Extrnal 48.7 35 75 2 3_3 53 9 1.7 -2.5 -0 1 112rrownag Gross Bxternal 57.1 4.1 100.3 4.4 144.0 4.6 141.2 4.1 Borrowing o/w Commercial 22.5 1.6 33.7 1.5 61.1 1.9 n.a. n.a. Banks

Net Doment4c &226 1 6 53r0 2.3 62.6 2,0 261.3 7.5 FLnancina o/w Central 18.6 1.3 -28.9 -1.3 13.7 0.4. 159.7 4.6 Bank Financing

I/ Estimated on a calendar year basls. Central Bank of Barbados.

Notes Net external borrowing including a small grant component. GDP at market prices.

3OArct Derlved from StatisticalAppendix Tables 2.1 and 5.1, and, for 1990/91, estimates of Central Bank of Barbados. - 34 -

3.25 Monetary pollcy has been as stableas flical policy up to 1990. The ratlo of money to GDP fell sharply ln the mmedlate post-independencepsrlod. especially ln 1973, *lnce whlch time it has been virtually stable. The Central Bank of Barbados was establlihed ln 1973, which may explain velocity shlfts ln that year. over the perlod 1976 to 1989 the ratio of currency outslde banks plus demand deposLts to GDP averaged 12.4%. Only ln two years. 1979 and 1988, dld the actual ratlo exceed the perLod average by more than one percentage polnt (see Table III-6 below). The real test of monetary pollcy, however, li not the stabilityof the ratio of money to GDP but the rate of lnternal inflationand the level of net internatLonalreserveo held by the Central Bank.

Table IIS6: RATIO OF MMOY TOTO , 1976-1989

Year Percent

1968 21.1 1969 21.0 1970 18.4 1971 17.7 1972 17.8 1973 13.6 1974 12.9 1975 12.9 1976 11.7 1977 12.3 1978 12.6 1979 14.3 1980 13.2 1981 11.6 1982 11.0 1983 11.3 t984 11.1 1985 11.8 1986 12.5 1987 13.2 1988 14.9 1989 12.4

/ Moneydefined as currencyoutside banks zlus demanddeposits. Source: Statistical Appendix Tables 2.1 and 6.1. and CentralBank of Barbados,Annual Statistical Digest, 1990. Pigures for 1963 to 1975 are not comparable to those for later years but indicate trends.

3.26 The Lnflation experience over the whole period sinee independencewas not as good as the experience in the United States, whieh indicates a need for monetary tightenlng. Speeifically,sinee 1975 - when the Barbados currency was pegged to the U.S. dollar - the consumer prlce index (CPI) of Barbados moved to 270 ln 1989 as compared with an index of 230 for the CPI in the U.S. Using wholesale price data for the U.S., also with 1975 as the base year. the difference li more striking with an indox of 190 by 1989. - 35 -

3.27 Up to 1989. the not international rexerves held by the Central Bank fluctuated with the state of the busLness cycle, showLng a sharp decline ln 1981 through 1983. Over the perlod from 1976 to 1989, not lnternatlonal reserves of the Central Bank went from 6.5% of ODP ln 1976 to 5.8% in 1989, a sharp reductlon from 8.1% in 1988. but not a slgnlflcant decllne overall. Net internatlonal reserves of the commerclal banks lncreased sharply over the period. so that the net reserve positLon of the country as a whole Lncreased from 1976 to 1989. However, offLcLal reserves fell by BDS$85.0 mllion ln 1989, and by BDS$116.0 million ln 1990. OffLcial reserves ln December, 1988 were BDS$303.8 million, so the recent decllne has been very large. Balance of payments figures show that the pressure has come from the capital account sLds, sLnce the current balance has been steady. Thli is conslstent with the pressures that tend to result from rapld increases ln Central Bank fLnancLng of government debt. In vlew of theme pressures on the balance of payments and the exchange rate at the present time, monetary policy will have to return to sound management lf the monetary and exchange rate stabillty enjoyed in the past is to contlnue.

ab-le IIlI FINANCING OF TMU BALANCF OF PAYNUNTS, 1977 TO 1990 (averagesin BD8$ mllion and percent of CDP)

1977-1981 1982-1986 1987-1989 1990 BDS$M I BDS$4I%M 8 BDS$M I

Current Account -54.0 -3.0 -11.2 -0.5 -17.6 -0.6 -9.0 -0.3 Long Term Capital 24.8 1.8 7.3 0.3 34.3 1.1 0.0 -0.0 Short Term 31.0 2.2 3.6 0.2 -1.7 0.1 -99.0 -2.9 capital Change in Net -2.1 -0.1 -0.3 -0.0 -18.3 -0.6 108.0 3.2 Reserves Position ( increase - -)

Note: GDP at market prices. Current account balance is after official transfers have been included. Short-term capital includes errors and omissions. Numbers may not add to zero because of rounding. jougce:Statistical Appendix Tables 2.1 and 3.1 and Central Bank of Barbados.

Conclusdions

3.28 By and large, Barbados has followed sound fiscal and monetary policies since independence. Fiscal deficlts have been moderate and have been financed in non-inflationary ways; monetary policy has been cautioue. However, the accumulation of fiscal deficits throughout the 1980. increased Barbados' debt burden and dependency on commercial external financing. In FY9O/91 the fiocal deficit expanded sharply. The deficlt was financed largely by the Central Bank of Barbados. This way of financlng put immediate pressure on the country's foreign exchange reserves. This experlence is consistent with that recorded elsewhere for small open economles maintainlng a fixed exchange rate regime. The isOue currently facLng the country is how to - 36 -

reestablLsh fLical and monetary control to ellmlnate external lmbalances. TLght and coordLnated use of both monetary and flical polLcLes la requlred. Thls is dLicussed ln more detall In Chapter VI.

C. Revengeifxt2ndLtureand Incentlv- Policisd

XntM2ftctkion

3.29 Responsiblemanagement of the fiocal accounts sLnce lndependence has enabled Barbados to maintaln a stable exchange rate, to underpin a dynamlc growt.h pattern and to achleve rapid soclal progress. Flical deficits Ln Barbados followed a slowly rLiLng trend, movLng from an average of 3.5% of GDP ln the late 1960s to 6% of GDP durlng the early 1980.. These flical defLcLts resulted from secular lncreases Ln current and capltal expendlture and a slower revenue expansLon. A decrease ln capltal expendLture comblnod wlth a strong effort to raise revenues brought the average defLcLt down to 4.6% of GDP between 1985 and 1989. Since 1989, however, fiscal management has faltered, and the flical accounts have become serlously imbalanced (see Chapter III, SectLon B above). Moreover, there are emergLng signs that polnt to a loss of flexlbillityln adjustLng fLscal expendlture,and to reduced neutrallty and lncreased lack of transparency in revenue and incentLve polLcLes.

3xnenditure Policy

3.30 The expansion of economlc and social services was reflected ln the growth of central government current expendlture from an average of 22% of GDP ln the late 1960. to 23%-24% of GDP from the mLd-1970s to the mid-1980s (see Table IIS-8). In 1989, current expendLture accounted for 25% of GDP. Capltal expendLture also expanded from 3%-5% of GDP up to the mld-1970e to 7% of GDP from the mid-1970s to mld-1980s, and has fallen to 6% of GDP over the last 5 years. Central government revenue, increasedmore moderately,moving from 23% of GDP up to the mid-1970s to 25%-26% from 1975 to 1989. Durlng flscal years 1988 and 1989, a determlned effort to reduce the defLcLt was undertaken, maLnly through Lncreases ln taxatLon which raLsed central government total revenue to a hlgh of 29% of GDP. The improvementln the fiscal accounts that thli strong tax effort produced was sharply reversed in 1990 when extenslve pre-electoralexpenditure increases resulted in an estimated increase of current expenditure to close to 28% of GDP and of capLtal expendlture to 7.3%. Consequently, the fiscal deflclt rose to an estimated 6.8% of GDP for the fiscal year 1990/91. (For calendar year 1990. the correspondlngflgure is 8.8% of GDP.)

3.31 Current expenditure data point to a secular increase of expendLture levels in the Central Government. Moreover, lt has intensifledover the last 5 years, a perlod when government servLces were not belng substantlally

Z/ Revenue and expenditure ln thls sectLon, unless otherwise noted, refers to the Central Government. whlch representsclose to 90% of total consolidatedpubllc sector revenue and expendituresaccounts. - 37 -

expanded. Two main variables explain this increase interestpayments on the public debt and wages. As discussv41in Section B above, increaseddebt levels incurred in financing the deficit impose a constraint on fiscal flexibility, and point to the need to rapldly phase out fLical defLcits to slow down the rlse ln interest payments. Total Lnterest payments on the publlc debt have doubled ln US$ terms over the last 5 years and currently represent 14% of total current expendlture as compared wlth a level of 6%-8% during the 1970s. Interest on external debt comprlsed about 50% of total Lnterest due over 1985/90. Wages and salarLes have also been slowly climbing as a proportlon of total current expendLtureoespecially over the last 5 years. From an average share of 42% from 1977 to the mid-1980. (or about 10% of GDP). wages and salarles have rLsen to an average of 44.6% of current expendlture (or 11.2% of GDP). Public expendLtureon other goods and servLces has been slowly falllng to a share of 11.1% of total current expendLtureover the last 5 years, as comp4red with 15.2% over 1977/89 and 12.3% over 80/84. Transfers have remalned fairly constant, wlth some year-to-yearfluctuations malnly related to the performance of public sector enterprlses. Nevertheless,current transfers stlll account for a siLeable30% of the current expendLture budget and need to be carefully reviewed.

kable1I-8s CENTRAL GOVERENENT OPERATIONS, 1977/79-1990/91f (percent of GDP)

Period Averaaen 1977/79k 1980/84 19b5/89 FY1989/90 FY1990/91I

Total Revenue 26.1 25.1 26.9 28.9 28.2 Current Expendlture 23.7 23.6 25.1 25.0 27.7 Goods & ServLces 13.5 12.9 14.0 13.9 16.1 - Wages 9.9 10.2 11.2 11.0 12.2 -- Other 3.6 2.9 2.8 2.9 3.8 Interest Payments 2.0 2.8 3.2 3.5 3.0 Transfers 8.2 7.9 7.8 7.5 8.7 Current Balance 2.4 1.5 1.8 3.9 0.5 Capltal Expenditure 7.1 7.5 6.4 6.1 7.3 Flecal Balance -4.7 -6.0 -4.6 -2.2 -6.8

A/ The perLods shown are based on the fact that data on central government expendlture by economic classiflcatlonis avaLlable only slnce the 1977/78 budget and are on a flical year basls. 1/ The flical year (FY) runs from April-March 31. Therefore, the period 1977/79 refers to data from Aprll 1, 1977 to March 31, 1980; and so onwards. S/ EetLmated. filgrts Mlnletry of Flnance and Plannlng and misLson estlmates. - 38 -

3.32 The secular rise in the Government'swage bill as a proportion of GDP is mainly related to job regrading and increasedemployment levels rather than increases in base wages. In effect, while throughout the 1980s public sector wage increases did not outpace inflation,government employment rose from 34% of total employment over 1977/79 to 37% over 1980/84 and 38% over the last five years (see Table 1I1-9). Given the political sensitivityof reducing wage and/or employment levels in the public sector, this trend creates a serious constrainton future expenditure reduction efforts. Consideration of type and quality of government services are often neglected when implementing expenditure reduction and/or public wage policies. In Barbados, public sector wage policy through regrading and differentialwage increases has aimed consistentlyat reducing the dispersionof salary ranges on grounds of equity (see Section D below). increasingemployment beyond the necessitiesof a given service and reducing wage dispersioncan have very adverse effects on the quality of service provided, through overcrowding and a disincentive to retain highly qualified manpower. Furthermore, narrowing of the wage scale for the publlc sector provides for similar incentives in private wage negotiations. Since Barbados has traditionally provided high quality government services, the focus on ma)ntaining and where possible improving such standards should be a specific objective of public sector policy.

3.33 The trend towards compression of current expenditure in "other goods and services" also needs to be carefully reviewed. Reducing investment as well as expenditure on materials and other goods and services in lieu of the wage bill, has been a common way of fiscal adjustment in developing countries. Although still incipient,this trend could have serious adverse effects in the medium term by reducing the quality and effectivenessof government services as well as the maintenanceof infrastructure. As many studies have demonstrated,maintenance of the existing capital stock can have much higher rates of return than new investment. Nevertheless,many governments choose to spend on new investment rather than maintenance, often prompted by the availability of financing for new investment projects. To minimize the adverse effects of the fiscal adjustment needed over the next few years. serious emphasis needs to be placed on maintenance of infrastructure, improving efficiency of government services, and limiting public investment to priority projects.

1/ Some of the rise in employment might be justified by the extension and improvement in social (health and educatlon) services during the 1970's and early 1980. but this factor is unlikely to have been the main determinant of government employment increases, especially over the last five years. - 39 -

MaISLI.-9t C3WSAL. OWUIUW sIPUXDI!UEU lXDXCA2O33, 1977/79 - 1985/89

Period Avsraaes 1977/79 1980/84 1985/89

Current Exoendlture Composition (% of total) A. Goods and Services 56.8 54.9 55.7 - Wages 41.7 42.6 44.6 - Ot.er 15.2 12.3 11.1 B. Interest Payments 8.4 11.7 13.1 - Domestic 6.3 7.8 6.4 - External 2.2 3.9 6.7 C. Transfers 34.8 33.4 31.2 D. Total Current Expenditure 100.0 100.0 100.0

Government Wace IndiceV (1977/79 - 100) A. Nominal Wages 100.0 151.6 206.3 B. Real Wages (Deflated by CPI) 100.0 97.1 104.5

Goverment Em lomen A. Employment Level ('000 of persona) 30.8 36.0 38.0 B. % of Total Employment 34.0 37.1 38.4 s/ Central Government (civil service). Does not include effects of regrading. k/ Government and Business servlces.

Source: Ministry of Finance and Planning, Barbados 8tatietical Service, and mission estimates.

Exoenditure by FuM#tion

3.34 Education. The disaggregatlon of both capital and current expendlture by function shows a domlnant focus on soclal development, wlth a heavy emphasis on educatlon, health, housing, and infrastructure. Expenditure on education has conslstently accounted for over 20% of the current budget and about 10% of capltal outlays. Steady galns were made sLnce independence ln the coverage of the school age population. Vlrtually universal enrollment at the primary and secondary levels of the educatlonal system had been achleved by 1985. As a result, Barbados beneflts from one of the most educated labor forces in the Caribbean. Nevertheless, the heavy emphasis on general schooling leadlng to unLversLty rather than vocatlonal schools, produces graduates who are not well-suLted to the demands of a modern service-based economy. This structural defLcLency, along wlth lnadequate links to Lndustry is considered to contrlbute to the high levels of unemployment ln the Barbados economy (see Chapter III, Sectlon D). - 40 -

IhIn-l as 3DUCATZOh XNDICADO3J, 1966-85

Xnrollment as Percent of Population Pupll/Teacher Ratioe Year (ago group) Primary Grammar

1966 87.2 32 21 1970 92.7 27 19 1975 106.2 26 18 1980 116.4 23 18 1985 98.0/ 23 18

A/ AchLved through elimination of overaged student population.

source: Saunders, N. and Worrell, D., "Government Expenditure in Barbados,* 1946-79. CBB Quarterly Report, June 1981, and the World Bank.

3.35 Health. Expendlture on health, which covers medical services, family planning, nutrition and sanitation and refuse collection, accounted for the second largest category of government spending throughout the period, amounting to between 15%-20% of current outlays and 5%-15% of total capital expenditure. The quality of medical servlces was substantially improved in the early 1960e wLth the construction of the Queen Elizabeth hospital, which was recently upgraded. However, this level of curative services augmented signlficantly the recurrent expenditure needs of the health care sector. During the 1970. and 1980s. emphasie was placed on decentralization towards outpatient clinice. As a result of the emphasis placed on the provision of medical services, health indicators and vital statLetics have improved dramatically. Disease control and refuse collection and dieposal outlays began to absorb a high proportion of capital expenditure in health during the mid to late 1970.. In spite of the progress made, sewage treatment remaine one of the major problems to be addressed over the next few years (see Chapter V).

Xl111-Il HEALTH AND VITAL 3TAISTXCS

1960 1965 1970 1975 1979 1987

Crude Death Rate (per 1000) 9.1 7.8 8.7 8.2 8.5 Infant Mortality Rate (per 1000) 60 39 45.9 29 28.8 13.9 Life Expectancy at Blrth 65.1 68.2 68.4 70.0 70.0 - Populatlon per Nurse 830 567 388 334 323 Population per Doctor --- 2430 1938 1506 1268 1064 Populatlon Without Piped Water ------46.9 32.5 19.2

80urcg: Saunders, M. and Worrell, D., "Government Expenditure in Barbados, 1946-79", CBB Quarterly Report, June 1981 and Table 11-7. - 41 -

3.36 Infrastr ctur . Infrastructure development has been well thought out and a major focus of public policy in Barbados. Its share of capital outlays since independence averaged about 20% per year and about 10% of recurrent expend- iture. Originally, the thrust of the investment program was on roads and the port, but with the expansion of tourism, emphasis shifted to the expanslon of the airport's runways, meteorological facilities, and air traffic control. In the late 1970s, a large passenger terminal was constructed. Concomitantly, an extension of the port facilities was undertaken including provisions for handling on-off loading of containers and for berth facilities. Continued emphasis has been placed on infrastructure in recent years, with improvements in fishing harbors and roads, highway reconstruction and rehabilitation including rural road construction, and the construction of a new highway connection from the airport to . The airport has been upgraded and a center for local and international conventions has recently been completed. As a results Barbados has one of the best infrastructures in the Caribbean. In effect, the main transport investment projects have been completed, but maintenance practices need to be improved. Building on previous investments and institutional strengthening by the IDB and the World Bank, a proposed Road Rehabilitation and Maintenance Project supported by the latter institution would address the improvement of road and bridges that were built for lower traffic volume, and focus on strengthening the administrative and maintenance capacity of the Ministry of Transport and Public Works. This project would also include assistance to reorganize and improve the management and operation of the Transport Board.

Transfers and Public Enterorine Poilcy

3.37 In sharp ccntrast to the experience of many developing countries, the public enterprise sector in Barbados is relatively small and in aggregate does not constitute a major drain on public finances.Y In effect, current transfers to nonfinancial public sector enterprises (NPEs) have averaged about 1% of GDP since the mid-1970s and show a falling trend over time.t' Capital transfers have also bean falling, from a share of 2.5% of GDP in the late 1970. to 0.6% of GDP over 1985/89. This does not imply that further rationalization of public enterprises should not be undertaken given the need to rapidly phase out the fiscal deficit and improve economic efficiency. Among the NPEs that have shown consistent deficits over the last five years are the National Housing Corporation. the Barbados Agricultural Board, the Barbados National Oil Company. the Waterworks Authority and the Transport Board. These enterprises all posted operating as well as overall deficits. In contrast to these enterprises, the Port Authority has consistently maintained a net operating surplus, but posted

S./ For a description of the sector, see Saunders M. and Worrell D., "Government Expenditure in Barbados," 1946-79, CBB Quarterly Report. June 1981. j_/ A major proportion of current transfers goes in fact to finance other public services such as schools, tourism promotion, defense and also sanitation services. These transfers represent 3 to 4% of GDP, and will need to be carefuly evaluated by a comprehensive review of governmental functions. - 42 -

an overall defLeLt over the last three years as a result of hlgher capital expendLturofor cargo handlingequlpment and warehouses. Nevertheless,Barbados' port charges are among the hlghest in the Caribbean. In late 1989, the Port Authorlties put lnto servlce the now crane for unloadlng contaLners; the crane had remalned Ldle slnce Lts LnstallatLon years before because of the reeletance of the longshoreman'sunlon. Use of the new crane facllity could reduce charges for unloading contalners by over 40% and thus make the Port Authority more competltive wlth other ports ln the Caribbean reglon which have captured business from Barbados.

3.38 Improvementswere made in the operationof several public enterprlses such as the Transport Board, whlch made the most important contributionto the reductlon of the operatlng defLcLts of the public enterprlse sector ln 1988 and 1989. The Transport Board has been attempting to cut costs by reduclng the staffing of the bus fleet, lmprovlng the effLieLncy of trlp and personnel assignments and introducing more flexible work rules Ln maintenance shops. However, ln wage negotiations during June 1991, the transport workers were seeking a wage lncrease above the already negotLated settlement for the pub4Lc servlce. On the revenue slde, a fare lncrease of 33% was approved ln 1988. The National Housing Corporation also reglstered improvements ln recent years by strengthenlng the collectlon of rents, while the Natlonal Petroleum Corporatlon benefltted from the lncreases ln domestlcally controlled prlces for petroleum to reflect higher world prlces. Conversely,the Waterworks Authority has worsened its overall performance due to increases ln lts operatlng expenses. The Caribbean Broadcastlng Corporatlon has also recorded a marked deterloratlon ln its net operatlng posltlon ln recent years as a result of a substantlal expanslon in staff and operatlons.

3.39 The need to improve Barbadoe'economlc efficiency and phase out the flscal defLcLt wlll lmply a strong effort to ratlonalize government servlces. In this context, the Governmentis ln the process of implementing a comprehenslve review of public sector functions. The review will aim at redeslgnlngthe role of some public agencLes towards eliminatlonof overstafflngand of overlapplng and/or duplicatlon of servlces and at lmprovlng effLcLency and the flnanclal positlon of publlc sector enterprlses. The revlew should also lnclude measures to lmprove cost recovery and to prLvatLze several publlc enterprlses and the commerclal functlons of some development LnstLtutLons, Speclflcally,measures to improve cost recovery of the Barbados Water Authorlty, Barbados Transport Board, Natlonal PetroleumCorporatlon and Natlonal Houslng Corporatlonare belng coneldered. Potentlalcandidates for divestmentmight lncludethe Arawak Cement plant, the government hotels, the Transport Board, the Natlonal Petroleum Corporationand the port. Speclal emphasis needs to be glven to improvement of effL. vncy of the port whose hlgh costs Lmpose a heavy drawback to Barbados' LnternatLonslcompetitlveness.

Rweenue and IncentLve Poliey

3.40 Ralslng revenue to flnance publlc expendlture is only one of many goals that alternatlvetax systemstry to achleve. Income dletrlbution,resource allocation as well as aimplicLty of adminletratlonconsLderatLons also play a role ln the cholce of a glven tax structure. Slnce all these goals can rarely - 43 -

be achieved simultaneously, tax reforms are a matter of tradooffs)U Barbados has had no major difficulty in keeping its revenue lovela in spite of often drastic modificationin its tax laws. And, an is often the came ln tax reforms, it ham occasionally introduced reforms of the tax structure with a specific underlying rationale, while in other instancesit resortod to "quick fixes" under urgent short-run pressures to reduce the deficit. Since theme short-term measures often become permanent, their cumulative effect can seriously distort the structure of taxation. This has certainly been the case of Barbados in recent years.

3.41 When looking at the composition of taxes in Barbados over the last two decades, the salient feature is the shift from direct taxation in favor of indirect taxation. Underlying this shift were the goals of improving income distribution and containing demand, often focusing on imported goods due to balance of payments considerations. The emphasis placed on these objectives varied over time, depending on the political environment and/or the state of the economy. In contrast with many other developing countries, issues of administrativesimplicity and evasion have not been central to the shift towards indirect tcxation in Barbados (see Table 111-12 for the compositionof central government revenue).

3.42 The relative merits of a tax system heavily based on direct taxes as opposed to one based heavily on indirect taxation are debatable. Depending on the specific tax provisions,both income and consumptiontaxes can have similar income distribution effects although income taxes are considered to be potentially more equitable. The main weakness of the current revenue and incentives policy in Barbados is not so much related to the major shift towards indirect taxation over the last ten years, but rather to the lack of neutrality and transparency in the structure of taxation, and its increasing complexity. The lack of neutrality of the system is clearly exemplified by trade and consumptionregulations which result in a heavy anti-exportbias and discriminate between choices of inputs and factors of production. A complex trade regime interacting with a set of regulations aimed at giving special incentives to specific activitiesresults in a serious lack of transparencyof the system since the net impact of these measures is very hard to assess.

3.43 Taxes on income and net profits fell from 11% of GDP (42% of total revenue), during the late 1970. to 6.8% of GDP, (25% of total revenue) over the last five years. Both personal and corporate income tax reductions contributed to the fal!.in direct taxation. To compensate for this fall, some specific levies were introduced and consumptionand trade taxes were raised. Underlying the personal income tax reductions were considerationsof vertical equity. i.e., reduction of income inequality by keeping the progressivity of income tax rates, while extending the scope of exemptions for lower income tax payers. This trend was stepped up in the 1986/87 Budget when the personal exemptionwas raised, de facto eliminating a large number of tax payers from the tax rolls. At the same time, new deductions were introduced and tax rates reduced. Corporate income taxes were also lowered in the 1986/87Budget from 45% to 35%. To compensatepartially for the reductions in income taxes initiated in

II/ This section draws on the analysis of "ReformLngTax Systems" by Zmarak Shalizi, World Bank Tax Notes, January 1989. - 44 - the late 1970.. speclfLc earmarked payroll taxes for unemployment, health, transport and trainLng had been already Lntroduced in the 1981/82 Budget and called for contrlbutlons by both employer and employe.

le 21aZ1ZsaomosWiZTiCU or CUETUALGOUNINUU REYNNUNvj FOR ICD PUIODB, 1977/79-1990/91' (as percent of GDP)

Period Averacr FYT 1977/79 1980/84 1985/89 1989/90

Taxes on Not Income and Profit 19.2 6 8I7 - Companies 3.7 3.2 2.8 3.2 - IndivLduals 6.8 5.4 3.5 3.6 - Others 0.3 0.6 0.4 0.4 Levies 0.3 Q? 2 0 2-5 Taxes on Property1 1 1 U3 1 5 1.4 Taxes on Goods & Servlces -56 4 788 8.9 - ConsumptionTax 1.7 3.7 5.2 6.3 - other 3.8 2.7 2.6 2.6 Import Duties 5.1 4 4.0 3.7 Stamp Duties 0.3 0 9 3 1 3.1

Total Tax Revenue Z.3; 22.8 25.2 26.8

Nontax Revenue AUL9292.2. 2.1 Total CentralGovernment Revenue 26 1 262.9r A928.

A/ Perlods chosen to be comparable wlth expendlturedata by economic classification. k Flocal Year.

Sourcs Calculated from Tables 5.2 and 2.1. StatistlcalAppendix.

3.44 Nevertheless,lt was malnly through several Lncreases ln consumptLon tax and stamp duty on Limports throughout the 1980. that the revenueshortfall from reduced lncome taxatlon was compenated. The share of consumptLon taxes Lncreased from an average of 1.7% of GDP between 1977 and 1979 to 5,2% of GDP over the last flve years. Stamp duty increased from a meager 0.3% of GDP ln the late 1970s to 3.1% of GoP. In recent years, 90% of stamp duty revenues come from taxes on Lnternatlonaltrades thus the measures implementeddurLng the 1980s have strongly blased the tax structure towards taxation on internationaltrade. As a result, over the last five years, taxes on internatlonaltrade (excludLngthe consumptLontax on imports) have accounted for 30% of total revenue, lncreasLng from an average of 20% durlng the late 1970. through the mLd-1980s. - 45 -

3.45 Under a pure consumptiontax, all domestLcallyconsumed goods, whether imported, or produced locally are taxed at the retall stage. Thus, whlle rates for different types of goods mlght vary, the same goods would be taxed equally independent of thelr orlgln and all lnputs Lnto productlon and all exports would not be taxed. Thus, pure consumptLontaxes have several advantages: (a) they do not interferewlth producers' cholces of lnputs or factors of productLonh (b) they do not cascade$ (c) they do not favor productlon of import substitutes;and (d) they do not reduce the incentlve for export. Although consumptlontaxes are generally perceived as regressive, thli need not be the case if certain basic staplesare exempted and luxury items are taxed at a hlgher rate.

3.46 hllhIevertlcal equity conslderatlons were taken lnto account ln the deslgn of Barbados, consumption tax, the neutrality aspects were hardly considered. In fact, the Barbados consumptiontax is far from a "pure" consumptiontax. About 13% of the Items in the tariff code repr esnting 4.5% of total non-CARICOM imports are under consumptiontax regulations which discrimLnate in favor of consumptLon of local goods and against imported ones. The average difference between the higher consumptLon tax rate for these imported goods and the rate for their locally produced counterpartsis 24.7%. Thus, consumption taxes should be modified applylng the same rate for a given good regardleos of whether it ia imported or domestlcallyproduced. Furthermore,the tax is not collected consistently at the retail stage, and while recently many intermediateinputs and raw materials were exempted by decree, distortions st$i1 remain.

3.47 Trade taxes in Barbados are extremely complex and rely heavily on dlfferentLal tariff rates as well as quantltatlve restrictions (see Sectlon E below). In general terms, trade taxation has aimed at protecting the import- substituting manufacturing sector and has resulted in a high degree of anti- export bias and dispersion of effective protectLon levele across different sectors of the economy. Furthermore, the Barbados tax system has also relied heavily on special provisions and exemptlons to partially compensate for allocative distortions introduced by the consumption and trade taxation. Also, there exist many regulations aimed at providing incentive to specific activities and new investment. Among these are tax holidays for new enterprLses. The system has progressively become less transparent over time and it is difficult to assess the tax burden of different economic agents. Furthermore, the fact that many of these special provisions are not automatic but need to be applied for on a case-by-case basis, makes tax administration more complex and costly and creates a degree of admLnistrative dlscretion which magnifies the distortions introducedby the tax provisions themselves.

3.48 As noted above, the reduction of the flscal deficit in 1988 and 1989 resulted from a strong effort to increase revenue, which raised total tax revenue to close to 27% of GDP. The budget measures included an income tax surcharge on personal and company income taxes and a heavy lncrease in consumption taxes on an extensive range of goods, LncludLng gasoline. Cross- country comparisons on tax burdens are not always appropriate since the level of government services provided should also be compared. Nevertheless,a tax burden of 27% of GDP is quite high by any standard and poLnts to the fact that Barbados needs to seriously review the expenditure side, slnce it wlll not be able to increase revenue levels much further. Table 111-13 shows the tax burden and relatlve contribution of dlrect and indirect taxation in a sample - 46 -

of Caribbean countries. Barbados shows a high tax burden and heavy reliance on indirect taxation.

Zaik II-131 CaM UD= FOR 8SLECTED CARISBBEACOUNTRIES, 1988 (percent of CDP)

Tax Burden Direct Taxes Indirect Taxes

Barbados 26.8 11.1 15.7 GuyanaV 36.0 13.8 2.3 Jamaica 26.8 11.8 15.0 Trinidad and Tobago 24.0 16.5 7.5 21.9 12.4 9.5 Dominican Republic 13.6 3.7 9.9

A/ FY1989/90. L/ FY1989.

Source: IDs: Guyana zconomic Report. May 1990.

3.49 Vertical equity has always been an underlying concern of tax reform in Barbados. Several studies claim that the structureof taxation on the whole has had some positive effects on income distributionssince income taxation in Barbados has always placed heavy emphasis on progressivity. Nevertheless,while income taxation can avoid placing undue tax burden on the poor, better targeting of the goals of poverty alleviationcan be done by distributivespending. Thus, public finance as a whole matters more than the structureof taxation alone. As seen, in Barbados, ocial expenditure has been very successful in improving health and education standards.

Conclsions

3.50 Facing an increased level of indebtedness and a less favorable international environment, Barbados will not be able to sustain the budget deficits of the past. Furthermore,the dramatic increase in the deficit for FY1990/91will have to be addressedurgently. Fiscal policy will face a serious challengeover the next few years: strong budget deficlt reductionmeasures will need to be undertaken at a time when the Government is facing increased rigiditieson the expenditureside and the need to rationalizethe tax structure.

3.51 On the expenditure side, increases in the wage bill and public debt levels are imposing a constraint on fiscal flexibility. While politically difficult, Barbados will need to seriously address reducing the wage bill over time both for adjustment and long run competitivenessconsiderations. Other expenditure reduction measures include reduction of transfers to public enterprises and entitlement programs -- which currently represent about 30% of the Central Governments' current expenditure and about 20% of capital expenditure - through improved cost recovery and divestiture of some services. On the - 47 -

investment side, emphasLi shouldbe placed on maintenanceof infrastructurewhich supports directly productiveaction, i.e., tourism and of postponementof all non nsuentLalnew investment. Now investmenton sewage treatmentand other projects related to environmental improvementshould be protected. Given the excellent record of Barbados in providing quality government services and infraotructure, emphasLi should be placed on maintaining the existing standards. A realistic program for divesting public enterprises would support efforts to ratLonalize public servlces.

3.52 On the revenue side, the tax burden is already high. Nevertheless, in the short run, the fiscal deficit reduction effort will require a further revenue increase,since the expenditurereduction measures needed could take some tlme to implement. Throughout the 1980's, increases in consumption and trade taxes which magnified the existing distortionsof a tax system heavily biased against exports have been the main source of revenue increases. It is imperative for the revenue effort required at this stage not to run counter to the medium term objective of rationalizationof the tax system. In effect, the challenge for tax policy in Barbados over the next few years will be to simplify the system and eliminate the distortions created by the current trade and consumption taxation and the many special provisions and exemptions.

D. investment and Its FiFancina

3.53 Gross domestic investment in Barbados grew rapidly throughout the 1970's and early 1980s, but after a sharp drop in 1984. it has remained stagnant at well below its historical levels. Private investmentwas the major component of the decline. Gross domestic investment averaged about 23% of GDP over the 1974 to 1983 period as a result of large investmentsin tourism and manufacturing and in infrastructuredevelopment by the public sector. Between 1984-88. gross domestic investmentaveraged 16.2% of GDP (See Table 111-14).

3.54 Gross domestic investment rebounded to 19.2% of GDP in 1989. mainly because of increases in public investment and in private construction in the non-traded sectors,while investmentin the traded sectorscontinued to stagnate. Lack of financing or cost of funds have not been identified as constraints on investment in Barbados, and the regulatory framework governing investment has remained unchanged since the mid 1970O.s Rather, the fall in investment since the mid 1980s has been related to the lack of attractive investment opportunities in the traded sectors which accompanied the loss of competitiveness of Barbados during the 1980s.

3.55 Both the tourism and manufacturlng sectors invested rapidly up to the early 1980s. In the tourism sector, the fast growth of demand. since the late 1960s and Barbados' traditional appeal as a stable country with prudent macroeconomic management and an excellent investment climate, contributed to large private capital inflows into the sector. The Hotel Aids Act of 1967 also helped to promote investment in the sector. As a result, total bed capacity

jw/ See Deliele Worrell, "Finance and Investment in Barbados", Central Bank of Barbados, Economic Review, September 1990. - 48 -

doubled durlng the 1970e and peaked in 1983. Durlng -he 19803 profitabllity ln the sectorfell, and as a consequence,no new capaolty war added slnce 1983.1 In fact, ln recent years, total bed capaclty has fallen by about 40. Thus, the demand lncrease of the mid to late 1980e was met through lncreased capaclty utillzatlon rates whlch by end of 1989 stood at an all time hlgh. Thie implles that long-termgrowth ln the tourlem sector of Barbados will necesearllyrequlre further expanslon of capaclty.

3.56 Industrial investment during the 1970a was mo8tly centered in electronics assembly, clothing and chemicals destined for export markets. And despite the protection provided to the industry in the form of increased tarlff rates Ln 1973 and the imposLtLon of stamp duties on lmports slnce 1982. investmentln manufacturlnghas fallen sharply. Thli development is conslitent wlth the exportled hypotheses for manufacturlng growth ln Barbados. J GLven the small*1si of the Barbados and even CARICOM market, oustaLned lnvestmentand long-term growth ln manufacturlng wlll requlre an incentlve framework whlch promotes export led growth.

3.57 As dLicuseed above (see sectlon C), the Public Sector Investment Program has consLitently placed strong emphasLs on Lnfrastructure, education and health and social servLces. Capital expenditure averaged over 7% of GDP from the late 1970. to the mld 1980s, fell to 6.4% of GDP over 1985-89 as the Government tried to reduce the fLscal defLcLt through contaLnmentof capital expenditure, and subsequently Lncreased to 7.3% of GDP for flscal year 1990/91. In the medLum-term,a publlc sector investmentprogram of about 7% of GDP wlth special emphasiL on rehabllitatlonof roads, malntenanceof exLeting infrastructure,and preservlng the environment would be approprlate. These lnvestments wlll be crucial to ocrowdLng lnf prlvate lnvestment, especially ln tourism, the maln source of forelgn exchange earnlngs.

3.58 Gross natlonal savings rose from an average of 13.3% of GDP over 1974- 78 to an average of over 17% durlng the 1980s as a result of a strengthenlngof domestic savLngs Ln the early and mld 1980. and consistent private transfer inflows. In recent years however, expansionary fiscal pollcLes comblned with cellings on interest rates have contributed to a reduction in gross domestlc savlngs to an average of 14% of GDP over 1986-88. A modest recovery of gross domestic savings ln 1989 to 16% of GDP, was caused by increasedpubllc savings, pointlng to a large deterloration in prlvate savlngs performance. In effect, after a sharp fall ln government savLngsdurlng the 1984-87perlod resultlng from stagnant government revenue and lncreased current expendlture levels, a strong tax effort raised publlc savLngs to 2.0% and 4.5% of GDP respectively in 1988 and 1989 (see sections B and above). This effort was sharply reversed in 1990 with further lncreasesin current expenditure and a shortfallin current revenuewhich resulted in a fall of public savings to -0.5% of GDP.

.a/ See Chapter IV, Section C.

IV Mee Worrell, 1990, op. cit. and Chapter IV, Section B. - 49 -

Zkle2 111-M1 ZNVNSIUNT AND 128 FIMANCINO, 1974-89 (paerent of CDP)

1974-78 1979-83 1984-88 1988 1989

Total au a 17.5 2119.2 Construction 131 i 15. ".- 12.8 13.4 Public 3.7 4.0 2.2 2.4 2.5 Private 10.2 11.3 9.6 10.4 10.9 Other 9.4 3.48.6 4.8 5.8 FinishedCapital Goods 8.7 7.9 4.3 4.5 5.5 Stocks 0.7 0.7 0.1 0.3 0.3 Financina I5 23.6 17.5 19. GrossNational Savings 13.3 . 17. 20.8 Government 1.5 2.0 0.9 2.0 4.5 Private 11.8 15.6 16.3 16.9 16.3 ForeignSavings 9.2 6.2 -0.9 -1.3 -1.6

Gross Domesticsavings 10.9 15.6 15.3 13.7 16.1

A/ Gross FixedCapital Formation. Source:Central Bank of Barbados, Statistical Appendix, Table 2.3 and staff estimates.

3.59 During the 1970e and early 1980. investment financing had a large foreign savings share. This share fell during the latter part of the 1980s. The aggregated behaviour was the net resultant of divergent patterns of financing displayed by the prLvate and the public sectors. During the period of strong investmentgrowth (1976 to 1981),private foreign inflowsprovided a major source of flnance which represented 10-40% of total capital formation. From 1983 onwards, as incentives for private investmentin Barbados weakened, these flows were reversed with net repayments representing about 10% of investment in some years. Conversely, durlng the 1970s the public sector financed a large portion of its borrowing from domestic sources. However, since the mid 1980s, it has increased its reliance on external financing. Inspite of the increase of gross public sector borrowing since the mid 1980s pressure on the balance of payments has increased;this is because larger amortLzationpayments have reduced the net amounts available from foreign borrowing. These increased amortization requirementsover the next few years add to the need to sharply reduce the public sector deficit (See Sectlon 8 above and Chapter VI, Section E). Again. adjustmentpolicies will be requiredto both reduce public sector gross borrowing requirementsand attract private capital inflows to finance investment.

B. The Labor Market

XaSrodfivetion

3.60 Wages are the major componentof labor costs, and labor costs are the major component of Barbadian exports. The functioningof the labour market and the wage determinationprocess in particular,therefore, are crucial elements of - 50 -

economic performance. The purpoe of thli sectLon Le to deserlbe the institutional and economlc factors that affect the level and structure of wages in Barbados and evaluate the role of the Government ln the wage determlnatlon process.

3.61 IndustrLal Relations UnviR2Ment. The labor market in Barbados dlsplays many tradltlonal characterlstlcslnherlted from Great Brltaln. These include regulations governLng: the conditLons of work ln general -- hours, maternity leave, health and occupatlonalsafety and severance payments; speclal provielons for employees in the sugar Lndustry, domestlc service and shop asslstantsttrade unlon organLzation;and the settlementof industrialdlsputes. Wlthin this regulatory framework,industrial relations are best described by the term wvoluntarismu. There is a free collective bargaLnLng process in both the publlc and private sectors which sets pay and worklng conditlons at the enterprlse or industry-widelevel. And whlilethe Government'spolicy over the years has been to allow a high degree of self-determinationand self-government in industrialrelations in the private sector,nonetheless, as the largest single employer, it exerts a profound influenceon wages and labor costs throughoutthe economy.

3.62 In the remainderof this Section, labor demand, labor supply and the more importantlabor market institutionsare describedand their role in the wage determination process is assessed. This provides a basis for judging the dynamics of the wage determination process and its likely future impact on Barbados' lnternatlonalcompetltiveness.

3.63 The population of Barbados has grown at 0.5% a year, and as of end- 1989. numbered 255,000. Populatlon growth and some relevant labor market components are shown in the accompanylngFigure III-l The Figure together with the data shown in StatisticalAppendix. Tables 1.1 and 1.2 reveal the following main features of labor supply in Barbadoes

* net emigration was an important factor affecting labor supply in the 1950e and 1960e, but after 1970, a year in which the outflow reached 2.300 persons, Lt has become insignificant;

* women comprise 52% of total population and 48% of the labor force;

* the steady drop in fertility rates over the last 25 years has led to a rise in the age profLie of the populationwith fewer 15-24 year olds coming onto the labor market;

* the labor force participation rate has lncreased steadily over the past two and a half decades and now stands at 69%; the female participationrate has expanded faster than that for males and reached the high level of 61% of the female labor force as of end-1989; - 51 -

* the formal school system La feedlng an Lncreasing number of secondary school graduates into the labor force; the new graduates have a stronger background in the scLenceeand technlcal subjects,and thus, enhance the already high trainable capaclty of the BarbadLan labor force; and,

* the share of univeruity graduates ln the employed ranks is still comparatively small, but lt has grown rapldly sLnce 1984.

Mge1ak ' NI-Y*PLOTDLABOR FORCS BY HIGH3ST 3DUCATIONALLEVEL A5TAINED1 (O000s of persons)

1984 1986 1988 1990b/ Educational Level M F N F M F N F

PrLmary 23.8 16.7 21.9 16.1 21.5 16.0 19.0 12.6 Secondary 26.0 21.1 27.6 23.5 28.2 25.2 32.8 31.0 University 2.8 2.0 3.5 2.9 4.0 3.8 4.8 3.1 Other/None 0.0 0.0 0.0 0.0 0.2 0.2 0.7 0.3

A/ Male (M) and Female (F). D/ First quarter.

S0urce Barbados Statistical Service.

3.64 It is generally agreed that one of the strengths of the Barbadlan economy is the high average level of educatlonal attainment. The educational system, inherited from the British, still reflects tradltional schoolingvalues which emphasize the academlc more than the applied, the liberal arts more than the sciences and engineering. And considerableprestige is stlll attached to graduatlon from a few select publlc schools. In recent years. however, there has been a noticeable shift in interest away from the humanitLes" towards the "sciencesoat the secondary and tertLary academic levels and a growlng interest ln technlcal subjects. Nonetheless, many parents and guardians stlll regard the Samuel Jackman Prescod Polytechnic - whlch offers trade and technical traLiing in day and evening programs - as a last resort or as a place to send the academic failures. Moreover, there L insufficient liaLson and cooperatlon between industry and the educational authoritiesso that the needs of industry and the offerLngs of technical education are les well matched than they mlght be. The educational composition of the labor force in recent years is shown ln Table SII-15 above. - 52 -

rigue Jii-lt GROWf Op ADULT POPULATZxO, LADOR VORCt AmD UNPLONENT, 1966-1989 ('0003 OF PNXRSOU)

100

1966 1970 1978 1980 1985 1989 Wor

Employment Labor force El Adult population

Source: Barbados StatisticalService.

Labor DR2and

t.65 The demand for labor as a productive input is measured approximately by the number of persons employed. The number employed, in turn, depends both on the aggregate demand as well as output of goods and services, and its current and expected real wage cost. Change in the volume of employed persons over time is related not only to the overall rate of change of aggregate demand, but also to differential rates of change among activity sectors wlth different labor-uslng intensities. As noted in Chapter II above, total output (measuredin terms of GDP ln constant 1974 prLces) grew at an annual average rate of 3.2%, over the 1966-1989 period, whlle employment grew at an annual average rate of only 1.0%. In a broad seise, therefore, only about one-thlrd of the rate of advance in output is attributable to labor input, and two-thirds to other factors such as fixed capital, educatlon and training and technologLial and organlzatLonal knowledge. - 53 -

Table 111-li: WOYINUT AND UNBNPLOTKEUT,1960-1989 (Ln thousands aundpercent of labor force)

1960 */ 1966 1970 1980 1989 ('000) * ('000) 8 ('000) U ({OO) T(000) a

Total: 83.7 92.3 81.1 87.0 82.3 86.9 99.4 87.7 102.7 84.4 male 49.9 54.9 48.3 51.8 50.4 51.8 56.2 49.6 56.0 46.0 Female 33.8 37.2 32.8 35.2 31.9 35.1 43.2 38.1 46.7 38.4

Unewld Total: 7.1 7.8 12.2 13.1 7.5 8.4 13.9 12.3 18.9 15.5 Male 3.3 6.2 4.9 5.3 3.5 3.9 5.2 4.6 7.2 5.9 Female 3.8 10.1 7.3 18.2 4.0 4.5 8.7 7.7 11.7 9.6

AL The unemployed in 1960, as estimated from the census count, covers those persons15 yearsold and over who were willing and able to work and sought jobs actively during the preceding 12 months. For the other years, the job search period vas only the previous 3 months and is based on continuous household surveys. --re: Barbados Statistical Service, Labor Force Suxveys

3.66 Employment trends since 1966 are ohown in Tables III-16 and III-17 below. Figure 111-2 presents the longest available consietent serles on unemployment and real wages for the economy as a whole. These data support the following salient features of labor demand ln Barbados:

* total employment grew faLrly steadily from 1966 until the onset of the recession in 1981, dropped to a low point $i 1985, and recovered the 1981 level of employment only in 1988; over the period of 23 years. 21.600 new jobs were created, or at a rate of about 939 new jobs a year;

* the rate of job creatlon failed to keep pace with the growth of the labor force resul' tng in an lncrease in the numbers of unemployed from 12,200 in 1966 t, 18,900 in 1989, and what is more significant, an increase ln the rate of unemployment from 13.1% to 15.5%; taking 1960 as the base year when the unemployment rate was recorded at 7.8% (on a dlfferent defLnition of the unemployed and probably biased on the low side), the growth in the volume of surplus labor would be very much higherl

* such data as are available on the characteristics of the unemployed show that between the mid-1960s and the latter half of the 1980s, the growing pool of unemployed comprised an increaeing number of educated youth, more than half being female, who were seeking their flrst regular jobs, and an increasing number of unemployed who had never succeeded in findiL' a job; by 1986, e.g., more than two-thirds of the unemployed had atteaded secondary school, about one-half were in the 15-24 year age group. and one-quarter had never workedi - 54 -

* a smll informal sector *erves as a "safety net* source of irregular employment;although the sLae of the informal sector La 'notknown; the impression among labor market analysts in that the numbers engaged in informal sector activities are growing rapidly (see Box #2 below);

* parallel to the rise in the participmtionrate of women has been an increase in the proportion of females among the employed; 38.4% of total employment is accounted for by women; by the same token, both the number of females unemployed and their share in the total labor force has increased significantly, reflecting in part the reduced gender sensitivlty of the labor market, in part the wldened opportunitiesavailable to women for professional and skill training and in part, the changing structure of production favoring more gender neutral job opportunitLes;and

* at the occupational level, there has been a continuous shift out of agriculture and related activities and in favor of services, comprising government and tourism and related services; the share of production (largely manufacturing and construction) workers rose to a peak in 1980 and dropped significantlyby the end of the decade, reflecting the stagnation of manufacturing output; the share of professional and technical and admlnistratlve and managerial groups combined has grown Ln keeping with ttie increased complexity and diversity of the Barbadian economy.

Box 02: The InformalSector

This sector plays a major and rapidlygrowing role In absorbinglabor and generatingincome for the poorer households.But thereare a numberof basicIssues surrounding the informalsector which must be addressed urgently. Theseconcem urban development, the environment,conditions of living,and conditions of work. The currentdebate over - sRittingof waysidevendors In Bodgetownis a casein point. It hasbeen argued on the one hand,that (i)enterprises with "illegal"locations are oftennot 'registered andare therefore unable to tap formal sourcesof funding,while the formalsector organizations have mucheasier access to credit and enjoyvarious formsof protection;and fii) were it notfor restrictivepractices and policies against the informalsector, this sector would be efficient. On the otherhand, it has beenmaintained that the informalsector has an unfairadvantage becauseit has smalloverhead and payslittle or not taxes.

Conceivably,the informalsector could be productively linked to theformal sector for mutualbenefit. Inthe future, greaterefforts can be expectedto wformalize"the informalsector - seekingto bring it into the mainstreamof economiclife by way of encouragingthe unemployedand underemployedto producethose goodsand services whichform naturallinkages' with establishedbusinesses. Subcontracting for parts hasalready been started by way of the NationalDevelopment Foundation; Women and Development; and the smallbusiness development arm of the BarbadosDevelopment Bank. Continuingefforts alongthese lines will havethe effect of spreadingand 'democratizing' job opportunities,thereby reducingthe gap between the earningsof those in the large organizationsin the formalsector and those of the self-employedin the informalsector. - 55 - labor Market I nstitutionsL

3.67 PrLor to 1941, there were no organized trade unions in Barbados.W Following the soclal unrest throughout the Caribbean in 1937/1938, the firat Trade Unlon Act in Barbados was passd ln 1939 permlttlng tho free organLzatLon of labour The followlng are the largest actLve partLclpants ln the labor market todayt

* The National Union of Public Workers (NUPw) replaced the Clvil Servlc- AsuocLatLon followLng revlslon to the Trade Unlon Act ln 1964. The NUPW ia the accredited bargainLng agent for all categories of civll servants except those represented by the Barbados Workers, UnLon

risur*ZI-2s V&c$uTXON5 ZN PVAIMWAGES AND UNUIPELOTYNE

(year to year % change)

20-

10-

-10-

-30-I I I 4 196e97 1962 1969

Realwages unemployment

sourge: BarbadosStatistical office.

5J/ The legal defin'tLon of a trade union is as follows: 0... any combination. w-hether temporary or permanent,* the princLple purposes of which are under its constitution the regulation of the relations between workmen and employers. or betwveen workmen and workmen, or between employers and employers... Trade Union Act, 1964. - 56 -

as indicated below. It is worth noting that the Barbados Reglatered Nurses Assoclatlon is currently seekLng accreditation as the representatlve of the nurses whlch are now represented by the NUPW;

* The Barbados Union of Teacherg. represents primary and newer Secondary School teachers; and

* The Barbados Secondary Teachers Union (BSTU) represents secondary school teachers.

* The Barbados Workers' Union (BWU) was established in 1941 as a general or *blanket" Union. It is the only functioningunlon in the prLvate sector,but lt is also recognlzedas the accreditedbargaining agent for: weekly pald workers in the public sector, postal workers, school meale workers, custom guards and staff of the Barbados Community College. The BWU has approximately 300 divisiono or branches organLzed at the level of the company or enterprlse.

3.68 There are also two major employers groups engaged in the collective bargaining process. One is The Barbados Employers ConfederationM&M_L which is registered as a "trade union" (sicl) under the revised Trade ;nion Act of 1964. Its members, totatlLng 285 are drawn from the comercial, manufacturing and servicesector; the BarbadosHotel Association,with approximately80 members have unLt membership. The other is The Sugar Producers Federation (SPP) which was registered as a "trade union" in 1945 and represents the interest of employers in the sugar induotry.

3.69 There is no offLcLal tally of the number of unionized workers in Barbados or their distributionby industry. The estimatesof unionizationrange from 35,000 to 45.000 persons. of thls number, the BWU representsapproximately 2/3, akd the NUPW the bulk of the remainder. TLe degree of unlonizatloncan be characterizedas follows:

* hotels, dietribution at the wholesale and retail level, sugar, transport, government,telephone, electricity,and beverages are all highly unionized;

* construction, food and chemicals are mixed, but are strongly influenced by agreements nugotiated in other industries;

* garments are mixed, but having experienced economic difficulties in recent years, the degree of unionizationhas weakened;

* longshoremen are strongly unLonLz,d. Among all the unionized activities in Barbados, the port is the only closed shop; and

* electronicscomprises a mix of unionized and non-unionizedfirms.

3.70 As the largest sLngle employer, the Government is a major factor in the labor market. All uivil servants are permitted membership in trade unions except for police, fire and prison services. But the influenceof the Government in the labor market has not been restrictedto the role of the State as employer. This influencehas been exerted throught - 57 -

* legislation regarding mlnimum wage matting ln the prlvate sectorfor shop assistants and domestic employees. The actual rate for domestic Servants today varies between BDS$100.00 and BDS$125.00 per week. considerably more than the minimum rate of BDS$66.00 per week fixed in 1982 and unchanged since then. For shop assistants.for a 40 hour week, the current rate is BDS$150.00 per week for those 18 years of age and older and BDS$132 for those under 18 years;

* the establishmentof wage differentialsbetween sklIled and unskilled workers in the public sector, thereby setting a pattern for the private sector to follow;

* legislation dealing with Natlonal Insurance Benefits - including unemployment; and

* severance payments legislation.

Combined, these interventions come close to what can be termed an incomes policy" even if this has not been formally artliulatedas such.

Tble 111-17: ECONOICALLYACTXIV POPULATION, 1960-1989, (percentage distribution by occupational grouping)

Rnvloyed 1960 1966 1970 1980 1989

Professional& Technical 5.1 7.3 9.3 10.3 9.0 Administrative& Managerial 3.1 1.1 1.3 1.8 2.8 clerical 13.5 11.9 10.7 14.0 14.3 Sales 9.8 8.0 9.1 9.0 9.9 Services 18.0 14.8 19.7 17.3 23.5 Agriculture & Related 25.9 27.9 15.6 10.1 6.2 Production& Related 24.6 21.0 34.3 37.5 34.2

Source: Barbados Statistical Office.

Wage Deterainatior Proces

3.71 Wages in Barbados are set through a free collectivebargaining system in which the strengths and weaknesses of the institutions engaged in bargaining are important factors. Underlying the bargaining,however, wage. are determined by economic forces -- the state of the national economy, the product or service market demand at the enterprise level, the cost of living, productivity. profitability, &nd unemployment.

3.72 In the civil service, collective bargaining is conducted between the Government and six separate trade unions and three associations. Since 1966 there have been nine salary revisions negotiated across the board with all the Unions and associationsseparately. Over the years, changes in the provisions for pensions and leave conditions have also been introducedthrough the collective bargaining process. - 58 -

3.73 BargainLng ln the private sector li conductedmalnly at the enterprise level, but there Ls also industry-wLdebargaLning ln major and speclfficsectors - e.g., sugar, hotels,construction; beverage group; rum refinerLes;commleilon and provision merchants; prLnters; garment manufacturing; garages; supermarkets; lumber group; and hardware porters. The Sugar Industry Agreement is decidedly lndustry wide, while the Hotels Agreement is effectively industry wide; a few hotels and guest houses not members of the Barbados Hotel Associatlon arrange their own terms outsLde the agreement between the BWU and the BBC (Hotels & catering Group).

3.74 In the first instance bargainLng takes place, at "domestic level", between the workers' unlon and the enterprise concerned. If they fail to reach agreement, then either slde, by convention,may refer the matter to the Chief Labor officer who is the head of the Department of Labor. If no agreement is reached at the level of the Chief Labor Officer and thie is rare - then the matter is referred to the MinLster of Labor for mediation. Invariably a settlement is reached at thle level.y

3.75 In the public sector the workers' unlons use the growth of the economy as one of the grounds on which salary proposals are based. This "growth" correspondsto nincreasedprofLts", and "productivitygain." used in th- private sector. The union argument is that employeesshould share in these nprofits" or "gains", an argument that is abandoned when there is little or no growth in the economy or profits are small or non-existent,and shifted onto cost-of-living increases and the need to maintain real wages and improve workers, standard of livLng.

3.76 The strengths and weaknesses of the partles in the collective bargaining process plays a crltical role. Economic (and at times political) power is 'the name of the game'. Power can shLft from party to party and quite suddenly at times. In som instancesthe need to keep production flowing (and hence the need to avoid a work stoppage) has resulted in a level of increase which is beyond what could be justified on any other ground. On the other hand the relatively high level of unemployment has had a moderating lnfluence on certainwage settlements. It is a common practice for workers' unions to compare levels of wages and salaries in the private and public sector when such a comparison is in their favor. And sometimesthis has resulted in much hardship for small businesses or struggling enterprises in the private sector.

3.77 The Government has no direct influence on the level of wages negotiated in the private sector; this iB left to the free collective bargaining process. However, as the largest single employer, the Government is regarded as a pace setter in the negotiations for wages at the middle- and lower-income

/ There is a legal provision for effecting a settlement, following failure at the domestic level, or at the level of conciliationby the Chief Labour Officer or the Minister of Labour. The Trade Dispute (Arbitrationand Enquiry) Act 1939. provides for referring the matter to an Arbitration Tribunal or for the Governor General to set up a Board of Enquiry into the matter. However, there is no legal compulsion for either of these steps to be taken, and ln the case of arbitration kglh sides have to agree to such a course of action. - 59 -

levels throughout the economy. In some industries,such as construction,the wages paid are closely alignedto those paid by the Governmentsas are those paid in the various statutory corporationsor parastatals.

3.78 Since November 1966. wages in the public sector have been determined by negotiationsbetween the Government, through the EstablishmentsDivision of the Prime Minister's Office (now the Ministry of the Civil Service) and the various unions at three and more recently, two-year intervals. With few exceptions, these negotiations have resulted in annual pay increases. For the period between 1976 and 1990, when the NUPWwas the bargaining agent for a large group of public servants,the agreementsran for two years and entailed increases in wages and salaries ao shown in Table 111-18. The annual cost to the treasury and the year to year percentage increases in retall prices, a key piece of informationin the collectivebargaining process, are also shown for comparative purposes.

Table.XI-18t PUBLIC SERVICE WAGE INCREASES, 1976-1991

Cost Price Index Year Percent to the Treasury (annual percent increase)

1975 20.3 1976 35% - 12.5% $ 20 M 5.0 1977 15% - 7.5% $ 9 M 8.3 1978 20% - 10% $ 21 M 9.5 1979 Nil 13.2 1980 38.3 - 22.5% $ 44.4 m 14.2 1981 Nil 15.1 1982 $108/monthacross-the-board $ 25 X 12.2 1983 2.5% interim pay 6.9 1984 15% across-the-board S 37.9 M 6.4 1985 5% across-the-board s 14.5 m 5.7 1986 9% to 1.4% $ 18.6 M 2.0 1987 2% across-the-board $ 7.5 m 5.1 1988 8.2% - 5% $ 30 M 7.6 1989 2% across-the-board $ 10 M 10.2 1990 7% - 3.5% S 25 M 10.5 1991 3% across-the-board $ 15 X n.a.

Note: n.a. Not available.

Source: Records maintained by Bush Hill Cottage, Garrison, Barbados; and Barbados Statistical Service.

3.79 However, the private sector practice of seeking the services of a conciliatorwhen negotiationsbreak down at the dcmestic level is not followed when the Government is involved in the collectivebargaLning process. It would be awkward if the Government and any of the workers, unions met under the - 60 -

chairmanshipof the Chlef Labour Officer - a public offiear - in the conciliation exercise. It has been noted that because of the absence of any agreoable form of conciliationmechanlemo in the industrialrelations system from tlme to time, it has been necessaryto impose a settlementthrough legLelationau was the case in 1976. 1982 and 1988.

3.80 There is continuouspressure from the larger employers to apply daily rates agreed to by the workers union to AU. enterprises in the industry. The garment industry and construction are cause in point. If this does happen there %ould be an equalizing of salarles and wages in several key sectors of the economy, and hence, a reductLon in wage flexibility.

Outcom I_ __stg_alHarmony and VaesW

3.81 Whether it is in splte of or because of the absence of a rigid legal framework in the industrial relations system, the fact is that Barbados has experiencedindustrial calm over the years. Most disputes have been settled at domestic level. For example, in 1989, only four out of 44 collectiveagreements were mediated by the Department of Labour, the remaining havlng all been concludedat the enterpriseor industry level, A second indicatorof comparative industrialpeace is had from the data on work stoppagesand work hours lost. For the first three years of the 1980s an annuialaverage of about 8,000 hours per work stoppage were lost as compared with an annual average of about 1,000 hours for the last three years of the decade.

3.82 The outcome of the collective bargaining process can be seen in the statistical record of wage level changes over time in the various activity sectors. Table 111-19 presents wage indices for 14 sub-sector activities cov6ring the period 1970-1989. Taken together with the listingof the degree of unionizationby sub-sectorpresented above, the data in the Table show that those economic sub-sectors which recorded above average nominal increases in wages batween 1970 and 1989 were also among the highest in respect of degree of unionization.

Vj Industrial harmony refers to the relationshipbetween trade unions and management at the national or sectoral level. It does not address worker-managementrelations at the enterprise level. - 61 -

zUamaz1111-19 - NOMINAL WA03 IEDICES BY *UUBSCTOR, 1970-89 (1980-100)

1970 1975 1060 1981 1962 1963loss 1964I 1665l 119W6 1967

ML.9caz 30.6 53.1 100.0 110.5 133.0 130.1 142.0 144.9 155.2 157.6 169.4 176.4

Hotels 26.9 56.0 100.0 154.0 134.0 144.0 151.6 161.7 1". 7 173.3 177.5 165.6 Diutrlbutlon 29.0 56.0 100.0 100.0 1S0.0 136.0 164.1 164.1 164.1 164.1 160.6 160.6 sum 26.0 65.0 100.0 100.0 107.2 120.0 135.1 135.1 141.6 145.3 149.7 161.) Tzansport 27.0 63.0 100.0 132.0 137.0 157.0 1S6.6 170.4 170.4 164. 167.3 167.3 rvwnmnt 35.0 46.0 100.0 100.0 111.0 113.0 126.6 133.0 144.6 144.6 157.2 169.9 conutruction 26.0 42.0 100.0 116.0 118.0 116.0 127.9 143.2 156.2 156.2 172.0 175.4 Telaghone 27.0 46.0 100.0 100.0 100.0 120.0 126.6 153.2 143.2 156.2 156.2 172.0 Uleatzlcity 27.0 63.0 100.0 129.9 139.9 136.0 156.3 171.9 175.3 177.6 193.6 193.6 l,agsborem.n 19.0 42.0 100.0 100.0 119.0 119.0 137.5 137.5 151.3 151.3 151.3 151.3 Necfeaturlia 34.2 51.4 100.0 113.6 121.1 140.4 144.6 151.0 150.6 153.1 172.6 176.1 annrnte 26.0 46.0 100.0 100.0 130.0 130.0 130.0 137.6 137.6 137.6 150.6 155.6 Beverages 27.0 60.0 100.0 137.7 137.7 163.0 169.4 169.4 169.9 169.9 212.6 229.6 rood 30.0 61.0 100.0 137.0 137.0 156.0 156.0 171.1 174.3 166.6 196.6 204.1 eb.icels 38.0 43.0 100.0 105.0 129.0 134.0 155.2 156.7 174.5 176.2 193.2 199.4 31otsonicO/ 49.0 51.0 100.0 110.0 120.0 1U6.0 141.2 146.3 130.3 132.4 163.4 163.4

A/ She Ind" tog ech mctor io bhasd one al* le av.zao of _es Ini eeat tiv job cate.o:. Sector wsights at* baed on Share in total qIo9ent VIMn aIlable. and on saar n conerlbutioo to r Dh not. Ic1l.a ogay ussw aotiated throuch oollective bargainlngeg t for the electrnicm injitry.

s ad on a sure conjacted by the Ceotrl Sank of the five lageut at b1ilheant8. sourc statitical Iw ,dix.Table 7.2.

3.83 As noted previously,these wage movements, at root, reflect underlying labor market forces. A number of econometric studies by researchers at the Central Bank of Barbados and at the University of the West Indles (UWI) (Cave Hill) have studied the interrelationshipbetween wages and such variables as employment,real output, productivity,prices, and unemployment. The empirical work covers various periods between 1949 and 1989. The findings can be summarized as followsb

* for the period 1949-1982 labor productivity grow by 4.8% per annum while nominal wages grew by 9.1% and real wages by 1.4% per annum;

* increases in labor productivityappear not to have been passed on to consumers via lower prices, but to have been retained within the firm and distributed between wages and profits;

* the increases in real wages were much slower than productivitygains, a phenomenon due in part to the steady growth of the labor force and persistent unemployment;

* nominal and real wages both increased more quickly when income was buoyant and more slowly in times of recession; during the 1971-1973 slump, nominal wages fell far short of price increases so that real wages dropped precipitously (see Figure III-D2);

* wages grew fastest in the leading or expanding sectors and most slowly in the contracting sectors; and - 62 -

* the not gain ln employment was modestJ the expanding demand in t';urLem and manufacturing faLled to take up the slack ln employmesit from decllnlng agriculture, so that unemployment could not be reduced, and ln fact Lncreased slLghtly.

3.84 Over the years, as the voluntary system of Lndustrial relatlons has evolved, certaLn wage patterns have emerged. In the public sector for example there has been a significant narrowing of the gap between the highest (Permanent Secretary) and lowest pald employees (Messenger) in the common salary scale. Prlor to 1966 the ratlo was 13:1; today it Ls 5:1. This ratio li one of the lowest in the British Commonwealthpublic sector. This narrowlngprocess is the result of deliberate (succesuLve)government policy to offer and/or accept a higher percentage increase at the lower levels of the civil service, and a lower percentage lncrease at the top levels. Thle practlce is also common ln the private sector. For one reason, government negotiated settlements set the tone for wage Lncreases in several sectors of the economy and for another, the Barbados Workers' Union bargains for government workers ln the lower salary scales and for prlvate sector workers as the only functloning Union in the private sector.

3.85 In the private sector the presence of one effective Workers' Union has led to a reductlon in the fragmentatlonwhich would be expected from a voluntary industrialrelations system of the Barbadosklnd. This "harmonization" has been heightened by industry wide bargainiug in the hotel and soft drinks industries and a wgentleman's agreement" among several employers in the construction industry. In addltlon, there are several joint agreements in the private sector between the BWU and employers ln the same type of business. For example there is a collectiveagreement lnvolving the garage group (vehiclesales and repairs) and also one for the commission merchants. In short, the presence of a repreosentativeemployers body and a single effectiveworkers' union in the private sector have aided the "harmonizationoprocess. At the same time, it has introduceda degree of rigidity in the wage determinationprocess, since it does not permit wage rate differentiation linked to differences in enterprise productivity. Thus, by default, changes in the cost of living become the major guLde for wage setting. It is fair to say, however, that the impact of this factor of rigidity on wage levels and patterns cannot readily be estimated.

3.86 This review of the structure and functioningof the Barbados labor market leads to the following salient points:

* by and large, the industrial relations system in Barbados at the economy or sector-wide level, is free of conflict; it leads to a positive enabling labor market which. in turn, augers well for a harmonious wage determlnationprocess;

* glven the existence of two large umbrella trade unions covering almost ,ll unionizedworkers, it is universallyagreed that the leadership is well-informed (e.g., they are not subject to money illusion and are aware of wage movements outside Barbados) and bargain responsibly;

* the Governmant does not have an articulatedwage policy, but the fact that public sector wage settlementsare taken as a guideline, if not a - 63 -

determinant. for wage settlementsln other sectors of the economy Lu a near equivalent to a powerful wage-administeringrole, with all the responsibilitiesthat entails; and

* of the major labor market issues that loom on the horizon the following are the most important: (i) current legislatlongoverning severancepay and termination constrains labor mobility in the economy; (ii) the educational system, especially at the secondary level needs to be ungraded to accord better with the private sector'sskill requirements, and (iii) the National Insurance Scheme and other non-wage payments exert a powerful impact on labor costs and mobility and should be reviewed with a view to amelioratingany adverse impact they might have on the efficient functioningof the labor market.

F. Trade Policy and Redonal Inteoration

Introduction

3.87 The trade policy of Barbados over the years has reflected various pressuress the requirementto raise revenue to finance governmentexpenditure, the desire to protect domestic agricultureand industry,and the need to generate sufficient foreign exchange to pay for imports. The result has been a trade regime which is highly protectiveof domestic activity, and which imposes costs on export related activity. Ultimatelyit is the Barbadianand tourist consumer who pays for this protection. As a member of the Caribbean Community (CARICOM), Barbados cannot impose any tariff that it wishes, but CARICONregulations allow countries such a range of other trade restricting instruments,including stamp duties, consumption taxes and non-tariff barriers that Barbados has been able, to a large degree, to determine the degree of openness of its economy. Barbados trade policy has to contend, therefore, with a double set of restrictions: those imposed by CARICOMand those internally imposed.

3.88 Barbados has participated in the ups and downs of regional arrangements in the Caribbean. from the of 1958 through the Caribbean Free Trade Association of 1968 to the formation of the CARICOMin 1973. Through CARICOM, Barbadosparticipates in developingtrade relationsamong its members, but CARICOM also plays a role in coordinatingforeign policies and in promoting common services among members in/many areas. It is clear that cooperation among Carlbbean countries in matters relating to trade, foreign relations and common services is potentLally/verybeneficial. What is less clear is whether the actual trade policy regime'established by Barbados within the CARICOM framework was or remains in Barbados' interest. This section will address some of the issues relating to trade policy, while other aspects will be discussedwithin the context of specific sectoral managementissues discussed in Chapter IV below.

Mh Caribbean Common Market

3.89 CARICOMimpacts on trade policy in Barbados in two main areas: (i) the establishment of a common trade policy with respect to third parties; and - 64 -

(Li) arrangement. for liberalizing trade among members of CARICOMA In addition, Barbados and other countries have used trade policy instruments independentof CARICOM. The resultingtrade policy regime in extremely complex, and therefore, difficult to analyze in a clear cut fashion. Part of its complexity results from a lack of policy coordinationamong key soectoroof the economy, as government policy has attempted to achieve different objectives ln different u--tors. On a broad basis, import substitutionhas been encouraged in the manufacturing sector, but export promotion is sought in tourism. Wlthln manufacturLng, export enclaves are an exception to the import substitution policy, and sugar growing and processing for export is also encouragedvia public policy. Within this divided framework,CARICOM has at times been a destabilizing factor in the sense that individual members of CARICOMhave initiated trade practices whleh vLolate CARICON principles and which In turn have harmed the trade prospects of Barbados. These points are relevant in attempting to assess the trade polLcy regime described below.

3.90 Cogfon Trade Policy wLth Respect to Third Partners. CARICOM established a Common External Tariff (CET) which was implementedby Barbados ir 1981. The CST was designed to protect potential import industriesamong members, and to generate revenue from specific revenue raising items. Increases in CST rates were approved on two occasions in the mid 1980's,and a new CET ia expected to be implemented in 1991. Despite its name, not all CARICOM members have the same tariff schedules relating to third countries. In the case of Barbados, the average unweighted nominal tariff rate for 2,400 tariff positions in the CET is 22%. However, this rate increases to 41% when stamp duties and differential consumption taxes are added. These and other taxes on trade are not harmonized among CARICON members and in strict terms, they violate the CARICOM treaty. However, they are utilized in varying degrees by all member countries, and constitute an addition to the protectionprovided by the CRT. In all countries, tariffs are widely dispersed, leadingto high levels of effectiveprotection and potential rescurce misallocation. Effectiveprotection levels are also increased by the common practice of exempting certain products from import duties. A rough measure of the extent of duty remission is given by the fact that the implicit rate of protection measured by tariff revenue, stamp duties, and consumption taxes as a percent of total imports is only 17%, compared wlth the rate of 41% noted above. The CARICOM Treaty lists 123 separate activitiesor purposes in a List of Conditional Duty Exemptions and Barbados has implementedvirtually all of the 123 exemptions. Most industrialinputs and machineryenter free of duty, including inputs for building and extending hotel facilities.

3.91 In addltion to the CET and duty exemptions,CARICOM implements a set of Rules of Origin, owing to the different tariff schedules among members. At present, a product is of CARICOMorigin if it is either "wholly produced" within CARbOom, or has experlenced "substantial transformation", i.e. value added reaches a certaln level or the product undergoes a "tariff jump" through reclassification. CARIcOM also recommends that countries harmonize their quantitatLverestrictions, but this has not occurred; for example, 24% of tariff

Jj MSee The Carlbbean Common Market: Trade-PoliciLe and Reaional ZntalUgli2a in the 1990's, World Bank, March 9, 1990, for a detailed discussion of CARICOM. - 65 -

positions in Barbados are affected by non-tariff barriers as agaLnut 2% in Jamaica.

3.92 LQ-3ralisatLM of Trade Amona CIC Member. In principle, all goods of common market origin move fr-ely among CARICOMcountries, with some specific exceptions in the nature of a grandfather clause, or related to trade in sugar and oils and fats. In practice, many trade restrLctionscontinue to exist, even after the Nassau Declaration of 1984. Barbados, for example, requires licenses for imports of over 20L tariff items for intra-regional imports. Special arrangementscontinue to apply to the LDC's within CARICOM, seven years after they wero to have been phased out in 1983.

3.93 Reform of trade policy is currently under revision at two levels. CARICOMhas agreed to introduce revisions to the CST and the Coumon Rules of Origin in 1991. In AddLtion,Barbados has begun discussionswith ihe World Bank with a view to liberaliLzingits trade policy to promote export oriented activities. These discusslons are reviewed in Chapter VI.

3.94 The revised CIT proposes to establish tariff schedules with rates in the 5 to 45% range, with lower rates for "non-compotLng"than for "competing" products in each category. For example, non-competingraw materials would face a tariff of 5%. competing raw materials 30%. Products are deflinedas competing if 75% of regional consumptioncan be supplied by the region. This revision to the CUT will require continuous monitoring of production and consumption level of imports, particularlythose close to the 75% line. In practice this may be difficult. The new CRT will also imply high levels of effective protection on some products. The revised Rules of Origln will probably emphasize the use of specific reglonal materials or components,rather than mlnimum domestic content as at present, a change which could discriminateagainst intra-regionaltrade in low value added products. Xll1naiona

3.95 Participation ln CARIOM places constraints on the trade policy that Barbados can implement. The new CUT and the Revised Rules of Origin, for example, are not optimal from the perspective of Barbados alone, as indicated above. However. Barbados benefLts in other ways from participationin CARICOM, including the formulationof common foreign policies and participation in the provisiouiof common services. Barbados should use its influencewithin CARICOM to ensure that lts trade policy is reformed in ways that will result in a more open and a more competitive trading environment. In addition, Barbados should ensure that those importantaspects of its trade policy which are not subject to CARICOM regulatlons are also reformed to ensure the competitiveness of its t-urism and manufacturing sectors. Specific policies to this end are outlined in Chapter VI. - 66 -

-AxRV

COmmPR

A. Izr$elmture

Intnatiuon

4.1 Barbados, with a total area of 430 km2. is a small coral islard overlain by shallow fragile soils which a=- prone to erosoLoif not under permanent cover. The fLrst settlers in 1627 found the island covered by a tropical forest with scrub vegetation in the driest areas. The fertile lowlands of the west coast were the maln areas of settlement where various subsistence crops were grown as well as tobacco, cotton, glnger and indlgo. Later, sugar cane was introduced and dLd so well that sugar productlon and exports became the mainetay of the Barbadian economy. Since the end of the Second World War, however, the sugar industry has experienced a steady decline in output and return on investment (see Statistical Appendix Table 8.1.). In the early 1950s, about 18.000 hectares were harvested annue'.ly, yLelding an average of 170,000 tons of sugar; by 1989 the area harvested was only 11,000 hectares ylolding 66,000 tons of sugar. This decline occurred despite preferential market arrangements with the United Kingdom (and later the European Community) and the United States. Although declining in importance, sugarcane remains Barbados' single most important crop.

4.2 over the past two decades, there has been a rapid dlversion of agriculturalland into houeing and commercial development;the total land area under arable agriculturedecreased by 41% between the late 1960. and the late 1980s. The area under traditionaland other food crops (mostly rotated with cane) dropped from about 7.000 ha in the late 1940e to about 3,000 ha. by 1989. The remaining arable land area supports cotton, livestock and dairying. Data on the distributionof land holdings, farm size, areas planted and production are seoriouslyoutdated, the last full agriculturalcensus having been taken in 1971. A recent estimate suggests that, since then, about 8,600 ha. have been taken out of agriculturalpLoductLon in the face of strongly coLpeting demands.

' This section draws exteneively from a background brLefing paper prepared by W. B. Johnson, Latln America and the Caribbean Regional Office, World Bank. - 67 -

Mh DlRe of Agricultur

4.3 As noted above, the relative importance of agriculture in the economy has declined over recent years in terms of its contributionto GDP, to foreign exchange earnings and to the provision of employment. This structural shift is a common phenomenon experienced by a}' countries as they develop. Table IV-1 below, shows some key indicators whlch trace the evolutlon of the agrlcultural sector sLnce independence. From a share of GDP (in current prlces) of about 18.0% ln 1966, agrlculturaloutput (includLngflshing) decllned to 10.0% by 1980 and to 5.3% by 1989. This decline, in turn, is attrlbutablelargely to the decline in the sugar sub-sector,which accounted for 79.3% of agriculturalGDP in 1966, 63.0% in 1980 and 34.0% in 1989. The value of exports of agrlculturalproducts accounted for 87% of total goodo exports in 1966, aLmost three-quarters of whlch was sugar and related products; agrl_ultural exports dropped to 19% of total goods exports ln 1989, with sugar accountlng for a share of only 14%. (Exports of sugar in 1980 were a record high, exceedlng by a wlde margin the average value of exports for the 1957-89 period.) In real terms (1974 prlces), however, the value of sugar exports fell by more than half. from BDS$38 mllion in 1966 to about BDS$16 milllon ln 1989.

4.4 =loyment ln the agriculturalsector decreased fairly steadily from 17.000 ln 1966 to 6900 in 1989. Thls represents a decline in the agrlculturalshare of the working populatlon from 18% to about 6% over the period. The contractlon in the sugar industry - where the majorLty of the workers were employed - contributeddramatically to this decline. The number of reglstered workers ln the sugar lndustry decllned from 12,100 (71% of total agriculturalemployment) ln 1966 to 2600 (38% of the total) ln 1989. This decline in employment was a functlon of both reduced demand - generated by falling acreage, Lncreasing mechanization and shrinkage in the number of sugar factories - and a contractlon in supply, caused by competltion from other sectors (tourism, manufacturing) and the lncreasedaversion by the young to working withln the plantatLon system. On the one hand, the latter are "pulled out" by the perception of more attractive employment opportunitLes in the tourism and manufacturlnglndustries. On the other hand, they are "pushed out" by the perceptlon that agriculturalwork ls low ln status and even degrading; by the relatlvely poor worklng condLtions and the drudgery assocLated wlth agricultureSand by the belief that there are few opportunitles for mobility within the system. As a result, agriculture labor has become scarce and expensive, despite the country's overall high unemploymentrate of about 16%. Thli downward trend ln agrlcultural employment has been further aggravatedby the high average age of the remAining labor force, especlally'in the sugar lndustry. Over 50% of the sugar workers are in the age group of 50 years and over, while 4% at most, were under 25 years old. - 68 -

mbla IV-lo AGRIOCULTUREIN TE3 XO1K!, 1966-89

1966 1980 1980

Cultivated Area (ha.) 26.000 22.000 21.000 % Share of total land area 60.6 51.3 49.0 sugar Area Harvested (ha.) 20,826 16,096 11,100 % Share of cultivated area 80.1 73.2 52.9

OutQiut(BDS$ million) Agriculturalproduction 127.8 82.6 68.0 (o/w sugar) (101.4) (57.6) (38.2) % Share of GDP 18.0 10.0 5.3

U= rte (BDS$ million) Agrlcultural Exports 43.5 135.4 71.0 (o/w Sugar) (37.1) (117.8) (50.6) SShare of Agricultural Exports in Total Goods Exports 86.9 29.7 18.9 (o/w Sugar) (74.1) (25.8) (13.5)

Imploymmnt('000. persons) Labor sorce 93.300 114.800 121.900 Employment in Agriculture 17.000 9.300 6.900 Employment in Sugar 12,100 4,100 2.600 % Share of Agricultural 18.2 8.1 5.7 Employment in L.P. (o/w % share of sugar) 13.0 3.6 2.1

A/ Estimates provided by the Ministry of Agriculture.

Sourcet Central Bank of Barbados.Annual StatisticalDigest. 19901 and Ministry of Agriculture.

4.5 A reflection of the decline in sugar and zraditionalroot CrOps. has been the growing Lndebtednessof many farm.l the realization that land was worth more in non-agriculturalthan agriculturalpure-its may have served as a contributingfactor. The debt problem has come to the fore only within the past decade. The ending of the old CommonwealthSugar Agreement and the collapss of world sugar prices after 1981, came at a time when heavy capital expenditureswere being made to rationalize the cane processing industry. These factors combined, put an enormous strain on the sugar industry,which, by internationalstandards, had already begun to move into the category of a high cost producer. In addition, laboi markst conditions were changing rapidly within Barbados. With the inczaase of employment opportunities in - 69 - manufacturing, constructlon, tourism and other service industries, arid the aversion to agricultural work among new entrants to the labor force, the once plentiful supply of unskilled agricultural labor was converted into a severe shortage. Laborers for sugarcane harvesting had to be brought from neighboring countries. The end result was declining yields, reduced revenues from lower prices and production, higher costs and operating losses (See Table IV-2).

Table IV-2 SUGAR PRODUCTION OPERATING ACCOUNTS, 1987

Ecological surplus/ % Arable Grouping Revenue COtSW Deficit Area Reaped for Cane

D 75.12 79.69 -4.57 88 E 76.96 77.84 -0.88 77 F 77.66 83.48 -5.82 78 G 80.51 72.94 7.57 78 H 83.26 87.25 -3.99 75 I 82.76 79.56 3.20 78 i 84.57 82.51 2.06 77 R 85.79 96.94 -11.15 75 L 86.50 91.74 -5.24 76 M 89.15 88.73 0.42 75 N 89.02 102.85 -13.83 74 O 90.51 116.83 -26.32 77 p 91.60 151.01 -59.41 42 Q 91.90 81.08 10.82 74 R 93.25 90.83 2.42 73 s 93.48 114.29 -20.81 75

«J These are cane growing ecological zones which vary in quality of Land and on which producer price payment differentials are based. k/ Interest on loans for capital exponditure and depreciation is not included.

Source: Landell Mills Commodities Studies, Barbados: An Agricultural Sector Study, February, 1989.

4.6 In these crisis circumstances, operations could only be maintained if farmers were to incur more debt and/or the Government were to establish an enhanced system of subsidies for cane production. Currently, some estates have incurred which exceed the value of their assets and the only prospect they have for regaining financial solvency is to reschedule and seek forgiveness of their debts or to have their land developed for non- agricultural purposes. Heavy indebtedness has spread widely among cane farmers; by 1990, loan recovery from 42% of the plantations borrowing from the - 70 -

Barbados Natlonal Bank (BNB) - accountLng for over 85% of all sugar industry londLng ln 1987 - was coneldered doubtful. Theme doubtful borrowers accounted for half of the acreage of BNB's borrowers, and in turn, BNB's borrowers account for about half of the total arable acreage ln ths country. As of October 1990. industry indebtedness to the BNB amounted to BDS$172 million.

4.7 Agricultural Institutions. The institutions supportlng agriculture in Barbados are weak; all face seriour economic and financial difficulties and continue to operate on government eubsidies in one form or another. The processing and marketing of sugar li largely Ln the hands of the prlvate cane growers' organization, the Barbados Sugar Industry Ltd. (BSIL). BSIL owi1s and operates Barbados, four sugar factories. By the mid-1980s, it had accumulated a deficit of over US$30 million and its indebtedness has grown substantLally since then. BSIL receives government asisetance through debt guarantees nd through the sugar price support system inaugurated in 1982.

4.8 For the non-sugar subsector, the Minietry of Agriculture, Food and Fisheries (MAFF) provides research and extension services and plays a regulatory role in such areas as quarantine and soil conservation. Marketing is mainly in the hands of the private sector, although several government or government-supported institutions are also involved. The Barbados Marketing Corporation (BMc), a statutory corporation supervised by MAFF, was the main trading agency until the early 19809, when it was reorganized after incurring substantial losses. It handles most exports, buying directly from the farmer, packLng and shipping the product to European or North American markets. BMC also promotes Barbadian products abroad through trade fairs and new market searches and provides market intelligence to farmers. But despite various sources of income, including a monopoly on the importation of chicken parts, its high administrative costs cause it to continue to operate at a deficit. The Barbados Agricultural Development Corporation (RwDC) manages a research and extension service for non-export and then works with BMC to coordinate production with marketing. The Agricultural Trading Company (ATCO), which is run by a growers' association, assumed most of BMC's wholesale and retail operations, including grading and packing for domestic and export markets. It also operates at a loss. Neither BMC nor ATCO is sufficient'.y commercially oriented to play an effective role in promoting agricultural diversification and development. Finally, the Caribbean Trading Company (CATCO). a regional institution based in Barbados, is engaged in fostering trade in agricultural products in the Caribbean and outside it. CATCO. besides its commercial mandate, also plays a developmental role, encouraging the testing of new product lines.

Sector Polieies

4.9 In the Development Plan. 1988-1993, the Government called for a major effort to revitalize the agricultural sector. The long-standing objective of diversifying production out of sugar was reiterated as the central thrust of sectoral policy. Specifically: the rationallzation of the sugar sub-sector was to be promoted to retain a target output of 90-100,000 tons per year; non- sugar production - co' on, fruits, root crops, vegetables, cut flowers and - 71 -

foliage and livestock - were to be encouraged so as to moet a greater sliare of domestic demand for food and to earn or conserve foreign exchange and the development of a Barbados agro-Lndustry was to be encouragedy Before any of these proposals could be implemented, they were brought under further review as part of the World Bank flnanced agrLcultural development project. The project called for an in-depth evaluatlon of the agricLtlturalsector, a task undertaken ln 1988Y The wain findings of the evaluatlon are the following:

* the experlence of crop divereuiLcatLonhas been disappointLng;

C there li a strong linkage between sugar and non-sugar crops and the two should be developed in t..j-dml

* unless major investmentsare made to revitalLse the sugar Lndustry lt is likely to dleappear as an economic activityt

* alternatlvesto sugar cane are permanent pasture, trees, Lntensive agriculture,focusing on hortlculturalcrops, rotations of forage crops with others, and leavlng land idle

X -allenationof agriculturalland should be discouraged;

C arable land should revolve around sugar since it conserves the thin soil cover and helps weed control;

9/ In support of the sectoral strategy outllned ln the Development Plan, the World Bank helped flnance an AgrLculturalDevelopment Project in 1988. The objectlve of this project was tc help improve the long-term viability of Barbados' agriculturalsectoz and diversLfy Lt away from sugar by: assisting the Government to define and implement an agrlcultural development strategy whlch would be technically feasible and financially and economicallysound; by onsuring an approprtate balance between the sugar and non-sugar crops. To achieve these objectives, the project included an agriculturalsector study; streng'.heningof research, extension and marketing services; and provLsLon of credit for agro- industries to develop non-sugar crops. The sector study has been completed and discussed with Government. The employment of consultants to assiet with the research, extension and marketing is ongoing. To date, only US$650,000 of the agro-Lndustriescredit line of US$2.4 million has been disbursed. This slow movement of funds is due mainly to high liquidity Ln the commercial banks and a lower cost of funds. The Government has agreed to hire a credit specialist to assist it with the identificationand appraisal of agro-industrlalprojects which the line of credlt could support. tJ Landell Mills Commoditles Studies, Barbados: An Agricultural Sector Study, February, 1989. The study was prepared for the Barbados Ministry of Agriculture. Food and Flsherles. - 72 -

* an appropriate LnstLtutLonalstructuro is arltlcal to the develoxment of the agrLcultural sub-sectorp

* agrlculturalresearch suffors from dlspersal among many lnetltutes, duplicatLon and lack of coordLnation;

* as the major credltor, the Government should explolt the current pervasive state of lndebtedness of the sugar Lndustry to restructure lt, and make the acceptance of tralning by cane farmers a pre- condition for flnanclal support; and

* farms Lncapable of repaylng debts to BNB should be placed under an agricultural management company.

4.10 Based ln part on the findings of the above report the Government has outlined a recovery program comprising the followlng elements:

O a sugar production target of 90,000-100.000 tons per year would be retalned - enough to satlefy preferentlal markets, domestlc consumption for sugar and molasses and the foreign demand for specialty sugar products;

* a program to reduce the cost of sugar productlon through bulk purchase of lnputs on competLtive biddlng, higher mechanLzation and increased utillzationof equlpment, increasedyields and the reduction of cane burning;

D ensure factory capacity to grlnd the targeted output of 90,000-100,000tons a year, and the factories would be given responsLbilltyfor managlng the harvesting and transportatlon equipment}

- the debt overhang would be reduced through a comblnation of reschedullng,capitallzatlon of loans, and loan write-offs. New loans to farmers and to the BSIL would be made under more strlngent condltLons and by a strengthenedBNB; the latter would be requlred to adopt a much more actlve role in bringlng financial discipline to the borrowers. An agrlculturalmanagement company would be establishedto assume responsibilityfor the operations of deeply indebted estates;

* responsibllityfor the coordinationof agriculturalresearch is assigned to the Mlnistry of Agriculture,Food and Fisheries (MAFF). in turn to be assisted by a Research councll which will be established to determine research priorities and research programs, allocate resources and ensure that programs are not duplicated;

* a renewed e.fort is to be made to increase the local production of feeds parallel with an improvement in demonstration farms for sheep and beef; and -73 -

* to improve the marketing system for non-sugar commodities id reduce the costs of exporting agricultural products. The Governmeat is looking into the establishment of a wholesale market for fresh agricultural produce. psoszats

4.11 The Government's agricultural recovery program contains a number of elements which, effectively implemented, could help restore previous levels of output in the sector. However, it also contains elements which are highly ambitious in light of past production experience and the prospects for changes in international markets. A medium- and longer-term program for agriculture is outlined in Chapter VI below.

B. X4A~

Zntroduction

4.12 The manufacturing sector in Barbados is characterized by a relatively large number of firms, most of them small in terms of employment. Of 365 firms listed in the Company Profile Data Base of the Barbados International Development Corporation, 245 employed fewer than 25 persons. The few larger firms of 100 or more person were found in food and beverages, apparel, electronic components and cement. Overall, 45 firms were in apparel, 43 in food processing, 42 in furniture, and 33 in metal fabrication (furniture, frames, etc). Structurally, firms In Barbados consist of two types: enclave companies, involved in ofef *.remanufacturing for extra- regional markets, and domestic firms which can be subdivided into large import substitution firms, often operating at a re.ional level, and small, indigenous companies, producing mostly light manufactured goods for the local and CARICOM markets. The larger import substitution companies produce light manufactures, chemicals and some metal products. The small indigenous firms are often operated as family businesses, often with poor management, weak financial structures, and limited export know-how. Enclave companies often have a precarious existence, and the closure of three large firms Ln the 1980's (Intel, Corcom and Playtex) had a strong negative impact on total manufacturing activity and exports.

Main TrendsY

4.13 The first significant manufacturing firms Ln Barbados were sugar factories, followed by firms producing processed food and consumer items such fg/ The early hLitorical account of manufacturing relies heavily on WLnston Cox, "The Manufacturing Sector Ln the Economy of Barbados", Central Bank of Barbados Quarterly Report, March 1976. Other references used are H. CodrLngton and C. Holder, "The Terms of Trade Experience of Barbados and Trinidad and Tobago", Central Bank of Barbados Economic Review, June 1984; and P. Whitehall, "Protection in the Manufacturing Sector of Barbados, 1960-80", Central Bank of Barbados Economic Review, September. 1984. - 74 -

as soap. Manufacturing contributedabout 7% of ODP in 1946, LndLcatLng a sLseablo sector ln that firat post-Second World War year. By 1960. the share of manufacturlng in GDP was 8.3% (sugar lncluded), by 1966. 10.2%. and by 1970. 10.1%. The average annual growth rate of manufacturingoutput in the 1960's was 13%. a high ratlo by internationalstandards of the time. (The Republic of Korea. for example, renowned for the rapid growth of its manufacturing experlenceda growth rate of 17.2% ln the same decade.) The Government in thLs period passed leglslationprovlding fLocal incentives to manufacturlng,Lncluding the Pioneer IndustriesAct (1958). the Industrial Incentives Act (1963), the IndustrlalDevelopment (Export Industries)Act (1969), and the Fiscal IncentivesAct (1974). This latter Act remaine a key plece of legislationaffectlng flical incentlves.

4.14 OutM&. Manufacturingoutput (excludingsugar unless otherwise noted) V..ewslowly from 7.0% of GDP (at market prices) in 1970 to a peak of 11.5% in 1984, but then fell off qulto rapidly to 6.8% in 1989. In the early 1970., food and beverages together with textiles and wearing apparel accounted for about 50% of total value added ln the manufacturingsector. The range of manufacturedproducts widened substantiallyby the end of the 1980.. These output trends were closely related to the exports of manufacturedproducts, which as a percent of GDP at market prices increased from 8.0% in 1976 to 21.8% in 1984. thereafter falling sharply to 5.3% ln 1989 (see Table IV-3)V.

IV-3s Mabl§MANUFACTURING INDW8TRY OUTPUT AND NIPORTS,1970-89 (percent of GDP)

Manufacturing Manufacturing Year Output Exports

1970 7.0 n.a. 1976 9.7 8.0 1977 10.3 8.4 1980 10.1 12.0 1984 11.5 21.8 1985 9.6 17.5 1986 8.7 13.3 1989 6.8 5.3

Notes GDP iL measured at market prices and in current dollars. Sugar is excluded. n.a. indicates not available.

Source: Statistical Appendix Tables 2.1, and 3.2.

2/ Exports are not measured on a value added basie, so the percentages are not directly comparable, but comparisnn of trends is relevant. - 75 -

4.15 Export led growth provides the most plaueLble explanation for the rapld growth of manufacturlng,with food and beverages (lncludlngrum), chemicals, clothing and electrlcal components (begun ln 1968) accounting for 75% of the lncrease ln exports of manufacturedgoods from 1970-74. The formation of the Caribbean Free Trade Assoclation (CARIFTA) in 1968 and the XndustrLal Development (Export Industries)Act of 196i, which encouraged U.S. firms to set up wholly owned subaidiariesin electeLcal equLpment and clothlng in Barbados, were factors behind the rapid growth of manufacturedexports. Excluding food, exports to CARIFTA (now C&RICOM) countries constltuted 41% of total manufactu-ed exports in 1973 and exports to the U.S., 42%.

4.16 Employment statlstice for this early period are not fully comparable, but umployment in the sector appears to have increased less quickly than output. For example, while output ln textiles and wearing apparel grew by 45.3% between 1970 and 1974, employment grew by only 30%. Annual income per employee in manufacturing li 1974 was only 82% of average annual income per employee in all sectors, and was lower than in all sectors except agrlculture. Within manufacturinc, export oriented industries such as textiles and wearing apparel had average annual incomes per employee considerably below food and beverages (only 45% as high) and paper and paper products (52%). The export oriented industries tended to h&ve much higher proportions of female employees, and lower skill levels.

Table 17-4: PRODUCTION AND EMPLOYMENT IN MNNUFACTURING,1971-89

Employed Labor Force Index of Manufacturing in Manufacturing Year Production (1976 - 100) ('000 workers)

1971 69.6 n.a. 1976 100.0 13.8 1977 101.0 14.8 1980 102.6 15.0 1984 94.7 12.5 1985 89.2 12.0 1986 94.9 11.4 1989 99.7 12.0

So2rces Annual Statistical Digest, 1990, Central Bank of Barbados, Tables I-5 and 1-15.

4.17 Despite the rapid growth of the sector and the imEwrtance of the food and beverage processing industry, linkages between manufacturing and agriculture were judged to be slight in the mid 1970s, as well as the linkages among the sub-sectors of manufacturing. The absence of linkages implies either a protected market environment with high returns to selected industries, i.e. high rates of effective protection, or the temporary - 76 - attractionof footlooseenclave £ndustries. One posLtLve effect of the absence of linkages ia that later disruptLons to trade in manufacturedgoods caused by CARICOZ countrles or by shut-downs ln enclave LndustrLes dld not reverberatesharply through the economy.

4.18 Taking 1976 as a base year, the lndex of productlon for manufacturingshows a sharp Lncroaae from 69.6 in 1971 to 100.0 in 1976 (see Table IV-4). Thereafter*the lndex fluctuate* narrowly around a downward drlftlng trend line for 13 years up to 1989. The employed labor force ln manufacturlngshows a simLlar tendency over the 1976-1989 perlod when the numbers employed fluctuatedwlthin a range of 15.000 to 11,400; over the whole period, employment fell by 1.800 persons.

Table IV-5: INDEZ OF NAMUFACTURXNGPRODUCTION, 83LUCTUD SUB-SECTORS (1976 a 100)

1982 Sub-Sector weight 1976 1982 1989

Food 18.5 100.0 102.1 109.0 Beverages 11.5 100.0 102.6 107.3 Wearing Apparel 14.4 100.0 109.2 78.0 Chemicals 5.4 100.0 97.3 106.1 Petroleum Products 2.1 100.0 118.5 153.6 Other Non-MetallicMineral Products 4.0 100.0 130.2 196.2 Other Manufacturing 27.6 100.0 68.8 96.7 Wooden Furnlture 3.4 n.a. 100.0 187.7 Electronic Components 13.0 n.a. 100.0 51.2

n.a. - not available. Wooden furniture and electronic components are included in other manufacturlngin 1976.

ftuges: Central Bank of Barbados,Annual StatieticalDigest, 1990, Table-I.5.

4.19 The relative stabillty of total manufacturingoutput and of manufacturingemployment from 1976 to 1989 masks wide dispersion in the growth rates of dLfferent sub-sectors. Among sub-sectorswith a weight of 10% or more in the manufacturing index for 1982, wearing apparel and electronlc components fell sharply (electroniccomponents from 1982), and food, beverages and other manufacturingchanged les than 10% (see Table IV-5). (The "other manufacturing"sub-sector ls not, however, consistent in composition from 1976 through 1989.) Some small sectors expanded sharply - petroleum products, other metallic mineral products and wooden furnlture. indicating some diversifLcationin the output mlx. However, the overall record is one of - 77 -

stagnation or decline in terms of output - su'-seotors representLng 90% of output oither declined or grew loes than 10% over 13 years. In terms of fluctuations in output, beverages, chemicals and other manufacturing experienced especially wide swings on a yesr-to-year basis.

TAD IV-6t DOMESTICZXPORTS OF MaNUFACZUREDPRODW=S, 1976-90 (annual averages lu PUS$ million aou percent)

1976-80 1981-85 1986-89 1990 BDS$M % DS$M % RDS$M * BDS$M %

ManufacturedProducts 126.4 100.0 375.8 100.0 208.1 10P.,0 17M.0 100.0

Clothing 40.7 32.2 59.6 15.9 29.6 14.2 25.0 14.5 Electrical Components 35.7 28.2 221.1 58.8 95.6 45.9 39.0 22.5 Chemicals 11.5 9.1 24.9 6.6 25.9 12.5 36.0 20.8 other 38.5 30.5 70.2 18.7 57.0 27.4 73.0 42.2

Note: "Other" includes rum, margarine and lard, spcrts equipment, furniture. paper and publishing,metal products and other products. Sugar, molasses and other primary products are excluded.

3OUrCos StatisticalAppendLx Table 3.2 for 1976-89. 1990 figures are preliminary estimates.

4.20 rX&z. Exports of manufacturedproducts have displayed marked variability by sub-sector and by major market areas. Clothing and electrical components have dominated the overall picture until recently, but now constitute only about one-third of domestic exports (see Table IV-84). Chemicals and other manufacturedproducts, conversely, have become more prominent in the total export picture, indicating some degree of diversificatlon in domestic exports. The United States is a main market for merchandise exports (includingsugar and re-exports),followed by CARICOM (see Table IV-7). The European Community has been a relatively stable market, but other countries have grown in significance. - 78 -

lMae11 i-71naCUiI8Bz XUPORTS BY DESTINATICe, 1976-89 (in ?DA$ milion annual average. and percent)

I J276-8Q - 1981-85 1986-OR BDS$M % BDS$M % BDS$M 0

Total MerchandLse Exports 277.9 100.0 588.3 100.0 398.7 100.0

United States 91.1 32.8 309.7 52.6 126.2 31.7 CARICOQh-OCS 25.3 9.1 36.1 6.1 35.8 9.0 CARlCOM-Other 46.6 16.8 112.2 19.1 61.6 15.4 European (ammunLty 45.0 16.2 52.2 8.9 68.0 17.0 Other 69.9 25.2 78.1 13.3 107.1 26.9

Notes Merchandise exports lnclude sugar and molasses, plus re-exports. source: Statistical Appendix Tables 3.3, 3.4 and 3.5.

4.21 More detalled records available from annual manufacturlng surveys show that the major manufacturingproducts exported outeLde CARIO0M are clothing and electrlcal components. Electrical components are produced for the U.S. market, but the clothing market is more complex. In 1975, CARICOO markets took about one-third of clothing output, extra-regionalmarkets about one-third, and the domestJc market about one-third. By 1985, the CARICOM market had vlrtually disa ?eared, and sales were split about evenly between domestic and extra-reg).4nal markets (see Table IV-8). Products in which exports to CARICOMconstituted 10% or more of total sales in 1985, Lncluded only non-metallicminerals (includingcement), metal products (includingmetal furnlture),and paper and publishing. In general, CARICOM was a less significantmarket in 1985 than in earlier years for these and other products, as sales to CARICOM outside the ORCS fluctuated sharply. Guyana's imports from Barbados have been low and stagnant since 1978. even before its currency devaluation (see StatisticalAppendix Table 3.5). Jamaican lmports fell sharply in 1979 and after 1983. a; currency changes and other restrictLons cams in to play. The Trinidad and Tobago market, by far the mort important in CARICOMfor Barbados, collapsed in 1985 and 1986, from BD$75 million in 1984 to BD$25 million ln 1986, owing to currency depro-lation and a severe recession. In 1989, however, exports to Trlnidad and Tobago lncreased sharply, despite the devaluatlon in 1987, and the Jamaican market also showed some strength. Nevertheless,the CARICOMmarket remains fragile and subject to the rapidly changing economlc conditions in the region. The has recognized thls vulnerabllityin lts sectoral plan for manufacturing. The DevelopmentPlan 1988-1993 stutes that ln order to reverse the declLning trend in exports, wthe maln emphasis in the export thrust will _ 79 _ be on the development of extra-CARICOM markets, lncludlngother markets withLn the Caribbean regLon."g/

2 bl- IV-St CLOING IMNUTRY, 1975, 1980 AND 1985

Extra-Regional Total Exports as CARICOMExports as Exports as Percent of Sale. Pe2rcnt of SAles. Prcent o2f SAle 1975 1980 1985 1975 1980 1985 1975 1980 1985

Clothing 68 78 55 35 22 6 33 56 49

Sources Bank staff estimates.

Trade and IncentivePolLcies

4.22 Prefareltial agreAents. Barbados sells its manufacturedexport products in markets where it receLves preferentlaltreatment vL-&-vis soomeof its competitors. The Common External Tariff of CARICOM provLdes a tariff preference wlthin CARICON. In the European Community (EC), the Lom6 Agreement favors imports from African, Carlbbean and Paciflc states, includingBarbados. The Caribbean Basin Initiative provides preferentialtreatment on a wide range of products entering the United States from the Caribbean, and Canada has a similar arrangement known as CARIBCAZW. Tariff regulations in the United states, known as 806/807 regulations,allow for the export of clothing from Barbados to the U.-. on a reduced tariff basis when the textlles are of U.S. origin. Barbados benefits from the sugar provLsionso Lome and of the United states, and Barbados has made extensive use of enclave industries and of 806/807 regulations to export to the United States. Nevertheless,these various preferentLal arrangementshave not been sufflclentto generate a strong manufacturingbase in Barbados. Market dliruption ln CARIbOM, especially in Trinidad and Tobago, Jamaica and Guyana, and technological change in the electronic components industry, have inflictedheavy losses on the manufacturing sector and reduced lts growth prospects.

EJ Development Plan. 1988-1993.Government of Barbados. p. 136. fi/ For details, see Caribbean Exportst PreferentlalMarkets and Performance, World Bank, 1988. - 80 -

4.23 On the positive side, Baroados enjoys extremely low freight rates ln its exportsto the United States, most of which go by air / Caribbean exportersln general enjoy lower freight rates than their competitors on exports to the United States, and freight rates from Barbados are lower than rates from its Caribbean competitors. Air freight shipments have especially favorable rate. Rates for sea freight are generally favorable, but port charges in Barbados are the highest in the Caribbean. In 1986-87, port charges ln Barbados for a typical vessel were us$17,879. The next highest was at US$12,3b1, and most were well below US$10,000. St. Lucia, a competitor in sea freight, had port charges of only Us$5,535.1

4.24 The ntu2rn1APolLy Ravironan-sQ. The manufacturing sector is highly protected, as described in Chapter III, Section B. Protection is provided by an escalating tariff structure which generates high levels of effective protection on domestic value added, and by a complex system of stamp cutiee, consumptlontaxes and non-tariff barriers. Recent price comparlsons of products in Barbados and the U.K. show much higher prices on average in Barbados for food and beverages, textiles, chemicals, paper and printing, metal products and other products 2 All these products are produced mainly for the local or regLonal market, except textiles. Production for export, however, is constrained by current tariff policy. Effective protection rates for domestic sales are much higher than effective protection rates for export sales within the same manufacturing sub-sector,givinR strong incentives for manufacturing flrms to produce for local consumption.J Despite these high levels of effective protection on domestic value added, the index of manufacturingoutput indicates that the manufacturingsector has been virtually stagnant since 1976. Exceptions are confined to relatively small sub-sectors,such as wooden furniture.

4.25 Fiscal incentlve and industrial promotion pollcies do not directly favor firms producing for the local market as opposed to exports. Clothing and electronic components have been produced in large enclave firms, for example. However, these industries failed to take root, and contracted sharply after a few years of rapid growth. Two large e'&ctronics companies and one major garment maker closed their Barbados operacions in 1986. and the

11 For detailed discuseion,see A. J. Yeat., "Do Caribbean Exporters 'ay Higher Freight Costs?", World Bank Discussion Paper, No. 62, 1989.

2/ see Yeats, p. 37.

V/ See lExport Competitiveness and Marketing Study in Barbados", Maxwell Stamp, April, 1990, Table 4.3. Average price differentialsin Barbados range from 80% to 111% as compared to the U.K.

IQ/ See ngxport Competitiveness and Marketing Study in Barbados", Tables 4.1, 4.2, 4.6 and 4.7. The estimating procedures are complex, and do not Lnclude non-tariff barriers. However, they leave no room for doubt, since the JIQkL3testimated protection on domestic sales is at least double the higaat estimated protection on export sales for all sub-sectorsof manufacturing. - 81 -

industries have continued to doclne. Fiscal incentivesand industrial promotion policies are not sufficientto overcome the anti-export bias of the trade regLme as a wnole.

4.26 Linkages between the manufacturing sector and other sectors, especially tourism and agriculture,remain almost as weak in 1990 am in 1975. Such links as exist depend upon the system of protection. Food and beverages are highly protected, and obviously serve the domestic market, including tourism. Furniture sales to the tourist industry are supported by tariff and non-tariff protection, including outright prohlbition of imports in some circumstances. As note- above, absence of links can be a posltive attribute: the decline of clothing and electronic component industries had little indirect effect on the economy because they were so highly dependent cn imported inputs. However, a solidly based domestic manufacturingsector would probably engender strong linkages with other sectors.

InsIuIALons and Incentives

4.27 The two main instLtutionswhose activities help determine the incentive structure for the manufacturing sector are the Barbados Export Promotion Corporation (BEPC) and the Barbados Industrial Development corporation (BIDC). (To the extent that the Barbados Development Bank provides credit at non-commercial terms to selected business, it may also have an indirect effect on lncentives.) Both report to the Minister of Trade and Industry, and have a Board of Directors with public and private sector representatives.

4.28 BEPC is a relatively small institution,with a core staff (excluding suppost staff) of eight plus the Executive Director, of whom six work directly with exporters. BEPC performs two primary functions. First, it provides general market int&lligenceto exporters, includingproduct sampling in test markets and a fashion forecastingservice for local garment makere. Second, it gives advice directly to individual companies, attaching an advisor to the firm and encouraging it to draw up &nd carry out an export marketing plan. The corporation also ma.ntains a trade office ln New York to represent Barbadian manufactured exports in the U.S. and Canada. BEPC runs on a budget of about BD$2 milllon per year. supplied almost 100% by Goverxnent grants.

4.29 BIDC is a much larger organization, with 307 workers (of which 173 are piece rate and constructionworkers). Its major responsibilitiesare constructionand rental of factory space, providing technical assistance (in both production and marketing), making a recommendationto the Ministry of Trade whether to approve a company's applicationfor the fiscal incentives package, and promoting external investment in Barbados. The BIDC also operates a scheme to promote local handicrafts. The Corporation'sexpenses greatly exceed its revenues (almost all of which are from rents). It relies heavily on government funding (60 percent of its total sources of funds in fiscal years 1985/86 through 1987/88),with some internationallending institution support. - 82 -

4.30 BIDC currently owns 10 industrial estates that it has constructed over the years. with 170 acres, 90 buildings, and 1.5 million square feet of space, housing 144 companies. Space is rented on a subsidized basis, with a rate of subsidy of about 20 percent. Receipts are, on average, supposed to cover BIDC's debt service and ma'ntenance. BIDC's policy in the past has been to construct space on a speculativebasis ahead of demand, though they have not been able to do so recently because of lack of funding. Currently, the vacancy rate in SIDC industrialparks is about 13 percent. but because this space is not suitable for some prospective tenants, the demand for space greatly exceeds the available supply.

4.31 Firms are approved for fiscal incentives by the Ministry of Trade upon the recommendation of BIDC. The four major incentives are described below. The period over which the first three lncentives are applied depends on the fraction of production that is exported and the fraction of local value added. Firms exporting all production automatically qualify for a 10-year periods other firms m_iy be given shorter periods. The period cannot be extended, though firms can be and often are, granted new incentives for expansion of existiLg product lines or change of product lines. The incentives are as follows: First, approved firms are exempt from profits tax. Second. firms mav depreciate assets on an accelerated schedule, over 5 years instead of 10. (Even though firms are tax exempt, this may be useful in carrying over losses). Third. shareholders of approved firms are exempt from income tax on dividends. And finally, firms are exempt from paying customs duties and (usually) consumption tax on imported inputs. Firms are not exempt from stamp duties on such imports under the Fiscal Incentives Act, except for firms exporting all production (who pay stamp duty on all imports at a flat rate of only BDS$1O per shipment), or firms importing capital equipment of BDS$100,000 or more (who also pay only BDS$l0 per shipment). However, all imports of some items (e.g., packaging and raw materials) are exempt from stamp duties under a schedule in the Tariff Code. During 1986/87 and 1987/88, 45 firms were approved for incentives (30 in 1987/88). with the majority in Zood and beverages (9), electronics (8), fabricated metal products (7), and misce.lanL^z;R manufacturing (7).

4.32 Without a major reform of the trade regime along the lines outlined in Chapter VI below and a conuerted effort to establish wider links with Eurcpean firms and markets in anticipation of the SEX in 1992, the future of manufacturing in Barbados is likely to mirror the past general stagnation in output, alleviated by the periodic growth and decline of a few footloose enclave industries and by the hothouse growth of a small sub-sector or two which receives especially strong protection from foreign competition. Rising real wages will continue to put pressure on profits in the sector, and productivity gains will not be able to offset these real wage increases, because of the small scale of local and regional markets. On this scenario, total employment in the sector would be expected to fall slowly over time.

4.33 Offsetting this picture to some extent are Barbados' favorable climate for forelgn investment, including good infrastructure and an educated labor force, and relative stability and growth in the CARICOMmarket at - 83 -

prement. However, other Caribbean countries offer equally favorable incentivesto investment,and much lower hourly wage rates.W CARICOMhas proven to be an unstable, uncertain market in the past decade, and exports to the OECS countries, which have been stable up to now, depend to a significant degree upon the continuationof preferentialmarket access for their bananas and sugar.

4.34 Even with the appropriate policy reforms discussed in Chapter VI below, export competitiveness will require the development of new product lines or sub-sectors. The recent Maxwell Stamp analysis of export competitiveness and marketing has identified a number of potential new products for development in Barbados. While the analysis is sophisticated and detailed, it is not a substitute for entrepreneurs willing to identify and produce profitable lines of output. Export marketing under current conditions is hazardous, and entrepreneursare likely to choose the safer areas of production for the local market, or of investment in real estate, so long as the incentive system remains unchanged.

C. Iourl

XntroductLpA

4.35 As the main provider of foreign exchange earnings and a major employer, the tourism sector in Barbados plays a crucial role in the economy of the island. It currently contributes 12% of GDP, over 20% of total employment and 60% of export earnings; and if its links with other sectors of the economy were added to the official definition, its importancewould be seen to be much greater. Thus, a strong performance by the tourism sector is a prerequisitefor sustained developmentof Barbados over the years to come.

4.36 Barbados' topographicalfeatures are excellent for tourism. The country offers a diversity of geographicalareas and attractions,contrasting coastlines, coral reefs and an outstandingclimate. Its geograpla.-1 position allows it to benefit from a uniformly temperata year-round climate, a particularly important feature in reducing seasonality in tourism. Besides the traditional sand, sea, sun and water sports that many other Caribbean offer, Barbados also offers the legacy of a rich history, and a well- educated population disposed to warmly welcome the visitor.

4.37 The iLland's infrastructureand services are among the best in the Caribbean. An extensive road network and excellent international airport and port facilities have been developed over the years and have exerted a very positive effect on the tourism sector, both for stayover and for cruise ship visitors. Telecommunicationsare very advanced and quite comparable in extent

IL/ on wage rates, see Caribbean Exports: PreferentialMarkets and Performance. In 1987, hourly compensationcosts for semi-skilled production workers in export manufacturingindustries in Barbados were two to three times as high as costs in Jamaica, and the Dcminican Republic. - 84 -

and quality to services provided in major developed centers. Transportation is extensive and other important services such as health, water and electricity and banking are also among the most advanced in the Caribbean. Barbados also offers a wide variety of accommodationsfrom large modern hotels to private villas and small apartment houses. These factors have enabled Barbados to attract travelers from many diverse markets.

Growth Excsriance

4.38 The growth of the tourism sector in Barbados can be divided into three main periods during which the performance of the industry was different. From independence to 1980, the pevformanceof the sector was highly dynamic and the competitivenessof Barbados as a tourism destinationwithin the CaribbeanW was increasing. During the period 1980-85 Barbados was especially hard hit by the recession in industrializedoconomies and the rise in the US dollar (to which Barbados' currency is linked) in relation to the £ sterling. As a result, the cost of a holiday in Barbados rose, and tourism performed poorly, both in absolute terms and via-&-via its caribbean competitors. Conversely, over the period 1985-89 Barbados' tourism benefitted substantiallyfrom the sharp fall of the US dollar against the £ sterling. Nevertheless, in spite of this improvement,Barbados has continued losing ground as compared with other major Caribbean destinationsthroughout the 1980s. This would suggest that the loss of Barbados, market share in the 1980O. and especially since 1984, is not entirely due to external factors, and that domestic policies must have played a role in the lose of competitiveness. (Table IV-9 shows the changes in the main tourism indicatorsover 1966-89).

4.39 The First Phane 1(1266091. Since independence,and throughout the 19709 Barbados' tourism sector posted a remarkableperformance. Stayover arrivals rose 5 times, cruise ship arrivals doubled, the average length of stay of visitors climbed from 6 to almost 10 days and market diversification increased. By 1980, bed capacity stood at 13,500. or three times its 1966 level. Concomitantly,and as a result of both increased arrivals as well as diversification into European markets, occupancy rates improved from a 50% level in the late 1960s to 65% in 1980. During this period of extraordinary dynamism, Barbados' share in Caribbean stayover arrivals rose from 3.7% in 1970wL to 5.5% in 1980. Visitor expenditure in current prices amounted to US$240 million in 1980, that is five times its 1970 levels, while other important Caribbean competitors such as Bahamas and Jamaica had merely doubled their tourism expenditure over the period. By 1980 visitor expenditure represented 27% of GDP as compared with 22% in 1970 and the sector contributed 46% of export earnings.

12/ Caribbean in this Section refers to the definition of the Caribbean Tourism Organization (CTO). It includes Bahamas, , OECS countries, other Commonwealth,Dutch West Indies, US ( and US Virgin Islands)v , Dominican Republic, Haiti and Suriname.

wJ Earlier data are not available. - 85 -

gkj* jV-9s MAIN INDICATORB OF TOURISM PUR?ORNINCB, 1966-89

1966 1970 1975 1979 1960 1961 1962 1983 1984 1985 1966 1987 1988 1969

Total TZGist Day ('000)0 366 909 2003 S671 3782 3520 2632 2631 2709 2373 2549 2967 3316 3622 6tayovz ails {Oo) 79.1 156.4 2al.5 370.9 369.9 332.6 303.8 326.3 367.7 359.1 369.6 421.9 451.4 461.S etuim Ohip axivals ('000) 51.6 79.6 96.5 110.1 156.5 135.6 110.6 102.3 99.1 112.2 145.3 224.8 291.0 346.7 Avage Lengthot stay (Day)y 6.3 5.3 6.6 9.6 9.6 9.6 6.3 7.7 7.1 6.3 6.5 6.5 6.7 7.1 Total Dad aomty 3966 6001 6825 11643 13360 14147 14141 14314 14134 14016 13981 1346 13719 13726 Sed 0aca"n fAtetas Al .tablldbt (4 31.6 45.9 40.9 76.4 65.3 54.0 45.3 46.7 45.1 39.5 47 0 53.4 60.0 62.7 Total Tourist Wipadttkro (lU68llion) n.e. 40.4 61.1 164.9 236.9 261.9 251.1 2S1.6 260.4 309.1 327.3 376.6 439.3 527.6 Total Tourist turpoeatur. as a * of 0OP n.s. 22.3 20.3 27.4 27.4 27.5 25.2 23.8 24.3 25.6 24.5 26.0 29.6 30.9 Ohara of Sarbado in Total careaIbn TouiM (0)f n.a. 3.7 4.0 3.5 5.5 S.3 4.4 4.5 4.6 4.5 4.4 4.4 4.4 4.3 Touri_m 3 fDernog as * Of Total XS n.e. 44.99/ 34.2 45.7 45.7 46.5 41.7 37.7 32.5 39.1 43.1 56.2 58.3 56.4

n.n. * Not availabl%. 3 Stayover arrivals multiplied bY averae length of stay plus cruise Ohio passengera. anssfen aver*ge lngth of stay of tourists in eatablislunta vUch are not suveyed is the sam as that for surveyed otablishmenta. hi Iwliam to tourist staying In survewedea tlisab_ts only. Touriatm staying In atabliabsntn that aOr not surveyed re*erant about om third of total *taver arrivals. 1/1971. Stavoverarrivals. I5ree Darbed0a Statistical Servica. Contral Bak of arbedo. ma mission estimates.

4.40 Fast growth of the tourism demand in the 1960a and 1970. was accompaniedby heavy investment in the sector. Barbados, traditional appeal as a stable country with prudent macroeconomicmanagement and one of the best investment climates in the Caribbean contributedto an increase of private capital inflows into the tourism sector. The hotel boom was also promoted by the Hotel Aids Act of 1967 which guaranteed income and profit tax exemption for 10 years and duty free imports of building materials for new hotels. Originally, this legislationwas biased towards building of large hotels, thus, favoring large-size foreign investment in the sector. In 1973 it was modified to include concessionsto build hotels of less than 25 rooms and apartments of less than 50 units, which enabled Increased investment in the sector by Barbadian nationals and the development of the apartment hotel sub- sector. These concessions continued to apply exclusively to capacity expansion until recently, when the Hotel Aids Act was modified to provide limited incentives to refurbishing.

4.41 During the 1966-80 period Barbados expanded its capacity mainly in luxury hotels, apartments and apartment hotels. The number of beds in luxury establishments rose almost four times and in apartment hotels by over six times. The expansion of capacity in luxury hotels reflected the emphasis placed on the upscale tourism market which has traditionallybeen attracted to Barbados. In spite of the proportionatelygreater expansion of capacity in luxury hotels as compared with those moderately priced, luxury hotels recorded consistentlyhigher than average occupancy rates up to the late 1970s. The wide increases in capacity of apartment hotels since the late 1960s reflects the rising demand for tourism in Barbados from European travelers which in general prefer private accommodationson a smaller scale to the large hotels. - 86 -

(Table IV-11 below shows the growth of hotel capacity and occupancy rates from the late 1960. onwards).

4.42 By 1980, Barbados' tourism performance peaked. Stayover arrivals had more than doubled between 1970 and 1980 while total tourist days rose four-fold as a result of the doubling of the average length of stay of travelers in Barbados. Furthermore,in spite of the large capacity expansion during the 1970s. capacity utilizationrose to its highest ever levels ln 1979 and 1980. The latter results are partly explained by the traditional appeal of Barbados to the UK market and increasinglyto the European market as a whole.

Table IV-0lO BARBADOS AND TEE CARIBBeAN:TOURIST ARRIVALSW

1970w 1980 1985 1989 B&rbados Caribbean Barbados Caribbean Barbados Caribbean Barbados

USA 36.5 58.9 23.2 62.4 41.2 56.5 33.4 Europe 10.1 12.0 25.6 9.2 15.3 14.0 35.2 (ow/UK) 7.7 (3.0) (15.2) (2.3) (10.8) (3.6) (25.6) Canada 25.3 7.4 23.0 7.4 19.7 6.5 14.2 Caribbean 21.4 6.8 24.1 10.1 20.0 8.9 13.6 Other 6.7 14.1 4.1 10.9 3.8 14.1 3.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

_/ Stayover tourism by country of origin. k/ Comparabledata for the Caribbean are not available.

Sourge: Caribbean Tourism Organizationand Barbados Statistical Service.

4.43 Barbados has attracted proportionatelymore European traveler. tian the Caribbean as a whole, and fewer tourists from the USA as compared with the region (see Table IV-10). For a given number of arrivals, greater reliance on European travelers improves tourism statisticsand profitabllityof the sector in severalways. Flrst, Europeans tend to stay longer in Caribbean destinations than their U.S. counterparts, which in turn increases total tourist days in proportion to arrivals, and therefore, overall expenditure levels. Second, European travelers are more prone to visit the Cu.ribbeanon summer holidays, while their USA and Canadian counterpartstend to use the Caribbean for a warm winter holiday. In the case of UK tourism, an importantmarket for Barbados, 80% of arrivals occur in the summer months. Reducing seasonality is a crucial goal of the tourism industry;an even flow of visitors throughoutthe year has a large positive effect on the profitabilityof the industry. - 87 -

4.44 Towards the late 1970e the tourism sector in Barbados was facing emrgLng cost pressures on profitability. And, with newly expanded capacity and increased dependence on the European market. Barbados was not well prepared for the world recession of the early 80. and the sharp increase of the US dollar vis- a-vie European currencies.

4.45 The Second Phase (1980-8Mi. Between 1980-85. tourist arrivals fell by a cumulative 3% while for the Caribbean region arrivals increased by 16%. Consequently,the share of Barbados in total Caribbean tourism fell to 4.5%. This loss of share underestimatesthe relative slide of Barbados, tourism performancecompared to the Caribbean during the early 1980., since by 1985. the average length of stay had also fallen to a low of 6.3 days from 9,8 in 1980. This is explained by the dramatic decline of about 30% in tourist arrivals from the UX and Europe. In effect, by 1985. total tourist days which measures tourist arrivals multipliedby the number of days they stay -- were almost 40% lower than in 1980. Hotel occupancy rates reached an historical low of 40%. This rate compared very unfavorablywith the 1985 range of 50-75% of other Caribbean destinations. By 1985, total tourist expenditure had fallen to an average 25.6% of GDP and foreign exchange earnings to 39% of exports of goods and non-factor services.

4.46 During the early 1980s investment in the tourism sector stagnated. (see Table IV-ll). The fall in profitabilityof tourism and consequent disinvestmentwas linked to: (i) the sharp reduction of demand of the early 1980s; (li) increasingcosts initiated in the late 1970s. and related to both wage increases and rising domestic input prices; and (iii) the high indebtednessof the sector which had embarked on extensive investmentsduring the 1970s. Furthermore,as the 10 year tax holidays for many hotels built in the 1970s lapsed, the sector was faced with an increasedtax burden.

4.47 The Third Phase (1985-89). Since 1985. tourism in Barbados benefitted greatly from the slide of the US dollar against European currencies. Tourist arrivals rose by 28%, and the average length of stay to 7.1 days, which, combined with a rapid increase in cruise arrivals, raised total tourist days by 52% over the 1985-1989 period. occupancy rates by 1989 had risen to a high of 62.7%. and tourist expenditure in current US dollars increasedto 31% of GDP?. As the result of the combined effect of an improved performance of tourism and deteriorationof other exports, the Barbadian economy increased its dependency on tourism as a source of foreign exchange earnings. In 1989 the sector accounted for almost 60% of total exports of goods and non-factor services.

Cruise Ship Activity

4.48 An important feature of Caribbean tourism over the last decade has been the impressive performanceof the cruise ship component, an area in which

J4/ The ratio of tourist expenditureto GDP has to be treated with caution; since Central Bank studies suggest that tourist expenditurestend to be consistentlyoverestimated. See P.H. Whitehall, "The measurement and interpretationof leading tourism statistics in Barbados using a model of tourism expenditure/GDP." Working Paper, Central Bank of Barbados, 1988. - 88 -

Barbados has performed extremely well. Throughout the 1980s, Barbados has consistently been among the 10 best performers in cruise ship tourism, posting an annual average Lncrease of 9% in cruise ship arrivals as compared with 7% for the region. Increased promotional efforts by the Port Authority and the Board of Tourism as well as the island's superior port facilities and its diversified nature have contributed to this success. Nevertheless, cruise ship tourism contributes much loe to tourist expenditure than stayover arrivals. While cruise ship passengers represented about 40% of total arrivals in recent years, they account for only 5% of tourist expenditure. This is partly the result of Barbados' reputation as a costly destination which has resulted in a lower level of tourist expenditure than could be expected.

Tab-I IV-1: HOTEL CAPACITY AND OCCUPANCY RAIZ$, 1966-89

Quest Apt-/ Luxury "A" Class "B" Class Houses Apt. Hotels Total

Number of Hotel Beds 1966 904 1208 471 258 1147 3988 1970 2050 1500 600 330 1601 6081 1975 2179 1545 416 499 4236 8825 1980 3247 1449 940 275 7449 13360

1982" 2814 736 757 297 9537 14141 1985 2691 893 702 205 9825 14016 1989 2668 639 891 174 9654 13726

Hotel Bed Occupancy Rate 1966 52 52 40 43 n.a. 51.6 1970 50.6 43.1 31.6 35 n.a. 44.1 1975 59.1 37.5 13.3 20.8 56.4 49.9 1980 69.6 44.5 44.1 27.3 68.0 65.3

1982" 47.2 34.5 43.7 21.3 43.6 45.5 1985 52.0 80.9 20.2 34.1 32.1 39.5 1989 65.5 59.4 30.1 69.7 64.1 62.7

A/ Data on capacity by type of accommodation can only be compared for the sub- periods 1966-81, and 1982-89 separately since in 1982 a reclassification of establishments was undertaken. Only total bed capacity can be compared for the whole period.

Source: Central Bank of Barbados. - 89 -

Main Problems

4.49 SnCKeasdl Reaional G9V_titi9Lon.In recent years, Barbados has been facing increased competition from other Caribbean destinations,such as the OCS countries, which have placed heavy emphaeis on tourism and expanded and improved their hotel capacity and infrastructure,whlle Jamaica and the Dominlcan Republic have devalued thelr exchange rate. The Domlnican Republic, which traditionallyappealed mostly to the North American market, is reachlng out to Europe and could become a formldable Barbados competitor in the near term. During the 1980s, Lt doubled lte share in Caribbean tourlem, from 5.7% in 1980 to 12% in 1989. Plans are underway for capacity expansion of up to 27.000 new hotel rooms by 1992, which is twice the overall capacity of Barbados, and the constructlonof two new airport terminals is being completed. Cuba, while stlll representinga small portion of Caribbean tourism, could also become a serLous competitor in the medium term since it has recently been modifying its regulationsto attract foreign investment and improve facilities in the tourism sector. On the average, over the last three years, tourist arrivals ln the Dominlcan Republic and Cuba have been three times higher than in 1980frabout 80% higher for Jamaica and the OECS countries over the same period, while the ir.creasewas only 25% for Barbados. This heightened competitionhas made the tourism industry in Barbados much more sensitive to changes in domestLc policies.

4.50 Over the last 10 years, Barbados has not expanded its hotel capacity, and refurbishingand renovatlon are lagging. Consequently,the quality of its accommodationsls deterioratiLy. Furthermore,according to surveys conducted in a recent tourism study, Barbados is perceived as having a poor price-value relationship,both in terms of lodging as well as restaurant and other services- In terms of overall cost of vacations. Barbados generally ranks among the highest in the region. The cost of airfare Ls also one of the highest in the region, especially for the North American market. The Barbados Tourism Study also concludes that area visitors rank Barbados as superior in terms of friendlinessand beauty, but that the lodging product, especially in first and second class accommodations,was rated as inferLor to several other Caribbean destinations. Slnce Barbados has traditionallysought to attract the high end of the touriem market, these developmentsare worrisome.

4.51 Relative Domestic Profitabilityof the Sect*r. In the following part the domestic incentives for the tourism industry as compared with the rest of the economy are analyzed. This analysis provides a baeis for evaluating the capacity of the sector to attract domestic resources so as to Lncrease output and productivity. over the last two decades, average wages in the hotel sector have risen faster than economy-widelevels. This Li sopecially critical to the hotel and tourism sector where labor costs represent between 25-40% of total cost, dependlng on the type of accommodatlon. As noted in Chapter III, industry-widecollective bargaining for the hotel sector reduces the scope of productlvitylinked wage increases. Furthermore,wage levels ln Barbados are high compared with other Caribbean countries. Nevertheless, a main concern of employers in the hotel industry

5J,see Barbados Tourism Study, Laventhol and Horwath, 1989 (Draft). - 90 - apart from the level of wages, relates to other components of labor costs such as hiring/firing leglelation,and specifleallyincreaoing rigidity in union job descriptions,wnhih are considered to have severe detrimental effects on the quality of service levels provided. Policies whi$h induce even moderate increases in the cost of tourism can now have a greater effect on the performance of the industry than 10 years ago, when Barbados enjoyed a higher degree of market power in the Caribbean region.

4.52 Trade policy in Barbados is characterizedby a high degree of protection for the import substitution sector and a high degree of anti-export bias (Chapter III, Section B). This has important implications for both the absolute profitabilityof the tourism sector as well as its relative profitabilityvie-&-vis other sectors, and for its ability to attract resources to the sector. The main mechanism by which trade policies affect the tourism sector is through their effect on the cost level of the industry. Prices of tradeable intermediateinputs (notably processed foods and furniture), factor prices (wages), and indirectly,prices for non-traded goods and services (transportation,restaurant meals), which are a sizable component of tourism expenditure,tend to be higher as a result of a structure of incentiveswhich provides high levels of import protection. The recent move towards indirect taxation. which increased consumptiontaxes (see Section III c) both for domesticallyproduced as well as imported goods is also likely to have adversely affected the tourism industry. Furthermore,the high protection of the non-tourismeconomy increasesthe relative profitability for import substitutionactivities; and since these activities often compete with the tourism sector for capital and other resourcea, the flow of resources to the tourism sector is to that extent, negatively affected.

4.53 By the early 1980s. the Barbadian economy had grown increasingly dependent on the rapidly growing tourism sector. Nevertheless,since the late 1970s. tourism started losing internal competitivenessin relation to other sectors of the economy and the profits of the industry were being squeezed by increasing costs of labor, utilities and other essential inputs. Over 1977- 79, nominal wages in the hotel sector rose by 31% as compared to 19% for the economy as a whole. Throughout the 1980e, wages in the hotel sector continued rising faster than economy wide wages. Prices of other inputs, such as utilitiesi'and tourism-relatedservices also rose faster than prices of tourism, mainly due to domestic policies which resulted in an appreciationof the real exchange rate. National accounts implicit deflators clearly show that the prices of the outputs all non-tradeablesectors rose much faster than those for the tradeable sectorsW. Using implicit deflator data and the

L6/ To isolate the possible effects of the oil shocks on domestic utility prices a simple least squares regression was estimated. The result shows that the oil shocks are not a major explanatoryvariab:e of the changes in domestic utility prices, and that other intervening factors were at play.

IV Tradeables comprise agriculture,manufacturing and tourism. .he index for tradeables with 1974 a 100 rose to 250 by 1989, while that for non- tradeables rose to 350, pointing to a real appreciationof 40% thtoughout (continued...) - 91 - nominal wage index for the hotel sector, a relative "tourism cost index" was constructedW. The ratio of the tourism output prices and the "cost index" gives an indicatlon of the change in relatLve profLtability of the sector. As shown ln Table IV-12 below the relative profitabillty index falls sharply towards the late 19709 and continues to fall albeit more moderately throughout the 1980s.

4.54 Relativo External CoGAUtitivynM-. In comparison with other Caribbean destinatLons, tourism related servLces such as restaurants and shopping are not considered competitlve. There is a general perception that servlce levels in food and beverage establishments could be lmproved and that prices of imported inputs (especially wine and liquor) are exceseively high. The same consideratLons apply to retail sales in general, and specifLcally duty free ahoppLng. As a result, vieLtore tend to purchase local handLcrafts and rum, but generally stay away from more expensive items such as clothing and electroniLc and other duty free good2 on the island. The foreshortened hours of operation of most shopping facillties and services also compound the problem. This reduces potentlal expenditure levels on the island, especially by cruise ship passengers who can choose whether to dine on the island or on the boat and between several ports for their duty free purchases. Regarding other major servlces, port charges for cruise ship arrivals are consldered competitive wlth other Caribbean facilities,! but airport service charges are considered high, mainly due to the effect of the trade regime on imported intermediate inputs.

4.55 As indicators of external competitiveness of the tourism sector, Table IV-12 below shows the change in the C(P1 of Barbados in dollar terms vis-&-viL the CPI of a basket of major Caribbean competLtors, also in dollar terms, and of real wages in the hotel sector of Barbados in US$ dollar terms. The relative CPI index shows a continued loss of competitiveness for Barbados compared to other major Caribbean destinations throughout the period. This points to a dramatic deterioration of Barbados' costs relative to major compatitors. Since the mid-1970s, nominal wages in Barbados have followed the domestic CPI closely. Nevertheless, since the Barbados dollar is linked to the US dollar, t he evolution of the real wage index in US dollar terms provides the appropriate indicator of changing external competitiveness. The data show that up to the late 19709 and early 1980a Barbados' real wages in dollars remained relatively flat, but throughout the 1980. they increased by almost 50%.

j7/(... continued) the period for tradeables with respect to non-tradeables. j_/ The tourism "cost index" is a weighted average of the growth of wages, utilities (electricity and water) and "other inputs", which are assumed to represent 35%, 15% and 50% respectively of total tourism costs. The index used for "other inputs" corresponds to the implicit GDP deflator excluding sugar, utilities and tourism. jv The comparative cost in respect to freight handling however, puts Barbados near the top of the list of higher cost in Caribbean ports. - 92 -

Z1L IV-12s PRO UAUILITTrAMND COIWPLZVTIT5NUS OF TOURION (1974 * 100) A/

1974 1975 1977 1979 1980 1984 1985 1989

PROFITABILITYOF TOURLSM

Touxism Price 100.0 115.5 113.8 134.5 164.8 221.4 248.3 255.4 Innut Pzicen Electricityand Water 100.0 102.5 114.4 115.9 197.1 333.4 339.8 350.8 ^Othera Inputs 100.0 107.6 136.2 162.3 198.4 279.8 288.4 334.6 Hotel Wages 100.0 100.0 133.9 175.0 1)8.6 2'1.1 288.8 331.8 Tourisa Cost Iadex 100.0 104.2 132.1 159.8 191.2 284.8 296.2 336.0 Relative Profit- ability' 100.0 110.9 86.1 84.2 86.2 77.7 83.8 76.0

CPIB/CPINEW 100.0 110.7 115.1 128.6 129.5 148.3 165.5 161.8 Hotel Real Wage index in US$ Dollarst 100.0 91.5 110.4 106.7 106.3 139.7 149.5 157.9

A/ Consistent sectoral GDP deflator data not available before 1974. k/ Ratio of tourism output price and tourism cost indices. g/ CPIB - consumer price ir.dex in Barbados. CPINB - weighted consumer price index (in dollar terms) of a sample of major Caribbean tourism competitors of Barbados which includess Jamaica, Dominican Republic, Bahamas, Bermuda, St. Lucia and the . 4/ Nominal hotels wage index of Barbados deflated by USA wholesale pricee.L

Source: Barbados Statistical Servi^e, World Bank and mission estimates.

an/since labor is a cost, the US dollar wholesale price index was used to deflate the nominal wage series. If the CPI is used the same conclusion stands, albeit with a smaller rise, in the order of 25% during the 1980s. - 93 -

aEterMal vs. Domestic Factors

4.56 Empirical tourism studies of the Caribbean have found the demand for tourism to be highly responsive to external factors such as trends in income per capita in OECD countries, fluctuatlonsamong major currencies and the movement of oil prices whlch has a large effect on airfares. Studies of Caribbean tourism also found high elamticitLesof substLtutLonbetween destinationswithin the area, pointing to high price sensitivity in the cholce of alternative tourism destinations. As already discussed, throughout the 1980s. Barbados has consistentlylost its share of Caribbean tourLem. During this period external factors have shown wide fluctuatlons,while domestLc costs in Barbados have been rising steadily vis-&-vis major competitors.

4.57 To quantify the relative impact of external vs. domestic factors on the share of Barbados in Caribbean tourism, an emplrical atudy using regression analysis was undertaken.W The results of the study show that while external factors have had a negative effect on Barbados' share of tourism in the region, domestic factor. have played a key role in determining the lose of competitivenessof the Barbados tourism sector.

4.58 The share of Barbados was explained by three purely exogenous factor. (real lncome of countrieswhere tourism originates from, the US dollar/f sterling exchange rate, and the internationalprice of oll), and varLous domestic factors (domesticcost of living and wages and the price of food relative to other Carlbbean countries, and the real price of utllities in Barbados). This analysis suggests that among the external developmentsthe most important are the US dollar/E sterling exchange rate and the real income of countries from which tourists originate. On the domestic side the critical factor is the rise of the cost of living and wages in Barbados relative to competitor Caribbean countries.

4.59 The relative value of the £ sterling vis-&-vis the US dollar li positively correlated with the share of Barbados in Caribbean tourism since Barbados receives a larger portion of tourists from Britain and Europe than other Caribbean countries. An increase in the value of the £ sterling and other Zuropean currencies relative to the dollar increases the relative proportion of Caribbean tourists originating in Britain and the rest of Europe relative to travellers from North America. Given that European tourists tend to prefer Barbados over other Caribbean destlnations,Barbados' share of Caribbean tourists increases in this case. According to the econometric estimates, the effect of a 1I increase in the value of the £ sterling is to increase the share of Barbados by approximately0.5%. Conversely, a 1% strengtheningof the US$ would reduce Barbados, share by the same amount.

1/ The detailed methodology and results of the empirical study are described in the Technical Annex. - 94 -

Fiaun Ly_-As ABUoS IN CMIXDDZ* TOURISM, EXTRNAL FACTORS

INDEX (toeo-looi

120

100(.

60

40

77/ - -7-. -/--.- -:- 7~----

0 - T v_T T 1_r 1974 1978 1982 1986 1989 Pereod

=Tourlst Share LI\NForelgn Income I JUK Exchange Rate

gurcet Barbados 8tatistical Office, Caribbean Tourism Organisation, International Finance statistice and mission estLmates.

Not.t Tourist share (measurec aB share of stayover arrivals) and foreign lncome as defined in Tuetnical Annex. UK exchange rate measures the ratio £/USS.

4.60 Another quantitatively Lmportant external factor is the level of real income in the countries where tourism originates from. While an increase in real income in these countries will raise the absolute levels of demand for Barbados' tourism, it can, in principle, have a positive or negative effect on the shlir of Barbados in Caribbean tonrlsm depending on the differences in the income elasticlties of touriLm of the countries of origln and the different locational preferences among tourists (see Technical Annex). The empirical analysis shows that the shar2 of Barbados in Caribbean tourism tends to decrease when lncome ln the tourist originating countrLes increases, which implies that the income elastlcity for touriom to the other destinatLons is higher than to Barbadoe. An increase of real income by 1% in the major tourLm originating countries reduces the share of Barbados tourism by about - 95 -

0.9%. Figures IV-l and IV-2 show the trends of Barbados' share in a sample of major Caribbean comBipetitorsand the trends in these external and domestic cost factors respectively.J'

4.61 Between 1982 and 1989, Barbados' share of tourist arrivals in the sample of major Caribbean competitors used in the econometric study fell by 24%. While external factors are statistically significant and are important in explaining the changes in Barbados' share of Caribbean tourism, they moved in such a way as to partially offset one another. From 1982 to 1989, the £ sterling rose by about 7% against the dollar. Because Barbados is a destination of choice for Europeans, especially British, the favorable exchange rate led to a rise of about 3.5% in Barbados' share of tourism over the period. Conversely, the 18% rise in real income of major tourist originating countries led to a fall of 16% in Barbados' share throughout the 1982-89 period. Thus, the net negative effect of the external factors explains about one half of the observed loss of share of Barbados, that is, 12.5 points out of the 24 percentage point total loss.

4.62 The analysis also suggests that domestic cost factors in Barbados relative to Barbados' major Caribbean competitors tend to explain most of the tourism share losses. During the period 1982-89, the domestic cost of Barbados relative to its major Caribbean competitors increased by approximately 15%. This increasing relative cost trend of Barbados is not peculiar to the 1982-89 period; it has, in fact, clearly been evident over the whole period of analysis, 1974-89. The econometric estimates indicate that the effect of a 1% increase in the relative dollar cost-of-living in Barbados vis-a-vis the sample of Caribbean competitors is to decrease Barbados' share by about 1.6%. Hence, the 15% increase of the relative dollar cost-of-living in Barbados during 1982-89 has induced a 23% fall of its share in Caribbean tourism. That is, the relative cost-of-living increase in Barbados is the key factor explaining the fall of Barbados' competitiveness in the Caribbean.W The policy implications of these results are quite clear. If Barbados wants to increase its tourism competitiveness in the Caribbean region, it will have to reverse the process of rising domestic costs vis-&-vis its major Caribbean competitors.

32/ The sample of major Caribbean competitors of Barbados used in the study includes: Jamaica, Dominican Republic, Bahamas, Bermrda, St. Lucia and the Cayman Islands. It accounts for an average of about 60% of the total Caribbean market for the period 1974-89.

23/ The effects of other variables included in the estimation are discussed in the Technical Annex. - 96 -

Za&S.Jla2 BABRSADSIN CARIBEAN TOURXSN, DOMSTXC COST PaCTORS

140

120

80

40

20 ,'7,?,7 , ; /+~~~~~~--- /;f--f - - -,--._7f_. 0 ', r-' r-'- z '/ '- r _1--r 1974 1978 1982 1986 1989 INDEX (198O.-¶OO

Tourist Share Ll Domestic Cost

Sources Barbados StatisticalOffice, Caribbean Tourism Organizations XnternationalFinance Statisticsand mission estimates.

Nctas Tourist share (measuredas share of stayover arrivals) and domestic cost factors as defined in the Technical Annex.

ProLgt

4.63 In splte of the dynamic performanceof tourism in recent years, there is cause for concern regarding the prospects for the sector. Since 1985, Barbados has continued losing its market share of overall tourism in the reglon, falling from 4.5% in 1985 to 4.3% in 1989. Caribbean arrivals increased by 36% over 1985-89. but Barbados posted a 28% increase during the perLod. What is more, a slow reduction of total bed capacity since the mid- 1980s reflects the stagnation of investment in the sector, which began in the early 1980s.

4.64 The near term prospects for renewed investment in the island's tourism sector are not at all favorable. There is a pervasive perception by current and potential investors that tourism investment incencives offered by the government are not transparentand that they are subject to excessive adminlstrativedlicretion in their application. Furthermore,as shown above, profitabliltyin the industry has been squeezed, and given the lack of transparency of the incentive structure (especiallythe trade regime) and the recent shift of taxation towards indirect taxes, it is hard to assess either - 97 -

the degree of antl-exportbLas the Lndustry li facLng or the level of tan burden of the sector as compared wlth other sectors ln the economy. Since 1988, the provi3Lionsof the Hotel Alds Act of 1967. whlch exempts capital items for new hotels from lmport duties, was extended to the refurbLihingof exlstlng accommodatLons(though coverlng a lese extensive 1Lst of ltems). Nevertheless, the system ls not automatcls it le limited strLitly to the import duty (not the stamp duty nor the consumptlontax), and even in its recently extended form, lt is not extenslve enough to compeneate for the overall effects of high lmport dutles and quantitatlverestrLctions on the tourism lnduetry.

4.65 The lose of tourlem's competLtLveness,both at home and abroad, promiess serious dlfflcultiesahead. The lose of external competitiveness durlng the 1980. was largely due to a fall ln domestic profltabillityof the sector ln ralation to other sectors in the economy, a process which started towards the late 1970s and contlnueddurlng the 1980s. Thle relative lose put the sector ln an lnferlor posltlon to attract domestlc resources, thus, decreasing lts capacity to expand productivltyand gradually deteriorating its capital stock. This in turn further increasedthe cost of tourism relative to the rest of the Caribbean countrles. DurLng the early 1980s, this lnltlal loss of internal competLtiveness,combined with unfavorableexternal factors, led to a continuous fall in lnternationalcompetitiveness throughout the decade. The reversal of the negative external factors benefltted Barbados over the last flve years, but thle improvementcould not offset the underlylng process of deterioration.

4.66 As of 1991, the only way for the touriem sector of Barba Ms to recover internationalcompetLtiveness is through a substantlal impr -nt of the relative profltabliltyof tourlem within the economy. Thli wlll ..iire the implementationof consistent fiscal, monetary, wage and trade pollcies to reduce relatlve prices of non-tradeablesand reverse the process of rising domestic (USS adjusted) costs vis-&-vis major Carlbbean competLtors. Barbados cannot continue to rely on pi_cemeal Lacentivesto offset the distortions stemming from the current flical deflcit and the current trade regime. Only a major policy effort wlll ellow Barbados to reverse the downward slide of low internal and external competitivenessand reduce its increased vulnerabllity to exogenous shocks.

D. InteonationalBusine@s and Financial Services

4.67 The internatlonalbusiness and flnancial services sector comprises companies that are registered and located in Barbados, but do not sell their services locally. This includes offshore banks, management companies, exempt insurance companles, foreign sales corporations, and Lnternational business companies. The number of such companies has grown from 449 in 1986 to 1,238 ln 1989. Taxes and license fees reached BDS$15.6 million in 1989. and estimates of the total contributionto the economy range from BDS$50 to BDS$100 milllon. - 98 -

gable XYZ-212 I3NTR3NUTONAL W SZBUS AND FINANCIAL SECTOR INDICAroRS& 1986-89

1986 1987 1988 1989

Corporatlon Taxes (BDS$ Million) 3.8 8.0 10.7 13.7 Offshore Banks 0.8 1.0 0.4 0.6 International Business Companies 3.0 7.0 10.3 13.1

Annual Licenses (BDS$ Million) 0.8 1.4 1.7 1.9 Foreign Sales Corporations 0.3 0.3 0.4 0.5 Fxempt Insurance Companies 0.5 1.1 1.3 1.4

Number of ComDanies 449 680 966 1.238 Offshore Banks 3 4 5 9 International Business Companies3/ 148 260 439 599 Foreign Sales Corporations 252 279 330 409 Exempt Insurance 42 108 153 176 Management Companies 4 29 39 45 a/ Number of companies incorporated since 1985.

Sourcet Central Bank of Barbados; Performance '90, Ernst & Young.

4.68 These companies are attracted to Barbados by its location, educated work force, well-developed infrastructure, especially world-wide telecommunications facilities and a variety of special provisions that minimize tax and regulatory burdens. The nine offshore banks, for example, operate under a separate 1979 Offshore Banking Act (later amended) and are licensed by the Supervision Department of the Central Bank; combined, they hold assets valued at BDS$1.6 billion as of the end of 1989. They are eligible for fiscal incentives; exemption from withholding taxes of dividends, interest and fees; exemption from all taxes of foreign asset trusts for non- residents; exemption of the bank's activities from requirements of the Exchange Control Act; and special tax concessions to attract specially qualified persons not available in Barbados. Off-shore insurance and management companies pay no income or capital gains tax, are exempt from exchange control restrictions, and are eligible for tax concessions to attract specially qualified staff. International business companies (ICBs) pay special tax rates (trading and service companies 2.5% on net profits; investment companies at rates from 2.5% on net profits up to us$5 million, declining to 1 on profits exceeding US$15 million); are exempt from all taxes on imported capital, intermediate, or primary inputs; and have tax concessions to attract specialized staff. Foreign sales corporations (so designated by the U.S., with no CARICON shareholders) are exempt from all taAes in Barbados, as well as from Barbadian regulations and exchange control requirements. - 99 -

4.69 Some types of companies locating in Barbados enjoy a preferential status under Canadian and (until recently) U.S. law. For many of theme firms, data processing is at the centre of their activities and their requ$iremnts have led to the establishmentof local supporting activlties. For example, the Barbados Industrial DevelopmentCorporation reports that 1 out of ten firms that it is assasting is ln data processlng. In additLon, there has been an lncreased demand for local builness consultants,legal advlsers and accountants. The Government is now draftlng comprehensivelegLslation to consolLdate existLng rules on these companies and extend some addltlonal benefits. These would include (accordlngto the current draft of the legislation)allowing enclave manufacturlngindustries to be treated as lnternationalbusiness companles (IBCe), automatlcallyexemptlng IBCs from exchange control requlrements,and reducing the tax rate on trusts. - 100 -

EMMRIDN2PROEMS. OPPORTUNXTIESAND UCEAINTIES

Introducetion

5.1 As the decade of the 1990. unfolds, the formulationand implementationof development policy in Barbados will have to contend with a different economic and political environment abroad and at home than that obtaining during the flrsi.two and one-half decades of independence. The new environment presents a number of difficult problems, but also new opportunities. Among the salient changes abroad that are already beginning to affect Barbados are the followings

* the Gulf War has exerted a negatLve impact on the world economy and small -pen economies such as Barbados are particularly vulnerable to the income effects on their exports, especially tourism for which the income elasticity is comparativelyhigh, and which has also been adversely affected by security considerations.

* the shifting political and economic alignments ln Europe are likely to divert attention and development resources away from the Caribbean and more towards the newly democratic countries of Eastern and Central Europe;

* much more circumspect,risk averse internationalcapital markets, which apply stricter lending conditions and extract higher risk premiums on sovereign lending (See Chapter VI, Section 0, Access to External Finance)t and

* the advent of a Single European Market (SEM) in 1992.the creation of a North Amerlcan Free Trade Area, new trading rules under the GATT sponsored and the new enhanced political and economic cooperation arrangements within the CARICOM(the latter having been described in some detail in Chapter III. Section E.) will, taken together, provide a new and challengingtrading environment for Barbados.

5.2 At home, policy making will have to contend with increasedtensions between the private sector and the Government - hitherto marked by harmonious relations, the lncreased restlessness and disaffection of the black Barbadian - 101 -

community, the decline of private direct investment, and the reduced room for maneuver in pulicy making imposed by an increased external debt burden.

5.3 Some of these changes, of course, also offer opportunitiesto be exploitedg the new trading arrangements in Europe and North America are cases in point and these are explored further in this Chapter. However, among all the emerging problems, opportunities and uncertainties, there are two that demand urgent attention. One io the serious liquidity squeeze that has affected both the external and the public sector accountas the other is the growlng evidence of environmentaldegradation threateningthe natural resource base and economic lifeline of Barbados. These two concerns are also treated in greater detail below.

A. Liquidity Problem

5.4 The Barbadian economy began to encounter an external payments imbalance in 1989, an imbalancethat worsened in 1990. The problem first emerged in the capital account of the balance of payments, and was reflected in a sharp decline in the net inflow of long-term capital and a heavy lose in foreign exchange reserves. By the end of 1989, net liquid reserves had dropped to a level equivalent to only 2.5 weeks of imports. Unlike 1989, however, when balance of payments difficultieswere accompanied by a modest fiscal deficit of only 0.9% of GDP. the foreign exchange shortage in 1990 paralleled a marked deteriorationin the fiscal accounts, the deficit rising to an estimated 8.8% of GDP for the year. As of end-November 1990, all the evidence surroundingthe combined imbalances,pointed to a severe liquidity crisis facing Barbados. The external accounts were being covered by borrowed reserves and the fiscal deficit was being financed predominantlyby the Central Bank. In December 1990, the foreign exchange pressure was relieved a little by a drawdown of about BDS$26 million from a syndicated £30 million loan obtained in the London market, and further relief is expected from foreign exchange inflows associated with the high season for tourism which commenced on December 15, 1990.

5.5 The evidence is summarized in the following key indicators:

* gross internationalreserves as of the end of 1990 stood at a level equivalent only to about 3.5 weeks of imports and even this precarious level is due in considerablemeasure to the BD$26 million drawdown from the syndicated £ sterling loan secured in December 19901

* the overall fiscal deficit for calendar 1990 is estimated at an unsustainablelevel of 8.8% of GDP and not far below the record deficit of 10.7% posted in 1981 at the onset of the severe economic decline abroad and at home;

* about 62% of the fiscal deficit was covered by borrowing from the Central Sank - an unprecedenteddevelopment that has dire implicationsfor holding down the rate of price inflation in 1991 and protecting the value of the BDS$ abroad; - 102 -

* the GDP growth rate for 1990 is estimated to have fallen by about 3.5%;

* the debt servLce burden for 1990 rose to BD$300 mllion, representing25% of export earnlngs; and

* of all the sectors, tourism seems to have been most severely affected with a fall ln tourlst arrlvals of about 8% for 1990 and because of the Gulf War, arrLvals are lagging at an estimated 7% below the rate expected for the 1991 tourlsm hlgh-season;

* manufacturingproduction declined by 3% in 1990, while export earnings remalned at modest levels.

5.6 The sharp deterloratlonin the fiscal accounts ln 1990 stemmed from a rapid expansion in government expenditureson capital projects such as road construction and repairs and structures; they accounted for almost 40% of the lncreased spending. In addition the Government raised pensions and agreed to a two-year publlc sector wage settlement and a reclassificatLon scheme which altogether cost about BDS$52 million in 1990. The rate of wage lncrease ln the public sector, lt should be noted, is about 5% on average, and below the average cost of llving increasesof about 6% recorded ln FY1988 and FY1989 on which the settlement is based. If the regrading of civil service scales is included, the average wage lncrease would be very much hlgher, perhaps twice as much and well above the expected outcome of a 6% cost of living increase for 1990. Moreover, the subsldy programs ln sugar, transportation and houslng, have been maintained. On the revenue side, tax collectlonsdropped by almost 8 since both lmports and tourlem, on whlch revenue li hlghly dependent, were down ln 1990.

5.7 In the leadlng sector, tourism, three factors have contributed to the decline. One was the continued loss of competltivenessvis-a-vis other Caribbean destlnations; second was the failure to malntaln an actlve marketing and promotion program at the level of previous years; and third was the appreciation of the US$ earlier in 1990, which dlscouraged tourists from the UK. Early evidence from the shoulder season (November 15 - December 15). pointed to hotel occupancy rates in the luxury hotels close to 100% capacity, an experience which helped to inspire expectations for a good season. But that was before the outbreak of the Gulf War in mld-January, an event that has soured the optimLitic expectations. The expected inflow of foreign exchange wlth the new 1991 tourlst season - whatever the actual amount turns out to be - has to be set againet the cost of the substantialpublic sector wage settlementand regradlng outlay, whlch will add to the pressure on imports and consequentlyon scarce foreign exchange. An exacerbatingclaim on foreign exchange resources is the very large amortliation payments on forelgn debt due in 1991.

5.8 Sooner rather than later, the Government needs to take measures to drastLcally reduce, lf not eliminate, the large and unsustainable fiscal deficit and rebulld foreign exchange reserves to the safer level of say six weeks and ultimatelyto three months of lmports. In respect of the former, it li certaLn to require measures to curtall current expendltures and postpone lower priorlty capital projects; and even though the revenue take is already high at close to 30% as of 1990, eliminatir.g the deficit will likely require - 103 -

an increase in taxes, perhaps along the lines of a temporary surcharge. In respect of the reserve buLld up, most of the burden of adjustmentwill have to fall on reducing the level of public sector induced imports, since a signLficantexpansion of exports ln the short-run is not to be expected, given the need to restore competitivenessin that activity sector, the recession in the U.S. and the Gulf 1.rs adverse impact on tourism. Securing balance of payments financing from one or other of the internationalfinancial institutionsand reschedulingearly maturing bilateral and commercial debt, could help mitigate the worst features of the adjustment process.

5.9 Failure to take early correctivemeasures entails the risks of serious inflation and the price distortionsthat would engender; higher interest rates and crowding out the private sector from access to credit; increasing pressure on the exchange rate that could force an involuntary adjustment;and an increase in the already high rate of unemployment.

5.10 The Government has recognized the seriousnessof the deteriorating economic situation in Barbados, but in light of the January 22nd elections was understandablyreluctant to take any corrective policies before that date. As a result of the balloting on January 22, the Government of the Democratic Labor Party has been given a renewed mandate. on April 2, 1991, the Government introduced the FY1991/92 budget. It bases the fiscal adjustment on new revenue measures which increase the already heavy tax burden of the Barbadian economy to 34% of GDP, without substantiallyaddressing the main distortions of the tax structure. Furthermore, the budget does not lntroduce the expenditure reduction measures needed to improve Barbados" external competitiveness.

3. DxLrmetaaLttionY

5.11 There is by now sufficient evidence to confirm that Barbados is facing a serious environmental problem. The results from intensified monitoring and a range of scientific studies all point to the degradation of the marine ecosystem, comprising an interrelatednetwork of reefs, near-shore fisheries, beaches and the coast. The sources of the degradation include land based pollution - soil erosion, sewage effluent, and liquid and solid wastes from households, hotels and commercial activities. Oil slicks, cruise and cargo boat waste are major sources of marine pollution. Since the main economic activities in Barbados depend to an unusual extent on natural resource exploitation.environmental degradation at the current rate will soon, if it has not already, reduce the output and employment generating capacity of the Barbadian economy. It is a matter of urgent concern.

j/ The following discussion of environmentalissues draws extensively on an "EnvironmentalIssues Paper" on Barbados prepared by Doreen S. Crompton, Principal EnvironmentalSpecialist in the EnvironmentDivision, Technical Department,Latin America and the Caribbean Region, World Bank. Valuable materials were also made available through the offices of Mr. Edward Agostini, by the Caribbean Division of the Inter-American Development Bank. - 104 -

5.12 The geol2gx of Barbados helps an understandingof the environmental problem it faces. Barbados was formed some 70 million yearo ago by sedimentary depoeits of shales, sands, clays and conglomeratesdeposited in a shallow sea. About 85% of the island's surface area is now capped with coral, generally varying in thickness between 70 and 300 feet. Underlying the coral is an imperviousotratum of ocean formation,now consistingmainly of clays and sandstone. In the remaining 15% of the island natural and man-made erosion has removed the coral and the oceanic formationoutcrops at the surface. This exceptional interior highland region - the Scotland District - reaches its highest point of 1100 feet in the north east, from which the land falls steeply for hundreds of feet to the sea. The Lentral and southern areas of Barbados consist of lowlands with few sharp topographical inclines. The coral deposition has created a series of porous terraces from 5 to 100 feet thick parallel to the existing shore line on tho northern, western and southern sides of the island. Both the soil and the limestone rocks in these regions are relativelypermeable so that surface water sinks through the coral along the impermeableclay stratum towards the sea, or into sheet water reservoirsthat bound the entire west and south coasts of the island.

5.13 The vegetaton of Barbados has changed radically since it was colonized in 1627. Abundant forest resources were reduced to scattered patches of woodland a century later. There are remnants of natural forests found today, but these resources are no longer used for firewood and timber, and new plantings are designed mainly for soil conservationand windbreaks. Virtually all the island's mangrove swamps -- nature's filter system and fish breeding area - have been destroyed for touriem and residential development, road construction,canalization of the ConstitutionRiver in Bridgetown in the 1950s and the enlargementof the BridgetownHarbour. This has contributed to the degradationof the coral reefs that fringe the west and south shores and on their fish life.

5.16, Wildlife in Barbados is not very extensive because of a lack of habitat. With the decrease in natural predators and the increase in waste, however, the rodent population in Barbados thrived. Reptiles include a few snakes and lizards. Hawkebillsare the only turtles that nest regularly in Barbados, though the endangered leatherbackhas been sighted. The Barbados Primate Research Centre, with assistance from CIDA, has funded a Wildlife Reserve, as a sanctuary for the green monkey which was imported into Barbados from West Africa some 350 years ago. Birdlife is an exception with 19 species identified,excluding birds of passage.

5.15 Land availability is a major constraint in Barbados. The pressure on land is reflected in a density of 580 persons per km2. The island's population and its tourism and commercial activitiesare concentratedmainly on the west and south coasts, making this fragile coastal zone area one of the most densely populated in the world. As noted above in the discussin of agrtculture,the decline in returns on investmentin sugarcane has led to a reduction in the amount of land under cultivationand to diversificationto other export crops and to food crops for import substitution. The diversificationout of sugar, which is among the best soil retention crops, corstitutesa threat to increased soil erosion. The substituted crops need special attention to prevent soil erosion. - 105 -

5.16 The virtually uninhabited Scotland District occupies one-seventh of the island. This area is subject to critical land as well as soil erosion for geological reasons, but these have been exacerbatedby clearing of natural cover for agricultureand by inappropriatemeasures to reduce infiltrationon slopes which have, in fact, accentuatedlandslides, washoute and rockfalls. The serious erosion, which regularlywashes out roads in the area, has not been contained by erection of dame, constructionof drainage systems and afforestation.

5.17 Barbados has virtually no ourf g,-watr, but is relatively well endowed with aroundwatgr reserves which have in the past been of prime quality since the coral acts as a natural water filter. A study in 1977 of the adequacy of national water reserves under different demand scenarios projected growth in demand from 25.630 mgd in 1977 to 46.366 mgd in 2000. and that the surplus of 29.160 mgd (with not all resources fully developed) would be reduced to a surplus of 8.424 million Sallons per day in 2000Y The basic assumptionsare believed to be still accurate, therefore, water supplies should be adequate if the Scotland District continues to contribute to the groundwater supply. The entire population of Barbados is served with piped water, but in addition to publicly supplied water, there are private extractions for the operation of factoriesduring the sugarcane reaping season, for irrigation, swimming pools, golf courses, etc. Until 1987. hotels, apartments and guest housoe paid higher rates for water than either domestic or commercial users; in 1987, however, tariffs were reduced by the new government, and the tariff for hotels was cut by nearly half, to the same level as commercial users. The protection of water resources is Barbados' major health and environmentalpriority, and a review of the demand assumptions of the Stanley and Associates Study will be required as economic activities expand.

5.18 Mineral1Resources are limited to oil and gas reserves which Barbados has begun to exploit in recent years. Natural gas, one of the most environmentallybenign sources of ffen. is well supplementedby solar, which many households use to heat water.

5.19 Air qalitv in Barbados is good, largely because of the beneficial trade winds that sweep the island. One air pollution problem stems from the oil refinery situated next to the Hilton Hotel on Needhams Pt., St. Michaels. The refinery releases noxious fumes which are not readily dissipated by the trade winds. On occasion, the skies over Barbados are dulled by Saharan sand clouds.

5.20 The coata is Barbados' most important natural resource. As defined by Dr. G. Cambers , it consists of a system comprising three interrelatedsub-systemst the offshore zone, the beach, and the adjoining coastal lands. Because of the porosity of the coastal lands, eroded soil that combines fertilizer and pesticide, sewage and household and municipal wastes, and solid waste dumped on land, in gullies or in suck wells, are transported

T/The study was prepared by Stanley Associatesof canada, 1977.

./ Overview of Coastal Zone Management in the CARICOM Countries by Dr. G. Cambers, paper prepared for the World Bank, March 1990. - 106 -

to the freshwater supply and can contaminategroundwater and near-shore waters. Furthermore, the increase in tourist accommodationhas not been accompL?ied by adequate infrastructure. Some of the larger hotels have treatment plants, but not all are well maintained; in numerous cases, sewage outfall pipes for treated and untreated sewage have been placed too near the shore and also lack maintenance and are known to leak. Private houses use septic tanks, suck wells and pit latrines. Although Barbados has strict building and dumping codes that establish protected areas around the groundwater reserves, the tremendous increase in solid, liquid, toxic and hazardous wastes hae overwhelmedexisting disposal eysteme and has led to regular violations of the restrictivecodes.

5.21 oil spills, dumping of waste around the island from the large number of cruise ships and cargo boats that visit Barbados, contribute to the pollution of the seas around Barbados.

5.22 This land- and marine- based pollution is responsible for the serious degradationof the quality of the near-shore waters along the west and south shores. The increase in nitrates, phosphates and particulates in near- shore waters has stimulated aquatic algae growth, which both directly smothers the growing coral or blocks the growth-giving sunlight from penetrating the water to reach the coral. A 7-mile long reef, Dottin Reef in Folkestone Park on the west coast, is designated as a marine park. However, it lies in the middle of a recreationalarea for local residents, though designated for research and conservation. Furthermore,the water is seriously polluted and the reef, a mile from the shore, appears to be dead. Tentative estimates suggest that half the reefs that fringe the west coast are dead, and the laboratory conditions under which they could be resuscitatedare unlikely to be obtained in nature.

5.23 In a far-reachingstudy of the effects of water pollution on reef- building corals, fourteen environmentalvariables were monitored at seven locations along the west coast of Barbados on a weekly basis over a one-year period in 1981-1982Y Drawing on comparable monitoring studies prepared by other researchersbeginning in 1969, changes in water quality over time were also measured. The study defined pollution (more technically,eutrophication) "... as a combined function of nutrient enrichment, increased sedimentation and the introductionof toxins related directly and/or indirectly to human activities."2 The findings can be susmmarizedas follows:

* the physical, chemical and biological data point to tr.enegative correlation between coral reef growth and high concentrationsof suspended particulatematter (SPM), the latter being used to i/ See Tomascik, T. and Sander, F. "Effects of Butrophicationon Reef-Building Corals", Marine Biology. issues 87/1985, and 94/1987.

J All three elements of pollution create imbalances in nature in one or more ways. For example, nutrient enrichment can lead, through intermediate steps to the excess consumptionof available oxygen, thereby denying aquatic flora and fauna the amounts needed for their growth and survival. Sedimentationcan smother and toxins can poison aquatic life. Finally. sunlight penetration is blocked by excessive amounts of suspended solids. - 107 -

represent a larger number of environmentalvariables masuring water qualityt

* over the period since 1969, water quallty has deteriorated dramatically (SPM concentrationsincreased by 555% and chlorophyll concentrationsby 318%) with the result that the growth rates of corals bhve fallen thus contrlbutlngto accelerateddegradation in the marise ecosystem;

* the degree of water quality pollution is greatest in the south west area around Bridgetown and Spring Gardens and decreases towards the north west coastal areas of Sandridge and Greensleeveul and

* the deteriorationof the water quality over the decade of the 1970. coincided with the constructionof the tsland's power plant (near the Bridgetown and Spring Gardens monitoring stations) and a large tourist complex (near a monitoring station at the mid-point of the west coast)* thus, supporting the findlng that the deteriorationof water quality, and hence, reduced coral growth is due to human activities and not to natural processes.

5.24 Even with these benchmarks tracing changes in the environmental condition, it is difficult to quantify the economic costs of the degradation of the marine ecosystem. What is more certain, however, is that unchecked, the costs of environmental degradationwill increasinglyimpinge adversely on the tourism sector. In addition, fish and marine organisms have been lost or are diminishing with direct and indirect consequencesfor the marine food chain and for reduced fisheries catch in the nearshore area; and without growth, reefs disintegrateand no longer act as a wave energy barrier to prevent, or at least moderate, beach and coastal erosion.

5.25 The loss of the mangroves and natural beach vegetation ie readily observable and beach erosion in some localities has reached serious proportions. Baseline data for monitoring are not yet available but informed scientific estimates place the erosion rate at 0.3 m/yr on the west coast beaches and 0.2 m/yr on the south coast beaches. This erosion has already imposed economic losses on some hotel and private facilities and structures that were poorly sited, and threatens more damage to existing public infrastructureand private tourism structures. Not all the causes of beach erosion in Barbados are locally man-made; the adverse affects of sea level rise as a result of global warming is increasinglybeing confirmed by experts.

5.26 Fish resources are also threatened by marine pollution. Reef and seabed deteriorationhave contributedto the decline of near-shore resources. The off shore reef habitat, howevsr, remains uncontaminatedby pollutants to date. Harvesting restrictionawere imposed for a time on the diminishing supply of sea-urchin eggs, a popular local food. There are a number of studies of the fish populations in Barbadian waters underway. Their findings will help assess the feasibilityof the Government'saim to secure self- sufficiency in fish consumptionwithin the next decade.

5.27 The island is running out of landfills, and vehicles and other major 301id waste are often abandoned in gullies, quarries and in underpopulatedareas of the island, posing the danger of leaching from the - 108 -

landfills into the groundwater supply. There in a clear need for efficient systamsof dLsposal and cost-effectiverecycling of wastes, but a concrete p,an to address this growlng problem is still belng formulated. Furthermore, imported technologiesaro likely to be designed for a scale of operation beyond the relatively small sizeof Barbados. With a growing volume of degradable and ron-degradable waste - some of it toxic and hazardous - emanating from the tourism and industrlal sectors, its dleposal is one of the major environmental problem that Barbados faces.

5.28 Environmental management in Barbados has been characterized by instability. The locus and level of government reeponsibility for the environment has changed frequently; numerous government and non-government organizations are in charge of mcnitoring, mitigating and protecting; and mandates both overlap and leave gaps in functional responsibilities. The legislative framework is eqally fragmented. However, despite the apparent institutional disarray, individualswithin these institutionsmostly work collaboratively, simply because of the personal relationships that characterizeBarbados' mall professionalcommunlty. Nevertheless,because the pace of environmentaldegradation is faster than the pace of mitigation, formulationof long-term policies, streamliningand strengtheningof institutionsand their mandates, and the design of appropriate legislationand tougher regulation are urgent requirementsin Barbados for effective natural resource management.

5.29 With the abolitLon in June 1986 of the MinLetry of Tourism and the Environment, environmental responsibilities were dlitributed among the Ministries of Housing and Lands, Health and Agriculture. Housing and Lands received the focal environmentalportfolio for the second time in the decade (with Health holding it in 1984/85),but it was transferred to the Ministry of -uploymeait,Labour Relations and Community Development (ELRCD) in June 1987, where it remains. As a follow up to the Government-sponsored study on "An Institutional Framowork for Bnvironmental Plannlng and Management in Barbados,"ELRCD in August 1987, ln collaboration with other ministries and PAHO, organized the first "NatLonalConsultation on the Environment". It was opened by the Prime Minieter, Hon. L. Brskine Sandiford,and attended by policy and decision makers in ministries and in governmant and non-government organizations, and by interested individuals. The objective was to review the state of the environment in Barbados and suggest ways to improve its management. One recommendation calls for "A strong environmental management agency, preferably a Ministry of the Environment, suitably staffed and equipped ... to be entrusted wlth the task of planning and implementing the natlonal environmentalprogram and ... inter-linkingthe environment,health and development sectors." The idea of a strong central ministry was promoted in the study cLted earlier, and proposes that the central ministry combine the portfolios of science and technology, as well as environment. Selected departments currenitlyin other ministriesand statutory bodies would be integrated to form this central ministry. For the time being the following Lnstitutions carry envlronmental responsibilities.

5.30 The Ministry of ELRCD encompassesthree separate environmental entities, each with responsibilityfor environmentalplanning, monitoring and protecting natural resources:the EnvironmentalUnit; the Coastal Conservation Project Unit; and the National ConservationCommission. Each unit reports to the Permanent Secretary directly, so that a special effort has to be made to - 109 -

coordinate environmental activities among themselves. Of the three, the Coastal Conservation Project Unit (CCPU) is one of the most LnnovatLve tochnlcal envlronmental agencLes ln the Carlbbean. Establshed ln 1983 wlth the financlal support of the Inter-Amerlcan Development Bank (IDS), the CCPU is mandated to provlde a clear6r understandLng of the forces causLng beach and coastlLne erosion ln Barbados. The CCPU has thLrteen staff members, flve of wihom are profeseLonals and has the followLng responsLbilitLest monLtoring coastal eroslon, the adequacy of sea defenses, water quallty and coral reef degradatLon; research coverLng the above areas; development control for all new buildLngs in the coastal zone; lmplementing pllot projects to understand better coastal processes; and the provLiLon of advice to all other government agencies on coastal matters and public educatlon. It is also responsLble for LmplementLng a major feasLblilty and desLgn project, financed by the IDB and lnaugurated late last year. It wlll seek to Ldentify ways and means of controlllng Barbados serLous beach erosLon.

5.31 Despite the innovative nature of the CCPU and the good work lt appears to have done, there is a lack of permanence ln lts status, dependent as lt is on IDS fundLng. Moreover, sLnce there are no specifLc legal statutes that address lssues of beach erosLon and accretlon, the CCPU operates wlth and under a number of dlfferent acts such ans Beach Protectlon, Town and Country Planning, Publlc Work-, Barbados TerrLtorLal Waters, and Crown Lands. Furthermore, the CCPU must work closely with a number of land- or marine-based entLties and with some of these agencles it exercises a clearance and monltorlng function, wLthout a specLfic statute that establishes lts authorlty to do so. These hurdles have been mostly overcome because of personal and professional tLes between the professionals Lnvolved, but relatLons wlth some agencLes have not been effectLve.

5.32 The MLnLetry of Health is mainly concerned with public health issues related to the envlronment, such as: pestLeides control, water pollution and sewage dLsposal, solid waste disposal, pollutlon control, occupational health, rodent control, food hygLene and mosquito control. These functlons are handled by several dLfferent unlts Ln the mLnLstry and by a statutory body.

5.33 The Environmental Enoineering DivLsLon (BED) has the mandate for monitoring and controlling pollution, but is not now staffed or equLpped to handle thli job. Leachate sampling began again ln 1987 after a thlrteen-year gap caused by the failure of portable lab equlpment. Beach sampling is done only every two months and is llmited to BLological Oxygen Demand (BOD), suspended and volatlle solids, and total collform counts, wlth specifLc faecal collform counts conducted Lnfrequently. Swimming pool analysLs is lLmlted to the annual llcenslng LnspectLon. The llmlted capacity of BED, notwlthstandlng, the work lt actually does ls generally respected as of good quallty. To help Lt carry out lts responslbilltles, the BED contracts out part of lts work to the Bellalrs InstLtute - a private research lnetltute financed by the UWI and McGLll UnLveraLty. The Institute also does work for Lndividual hotels and LndustrLes.

5.34 The Sanitatlon Servlce Authority (SSA) is a statutory organlzatlon whlch has maln responsiblilty for the collectlon and dlsposal of solLd wastes in Barbados. In 1983, a pulverlzatlon plant was Lnstalled at St. George, but because of desLgn problems related to the hammer, lt has often broken down. - 110 -

The plant operates well below capacity, partly because of the frequent breakdown of the vehicles that collect and haul the refuse to the plant. Attempts to recycle waste from incineratLonand pulverLzatLonhave not been successfu,.so far. The SSA is very much aware of the dearth of landfill space ln Barbados and wlth the assLitanceof the IDB, li examinLng options for the treatment of solid wastes.

5.35 The Greater Bridgetown.West and South Coasts Sewerace Proiect Unlt was lnltlated ln 1977 wlth IDB financing,whlch also led to the creation of the Barbados Water and Sewage Authorlty. Constructionof a south coast sewerage system is now under way, with conslderabledebate surroundlngthe extent of the treatment requLred before dleposal through an outfall and over the locatlon and length of the outfall placement. The flnal stage will be the constructlonof a sewerage system for the west coast in 1994/95. The sewerage systems are designed to mLtlgate the pollution created by prevlous investments in tourism superstructureand resldentlalhoueing, as well as to servlce planned expanslons ln tourlsm capacity.

5.36 Mi$nletryof Houino and Lands lncorporatesthe Town and Country Planning Department, the maln agency left ln the minlitry that prevlously housed a number of envlronmental agencies. The Chief Town Planner preeides over the allocatlon of land between dlfferent uses, and establlshes constructlonstandards, as well as controllingthe siting of buildings at a dlstance from the hlgh water mark. The Town and Country Planning Department ie responsible for ensurlng that government agencles have approved relevant sectlons of planned developments. In additlon to approvlng physlcal plans prepared by others, the Department is responsible for production of physical plans for constructlonby governmentagencies. Currently, the Department works closely with the CCPU to ensure that new constructionis environmentally benign. The Department is evidently powerful and effective ir.liaising with other government agencies.

5.37 The sections of the MiniLtrv of Aariculture.Food & Fisheries concerned wlth envlronmentallesues aret the Pesticldes Control Board and the Soll ConservatlonUnlt. The latter unit has partlcularresponslbilltles for the Scotland Dietrict.

5.38 The Inter InetitutionalWorkina Groug on the Environmentwas set up in 1987 with three objectivess

(i) to coordinate activitiesrelated to the management of the environment;

(ii) to assess the environmental impacts of development activitiesand identify strategles to minimize them; and

(iii) to highlight priority environmentalproblems.

The Group comprises most of the agencles described above, but performs as a loose assoclationrather than a formal body.

5.39 Past PolLcie& and Practlees. As the above review indicates, environmentaldegradation has reached serious proportions throughoutthe island, but particularly in the coastal zone. As noted previously, thie is - ill -

one of the costs of Barbados' rapid growth experience. Could the cost have been avoided? The answer is yes, if environmentalconsiderations had been incorporatedinto development planning and policy formulation. As it was, sectoral policies were deficient in respect of environmentalconsiderations.

5.40 Tourism policies have favored the expansion of facilities without regard to the physical capacity of the island's coastal zone to accommodate such a rate of expansion a.d without a complementary increase in related infrastructure. The externalities of tourism expansion have been virtually ignored and their financial, let alone economic, costs - the lose of wetlands to roads and hotels; the need for sewage, liquid, solid, toxic and hazardous waste disposal systems; the demand for scarce water and energy resources; and the demand for land -- have rarely been attributed to the project. A differently designed tourism plant should have been better sited away from high-water marks, could have used alternative (albeit higher-priced) construction aggregates, and thus, avoided sandmining, and would not have been forced into construction of inappropriate sea defenses. Even today, incentives for tourism induce new investmentsand expansions, but not refurbishingand installationof remedial environmentalsystems.

5.41 Agriculturalpolicies have encouraged export commodities and mechanization,without sufficient concern for the island's shallow soil cover, soils that waterlog and compact, and unstable land formation in the Scotland District. Land tenure continues to be skewed towards small holders leading to over-intensivecultivation of land.

5.42 Industrialpromotion has focussed on export-led industries without so far requiring environmentalimpact assessmentswhich, among other things, would specify a plan on the use and disposal of toxic chemicals. Legislation to monitor pollution is outdated and is not designed to control the new industries that Barbados is attempting to attract.

5.43 Population policies have successfullyreduced the population growth rate to 0.5% per annum and is expected to fall to 0.1 % in 2030. However, with high unemployment (16%) and a highly literate population, as well as the closure of migration oppertunities.the need to create environmentallybenign job opportunitieson a large scale is imperative.

5.44 Conclusions. The analysis of environmental issues in Barbados leads to the incontrovertibleconclusion that the country's capacity to sustain economic growth is being eroded. Unfortunately,in many instances, the solutions are not yet known, and even the exact causes of the degradation are not fully understood. A concerted effort by the Government, the private sector and donors to address the priority areas of environmentaldegradation is a matter of utmost urgency. A priority action program is outlined in Chapter VI below. - 112 -

C. chanum i the Znt2rnationaLTradina 3nviron=e.ti'

5.45 In recent years, the internationaltrading system has been subjected to two opposing influences. on the one hand, the liberalizationof trading arrangements- eliminating artificialbarriers and quantitative restrictLonson trade and reducing tariff levels - has been widely accepted and under the auspices of the General Agreement on Tariffs and Trade (GATT) a number of Multilateral Trade Negotiation (MTN) roundse have led to agreements liberalizinginternational trade. The latest is the Uruguay Round, which is still in process of negotiation. On the other hand, there has been an acceleratedmovement on the part of some of the major world trading countries to form trading blocs. The European Community (EC), in pursuit of the goal of European Union, will establish a single European market (SEM) on December 31. 1992, which will allow the free movement of goods and services, capital and people among the 12 member states. On the other side of the Atlantic, the U.S. and Canada have formed a North American Free Trade Zone and is likely to join it in the near future. In the Pacific, is solidifying its trading relations with South Asian and Pacific countries into a de facto trading bloc, but without a formal agreement to this effect. These developments can have far reaching implicationsfor the CARICOM in general. and for Barbados, in particular. What cannot be predicted, however, is the precise netoutcome of these opposing forces on the direction and composition of Barbados' foreign trade.

5.46 Much the largest share of Barbados' merchandise exports in recent years, has come under one preferentialagreement or another - i.e., on the good intentions of other states. Almost 50% of Barbados, exports go to North American marketsl on average between 1986 and 1989, the U.S. took about 32% and Canada 15%. Bxports to these markets benefitted from trade preferences under the U.S. sugar quota, "807 imports" or its Caribbean Basin Initiative (CEI) and for Canada under its preferentialtrade scheme for the Commonwealth Caribbean (CARIBCAN). The EC accounts for about 14% of Barbados' annual average exports over the 1986-89 period, most of whic.i was sugar exports to the United Kingdom under a preferentialsugar protocol which sets a guaranteed volume at an annually negotiated (artificiallyhigh) price. The Loiu Convention, which provides 69 developing or least developed countries in Asia. the Caribbean and Africa (ACP) special trade preferences (duty free entry in principle) and development assistance,has not been fully exploited by Barbados nor the other CARICOMcountries, except for traditional agricultural products. In the 1970s and early 1980s. Barbados exported a sizeable volume of manufactured products to the EC, including electrical condensers, automatic data processing equipment and garments, but after 1980 this trend was reversed and sugar once again became the dominant export product.

5.47 The North American Free Trade Area does not entail any immediate change in the trade volume or pattern for Barbados vis-a-vis either the U.S.

h/ This section draws heavily on the papers presented and the discussion at the Senior Policy Seminar, "EC and the Caribbean in the 1990s", November 5- 8, Haywoods Resort, Barbados, and jointly sponsored by the Caribbean Development Bank and the Economic DevelopmentInstitute of the World Bank. - 113 -

or Canada, since the various preferentialagreements now in place (other than the U.S. sugar quota which is determined anew every year) still have a number of years to run. However, when and if Mexico adheres to the free trade area, and gains free entry to both northern markets, some of Barbados' non- traditional exports could be displaced. In any case, Barbados is familiar with the area and its markets, is reasonably well placed to monitor developmentswithin that trading bloc and alone, or together with other CARRCOM countries, has some bargaining power.

5.48 Europe is a dLfferent matter. The historical trading privileges it has had with the U.K. and through it, the EEC, are under threat and could be lost entirely once the EEC 1992 process gets underway. The saving feature of the EEC 1992 project is that it also offers new opportunitiesin line with Barbados' comparative advantage. The threat is the possible effective loss of the preferentialsugar market. Although the sugar protocol itself is an EEC- wide regime and hence not likely to be directly affected by the SEM, there are indirect threats of reducing the volume of sugar imports from the Caribbean and the import price level. First, each EC sugar importer (the U.K. for Barbados) negotiates the actual price in £ sterling of the quota volume of imports, and the traditlonal practice has been to set a price favorable to the exporter; indeed the U.K. provides Barbados with what is termed Monetary CompensationAmounts that entail a subsidy on sugar imports. If this system is altered, and there is a good chance that it wlll be, the actual price received by exporters would be reduced. Second, there is the chance that the EEC will eliminate the national sugar beet production quotas with the consequencethat Community prices will tend to drop, as will the prices to ACP sugar exporters. Third, the sugar content of soft drinks is likely to fall to the lowest Community standard with free internal trade, and this Lmplies a significantdrop in the demand for sugar and consequent pressure on a lower guaranteed prlce. Fourth, wlth the removal of internal borders and the completion of the Channel Tunnel, cross-border trade in sugar is bound to increase and competition in the higher priced U.K. market could very well pressure a fall in price. Given the fact that Barbados is one of the highest coet producers, any decline in the preferentialEEC price for one or more of the above reasons, would exacerbate further the economic difficultiesfaced by the sugar industry and threaten its viability even at current levels of subsidization. /

5.49 The EEC 1992 project also offers opportunities. Not only will it represent the largest trading "country" in the world, but the projections point to an acceleratedrate of lncome growth of one percentage point over the short-run and, depending on the nature of macroeconomicpolicies pursued, an

/ One of the issues being negotiated under the Uruguay MIT round, is the reduction of trade barriers and subsidies for agriculturalproducts. The negotiationson this question have reached an impasse and further discussions have been postponed to later in 1991. If these negotiations were to result in a reduction of agriculturalsubsidies and trade impediments in the industrial countries, the opened markets would benefit many producers, especially the more efficient producers. For sugar, Barbados would find it hard to compete with other CARICOM sugar producing countries, not to mention other regional low-cost producers such as the Dominican Republic and Cuba. - 114 -

additional 1 percentage point on the growth rate over the medLum- to longer- run. Unlike agricultural products, the creation of the BEX should have little or no effect on current or potential imports of manufactured goods from ACP countries,wlth the possible exception of textiles and clothing. And the prospective increase in EBC lncomes augurs well for an Lncreased demand for international services and for tourism in particular. Barbados' growing offshore financial and business services and lts tourist industry would stand to benefit from such a development, especially if the expected formation of the SEM also leads to a rationalization in air transportation and a reduction in the cost of air travel outside the 33C. Provided Barbados can maintain competitivenessin tourlsm and other services, and perhaps regain it in some lines of light manufacturing,the BBC 1992 can turn out to be a boon for Barbadian economic development.

5.50 The Government of Barbados, joLntly with the private sector, would do well to begin to formulate, ln concert with the CARICOMand separately, a strategy and the tPctLcs to fully exploit these potential opportunities. The central operating principle in designing such a strategy is to recognize that Barbados' true and arowina comDarative advantage is in services and that early action should be taken to ensure increased access to EEC and North American service markets. - 115 -

POLICISB FMR SUSTAINED DEVELOPIMNT

6.1 Policy making in Barbados today takes place within an onvironment very different from that of the past. on the external front, Barbados faces increased competition from alternative Caribbean tourism destinations. uncertaintiesabout the emerging new or strengthenedtrading blocks and reduced availabilityof external financing. Domestically,Barbados faces serious short-run macroeconomic imbalances coupled with a greatly increased debt burden and structural deficiencies which have dampened private sector initiative, and endanger foreign exchange earning capacity and the future growth potential of the country.

A. Macroeconomic Policiex for adjustment

6.2 For most of the period since independence, Barbados' record of macroeconomic management has been very good. It has successfully maintained a fixed exchange rate vis-a-vis the US dollar with the support of complementary macroeonomicpolicies. The authoritiesmanaged to contain fiscal deficits within a range that could be financed internally and externally without difficulty, implementeda monetary policy that generated a tolerable rate of inflation compared to the U.S. and secured an increase in foreign exchange reserves in most years. However, throughout the decade of the 1980s, expansionary demand policies contributed to a progressive deterioration of Barbados' external competitivenesswhile increasingthe debt burden and dependency on external financing. Consequently,a sharp increase in the fiscal deficit in FY90/91 combined with reduced tourist inflows, resulted in wide imbalances in internal and external accounts that call for urgent stabilizationmeasures.

6.3 The adjustment measures required have to focus on the two main imbalances. The first is the need to sharply reverse the fiscal deficit in the public accounts and reduce the inordinately large volume of government borrowing from the Central Bank. in the current state of uncertainty, the reduction in the fiscal deficit is paramount. The second is the need to rebuild the foreign exchange reserve stock. These two lines of policy action are mutually supportive. A reduction in the fiscal deficit will reduce the pressure on imports, and hence, contribute to an increase in reserves. - 116 -

6.4 Reducing the fiscal deficit wlll require a major cut in expendituresof the order of 10% for FY1991/92. The main emphasis should be placed on reducing current expenditure levels, specificallythe wage bill. Consideration should also be given to a freeze on civil service hiring or even a cutback in the current high level of public sector employment, a postponementof the negotiated 3% across-the-boardincreaoe in civil service salaries for 1991, and the reduction of the subsidies provided in agriculture, housing and transport. Capital expendituresshould be cut or postponed in such a way as to protect the maintenanceof the existing capital stock and high priority economic and social infrastructure,and leave room for dealing with the environmentalproblem. In summary, the short-run stabilization program should focus on expenditure reduction measures which are at the same time consistent with the long-run objective of restoring Barbados' external competitiveness.

6.5 Current revenues are already high in Barbados and raising them further could have an adverse impact on incentives. But given the size of the deficit and the need to reduce absorption, it will be necessary to raise revenues in FY1991/92 through a combinationof an increase in the consumption tax on both domestic and foreign goods, and increases in personal and corporate income tax rates. If public expendituresand revenues levels can be restructuredalong the lines suggested here, it should be possible to restore a viable balance in the fiscal accounts by the end of PY1992/93. On the external side the Government will have to secure lines of credit, preferably from internationalfinancial agencies to provide balance of payments support, allow the replenishingof reserves and generally, to "lubricate"the adjustment process.

6.6 The new budget presented on April 2, 1991 introduced revenue measures to reduce the fiscal deficit. The Government has indicatedthat complementaryexpenditure reduction measures will be implementedto restore a sustainable balance in the fiscal and external payments accounts and to improve Barbados' competitiveness.

Be folicies to Maiatain ComnetitiveAeos

6.7 Barbados is a small open economy with a reduced domestic market, limited natural resources and heavily dependent on imports and the export of services. As such, the level of export competitivenessis crucial to maintaining external balance and sustained growth. International competitivenessin general relates to the efficiency of both the export and the import substitution sector, and refers to the ability of domestic agents that produce tradeable goods and services for export or the domestic market to compete with non-residentor internationalsuppliers for identical or substitutablegoods and services, on the basis of either price or quality or both. - 117 -

6.8 During the 1980e Barbados' external competitivenesswas severely weakened. Merchandise exports peaked in 1984 and have stagnated thereafter, as specific fiscal incentives and industrialpromotion policies proved insufficientto overcome the effect of macroeconomicpolicies which appreciatedthe real exchange rate, and the pervasive anti-export bias of the trade regime as a whole. Tourism has improved its performance over the last five years. mainly aided by the depreciationof the US dollar against European currencies, but has continued losing ground via-&-via its major Caribbean competitors.

6.9 Domestic cost factors have been at the root of the loss of internationalcompetitiveness of Barbados as prices increased faster than in the US and in major Caribbean competitors. Both macroeconomic imbalances and long-standing microeconomic distortions have contributed to this outcome. Expansionary demand management policies reinforced by wage pressures stemming from labor market distortions have resulted in increases in aggregate expenditure and in an appreciationof the real exchange rate vis-a-vis CarLbbean competitorsover time. Microeconomlcpolicies failed to correct labor market rigidities whlch have been a major factor underlylng the long-run trends of real wages. Moreover, trade and tax policies, through a complex set of lncentlves and government lnterventlonspromoted the development of an inefficient lmport-substltuting sector. To restore competitiveness to the economy ie a key challenge for Barbados over the next few years; it means first, addressing the macroeconomic imbalances,and second, the role of the market as a basic mechanLim of resource allocation by implementLng a more neutral economlc lncentlves framework. Thle also includes reexaminingthe functionlngof the bankLng and financlal sectorse

j/ A World Bank pre-appraisalmission which visLted Barbados' concurrently analyzed the functloningof the banking and flnanclal sectors and came to the following conclusions:

(i) the ceiling on the commercial bank average lending rate limits banks' flexlbilltyin prlcing loans depending on risk, liquldity, and transactioncosts. The ceillng rate on residential mortgages has deterred the growth of commercial.banks' lendlng to the houslng sector. The above two celilngs should be removed to lmprove the allocatlve effciLency of the banklng sector. Maximum lnterest rates under the Rate of Interest Act (e.g., 8% p.a. for over one year repayment terms) still blnd flnancial traneactlonsamong non- flnanclal lnstitutions,private Lndividualsand inotitutionsand thus, have impeded the developmentof a corporate bond market. The cellings under the Act which could also be an obstacle for flnancial restructurlngof enterprises should also be elimLnated;

(il) a sector specifLc credlt facllity at preferentialrates (8% p.a. for borrowers ln sugar, industry and tourLm; 7-9% for non sugar agriculture;and 10% for retailers) is available for commercial (continued...) - 118 -

Rxzhanse Rate Polio,

6.10 The fixed exchange rate system has clearly brought benefits to Barbadosl it provided a stable framework in which the economy was able to achieve an enviable growth record over more than two decades. Nevertheless, in the absence of a strong adjustment effort, the short-term balance of payment pressures discussed above as well as longer term equilibrium real exchange rate considerations might make the maintenance of the current nominal parity difficult. Given the fact that Barbados has had a fixed exchange rate since independence and the many advantages such a system provides, it is reasonable to assume that the Government will want to keep the current parity unchanged. It has to be recognized, however, that obtaining the real depreciationneeded to restore competitivenessto the economy without moving the nominal parity will require a sizeable reduction in nominal expenditure levels and a large degree of fiscal and wage restraint both in the public and private sectors. The political feasibilityof exercising such restraint is a crucial issue in this context, since it would entail an understandingby the

/(...continued) banks to refinance short-term loans (up to 270 days) to agriculture,industry, tourism, and retailers through the special discount facility. This facility, however, had not been extensively utilized by commercial banks, with the exception of the Barbados National Bank for its lending to the sugar industry, before the decline in excess liquidity in the banking sector in late 1989. As the liquidity support for commercial banks is provided through the short-termadvance (lender-of-last-resort) facility at penal rate and the Central Bank also manages the Industrial Credit Furd (a rediscountingscheme under which onlending rates to the final borrowers are set by financial intermediarieswith no ceiling restrictions),the special discount facility should be phased out or the interest subsidy element under this facility should be eliminated; and

(iii) the proposed new Financial InstitutionAct draws non-bank financial intermediaries(i.e., trust companies, finance companies, and other deposit taking companies) under a stronger regulatory umbrella and provides (and formalizes)more regulatory power to the Central Bank than under the existing regulatory framework. However, the proposed Act should be augmented by specific guidelines (referred to in the draft Act) on: (i) capital adequacy ratios to be applied to locally incorporatedbanks, trust and finance companies, and other deposit-takinginstitutions, (ii) procedures for risk- weighing of assets according to the Basle guidelines, and (iii) reporting requirementson loans, non-accrualof interest on overdue loans, and specific and/or general provisioning. - 119 -

Barbadian society that some reduction in real wage levels might be required, and an acquiescenceto the measures necessary for achieving itY

6.11 If. on the other hand, a political consensus to implement a far reaching minimal adjustmentprogram does not emerge, a nom. -l devaluation would instantaneouslyreduce the Government'sreal wage bill and the value of the public domestic debt service in terms of foreign Oxchange1 , as well as real wages in the private sector. Nevertheless,an discussed in Chapter IIY, nominal devaluation is far from guaranteeinga successful real depreciation. In the case of a small open economy such as Barbados where prices of exports and imports tend to be fixed in terms of foreign currency, a real devaluation requires that the prices of traded goods riLe relative to the prices of non-traded goods. In practical terms, a nominal devaluation will only work if money wages do not rise by the extent of the devaluation;and since the unemployment rate in Barbados is high. money wages might not rise proportionatelyto a nominal devaluation in the short run. Thus, a nominal devaluation could generate an incentive foirtradeable goods output to rise in the short run, possibly without a reduction in non-tradeable goods output if unemployed resources were to be used. If, on the other hand, labor market rigidities overwhelm the effect of unemployment and reduce the extent of the downward adjustment of real wages, and tight fiscal and monetary policies do not accompany the change of the nominal parity, the real impact of the nominal devaluation in the longer run would be eroded by internal wage and price movements, and the result would be simply a hLgher price level. As the experience of many countries has shown, nominal devaluationsare often followed by increased instabilityand inflationwhich can nullify the initial effects of the parity adjustment. Thus, the uncertain outcomes of the policy options described here pose difflcult choices for the Barbadian authorities.

Fiscal Policy

6.12 Fiscal policy affects competitivenessboth through the level as well as the compositionof expenditure. Given the fact that the non-tradeable component of public expenditure is higher than that of average national expenditure,an increase in public expenditure has a more than proportionate effect on real exchange rate appreciation. The way in which total public expenditure is financed also affects export competitiveness. The financing of the fiscal budget might be non-neutral,depending on the form and the sources of financing. For example, in the case of Barbados trade and consumption taxation impose a heavy anti-exportbias. Thus, reducing distortions stemming from the tax system should be a main goal of fiscal policy over the coming tJ In spite of rising unemployment,domestic real wages have remained steady through the decade and even posted gains over the last few years. tJ This could be especially relevant in Barbados since the wage bill and domestic debt interest payments comprise a high 50% of total Central Government expenditure. - 120 -

years. Similarly, the compositionof public expenditure can also have a varied impact on overall productivity. A well conceived public sector investmentprogram in education, heal.h, and infrastructurecan improve overall efficiency and "crowd in" private sector investment. Given Barbados' excellent record in providing high quality government services and infrastructurethe fiocwl adjustment program it must now undertake should be designed so as to protect these standards.

6.13 Within this broad guideline, expenditurepolicy should aim at a sizeable reduction of the public sector wage bill both through wage and employment policies. In the short run a salary freeze will need to be considered,and in the medium run, a ceiling on wage settlementsneeds to be implemented. This will reduce the public sector wage bill as well as inform the rest of the economy of the seriousnessof the adjustment effort needed on the wage front to enable Barbados to increase its external competitiveness through cost reduction measures. Employment levels in the public sector need to be carefully reviewed to streamline non-e3wentialmanpower and/or services with the reduction of public sector employment through attrition as a first step. As regards non-wage expenditure,the maintenance of existing capital stock should be protected while all low priority investmentprojects should be postponed.

6.14 Barbados has had no difficulty so far in '.ncreasingtax revenues over time, in spite of quite drastic changes in the tax structure, but the tax burden is reaching high levels by any standards. Broadening the personal income tax base or a wage tax can be considered as a transitory measure until more permanent expenditure reduction measures can be put in place. Nevertheless, the challenge for tax policy reforms in Barbados over the next few years will be to simplify the system and eliminate the distortionary effects of trade and consumption taxes (see the discussion of Trade Policy below). The Barbados tax system has also relied heavily on special provisions and exemptions,to partially compensate for allocative distortions introduced by the consumption and trade taxation. There are many regulationsaimed at providing incentives to specific activities and new investment. The system has progressivelybecome less transparent over time and it is difficult to assess the tax burden on different economic agents. Furthermore,the fact that many of theae special provisions are not automatic, but need to be applied for on a case-by-casebasis, makes tax administrationmore complex and costly and creates a degree of administrativediscretion which increases the distortions introduced by some of the tax provisions themselves. More broadly, enough anomalies have been created that a comprehensivereview of the tax system would be desirable, in particular if the trade reform is likely to result in loss of revenue. Another area to be addressed refers to raising revenues through privatizationof public assets and through full cost recovery in public utilities and services. - 121 -

6.15 To reverse the process of rising domestic costs against its Caribbean competitoresBarbados will have to place special emphasis on public an well as private sector wage restraint. Nominal wages in Barbados have closely followed the domestic CPI index. Nevertheless,to enhance external competitivenessunder the current exchange rate system domestic real wageo will have to fall. Given the moderate inflation levels in the world economy, sufficient depreciationof the real exchange rate by means of aggregate demand policies would probably require nominal wages and prices in Barbados to remain flat or actually to post a fall in nominal terms.

6.16 The Government does not have an articulatedwage policy, but the fact that public sector wage settlementsare taken as a guideline, if not a determinant,for wage settlementsin other sectors of the economy is a near equivalent to a powerful wage-administeringrole. Therefore, public sector wage restraint is a crucial element of the adjustment effort. As noted in Chapter III D, two unions - the NUPW and the BWU - cover almost all unionized workers. Given the high degree of market power of Barbados' unions it is crucial to secure their support for the program. It is universally agreed that the leadership has bargained responsiblyin the past, thus, there is every reason to expect that the unions, apprised of the severity of the situation, will understand the need for restrainingthe size of wage settlements in order to keep the current exchange rate system intact.

6.17 Besides the level of wages, a major labor market issue relates to other components of labor costs such as hirtng/firinglegislation, and increasing rigidity in union job descriptionswhich contribute to higher costs and to lower quality of services provided. These regulations also serve to impede labor mobility and the restructuringof the economy that the policy reforms are intended to set in train. Legally required severance payments are generally considered extremely high making firms reluctant to hire and imposing a crushing burden on firms when layoffs become necessary. Severance payment regulationsmake workers reluctant to switch jobs and employers to prefer to hire on a temporary basis and rotate their work force to avoid the liability. Workers fired for disciplinaryreasons are not eligible for severance pay, but virtually all such firings are challenged in court and the suits are generally won by the worker. Furthermore,the unemploymentbenefit in Barbados is relatively generous and reduces the incentive to actively search for another job, once a worker is 'Rid off. The national insurance scheme also needs to be reviewed from the standpoint of its impact on labor cost and mobility. Thue reduction of the financialburdens of employing labor (including severance pay and mandatory National Insurance contributions),a reduction of the unemploymentbenefit, and revising legislationaffecting dismissals are critical to reducing costs and increasing labor mobility.

6.18 In sum, wage restraint and the removal of labor market distortions are crucial to a successful adjustment effort. Moreover, these policies could also have positive efficiency effects on the economy and help reduce the high level of unemployment. Towards this end, it would also be desirable for the - 122 -

private sector take a more pro-active role in influencingthe curriculum of the secondary educational system so as to help ensure that its output responds better to the needs of the economy.

TradeZMiGZ

6.19 Trade taxes in Barbados are extremely complex and rely heavily on differentialtariff rate. an well as quantitativerestrictiono. In general terms, trade and consumption taxation has aimed at protecting the import- substituting manufacturing sector and has resulted in a high degree of anti- export bias and dispersion of effective protection levels across different sectors of the economy. Ultimately, it is the Barbad$an and tourist consumer and exporter who pays for this protection.

6.20 Thus, trade policy should aim mainly at substantially reducing the anti-exportbias of the trade regime by: a) reducing the protection of import-substitutingactivities, and ensuring that all exporters (including tourism and other services) have access to imported inputs on a free-trade basis; b) eliminating distortions arising from the system of fiscal incentives by phasing them out first for heavily protected import-substitutingactivities and then later, when they are no longer needed to offset the reduced level of protection, for other activities as well; c) making the necessary changes in the institutionalarrangements affecting the tradable sector (including Customs, BIDC, and BEPC) to ensure the most eZficient provision of export- and import-relatedservices.

6.21 The first step in trade policy reforms should be a rapid elimination of all non-tariff barriers (NTBs), including licensing requirements,prohibitions, negative lists, quotas, and minimum import prices which are administeredby the Ministry of Trade, Industry and Commerce. (Other licensing and inspectionrequirements for agriculturalproducts, drugs. and firearms,which are administeredby other Ministries for reasons related to health and security, would not be affected.) Eliminating the NTBs would give the system more transparencyand would signal the Government'. new policy direction to the private sector. NTBs would be replaced in at least some sectors by a surchargeover the CRT rate applicable for each sector and this surcharge would be gradually reduced.

6.22 The program would phase out the import duty exemptions and the fiscal incentives that are currentlygiven to firms irrespectiveof market (dcmesticor export), while preserving free trade status for exporters. The first part of this plan would be a staged phase-out of exemptions (now available to all "approved"and non-approvedfirms) on imported inputs and eventual introductionof a stamp tax on them to bring their total duty rates (tariffplus stamp duty) to approximately30 percent. (Exporterswould remain exempt from duties on inputs under the temporary admission or duty drawback schemes). ElLmination of exemptions would enhance government revenue and would make effective protection rates lower and more uniform across import- substitutingsubsectors. - 123 -

6.23 Now fiscal incentives (tax holidays, duty exemptions. etc.) currently given to all "approved" firms would not be granted to firms producing highly protected, import substituting products. In the reform program'. initial stages, exporters and firms producing import-substitute products with low protection would still be eligible for fiscal incentives to offset the trade regime's bias toward production of highly-protected products. But, as the bLas was reduced over the course of the reform program, these fiscal incentives would be phased out for even these firms since the emphasis of the tax system would be on improvingneutrality and on reducing "special" incentives.

C. Sectoral Policies for Sustaine Growth

aurs.ltr

6.24 The declining fortunes of agriculture can be attributed to the inability to compete with other activity sectors for labor, and to the rapid increase in the value of land for non-agriculturaluses; the decline in sugar was a'-sodue to declining yields in both the field and factory. What is more, within CARICOM. Barbados has been hard put to compete wLth other countries such as Guyana and Belize. which are better suited for agricultural pursuits. By April 1991. about three-fifthsof the way through the 1988-93 Plan perlod. there is little or no evidence that the Government's new recovery program -- with dlversificatlon as the major thrust -- is being effectively implemented. The obstacles to divereification are twofold. one is the fact that about 80% of the arable land is owned or controlled by the sugar interests. The other is the high level of subsidization which makes sugar production a more profitable line of agriculturalactivity than most others. Until land ownership and/or the incentive structure is changed, diversification of agriculturalproduction is problematic.

6.25 With the aging of the farm population and the failure of the sector to attract entrepreneursfrom the younger generation,agriculture appears to be heading for a continuing decline. Reversing this trend would entail enormous cost in terms of major investments, additional subsidies and protection. The cost would be difficult to justify. What seems a more realietic strategy is to aim for a smaller, leaner and more efficient sector, one which produces specialized tropical products for export and a range of items that effectively compete with imports for the tourist industry and one in which all land use decLisonswould incorporatetheir ecological impact as one of the dimensLons in the evaluation. It would also require a revLtalizationof the public institutionsengaged in promoting agricultural development.

6.26 For sugar, this would mean gearing down to a production target level of approxlmately 80,000 tons for the next few years, until the future structure of the lnternational sugar market and preferentialarrangements becomes clearer. At this level of output, Barbados should be able to satisfy the EEC preferential market requLrements plus local consumptlon plus specialty - 124 -

sugar products for export. Sven at this target level, and after cutting out the ecologically least suitable areas so as to reduce costs at the margln, it will be necessary to vlgorously Lmplement those elements of the Government's recovery program almed at reduclng sugar productioncosts and Lmproving effLciency. In thls respect, the Government has already begun to revamp the current ineffLcientcane prlcing polley based on prlce differentlals by ecologlcal zone to one based on sucrose content At the farm and factory levels, lncreasing ylelds and reduclng costs wlll also requlre:

* improving the use of herblcldes and fertillzers,cane stands, soil dralnage and soil compactlon, and controllingcane dlseases and pests Thli, ln turn will requlre lntenslve tralnlng by extension agents and others, directed at both the farm managers and labor to ensure proper soll and cro? managem-nt technLquesl

* Lncreasing the on-farm mechanLzatLon and lmprovlng the malntenance of existing farm eqplpment,but recognizLngthat the greatest single obstacle to increasingand improvLngmechanlcal processing is the proper preparation of sugar land; and

* reduclng the cost of processlng at the factory level through quipment upgrading and reflttlng ln the remalning factorles.

6.27 Beyond the next few years, the optlmal slze of the sugar industry and the level of government support will have to be reconaLdered. The impending Single European Market (sEM) ln 1992, the posslble LncorporatLoaof MexLco ln the North Amerlcan Free Trade Area and the ongoLng Uruguay Round negotlationson redueing agrlculturalsubsLdLeg are events that will almost certainly shape the futuro lnternatlonalsugar market Y Expert opinion holds that the preferences enjoyed by Barbados and the CARICOM more generally, are likely to be reduced substantially, if not elimlnated; and glven the hlgh cost of sugar productlon in Barbados (currently about US$0.25 a pound as compared wlth a world-wide average of US$0.14), lt is unlikely that the Barbados sugar Lndustry will be able to compete profltably ln a free world market even wlth fundamentalrestructurLng on the basli of new investmentsand with current levels of subsidy. There is the prospect, therefore,that

A/ At a recent Senlor Pollcy Seminar on the "EBC and the Carlbbean ln the 1990s", sponsoredby the CDB and EDI of the World Bank,and held ln Barbados November 5-8. 1990, trade analysts from the European Community, the ACP Secretariat and the World Bank were unanimous Ln the vlew that while the prospects for Carlbbean agrlculture in the 1992 SEM were very bleak, there were opportunitlesln manufacturlngand servLces that could be exploLted. The consensus among senlor CARICOM country offlcials was that whlle the provisionsof the Lome conventlonshould be explolted to the hllt, lt would be wLie not to count on continued special privileges for traditional products (partlcularlybananas and sugar), but rather move to diversLfy output lnto non-tradltlonalagrlculture, light manufactures and servLces. - 125 -

Barbados will have to give up sugar an a viable industry. In this event the came for re-examining the role of such agencies as BSIL, BADC, BMC, ATCO and even the Ministry of Agriculture and Fisheries itself would be very much strengthened.V

6.28 In respect of agriculturaldiversification in the future, a basic proposition that should guide any and all proposals for substitute viable opportunitiesto replace (or complement for a time) sugar is that any further alienation of "green land" should be evaluated in light of the environmental impact the new land use would have. ThLe means introducingmeasures that will require environmentalimpact studies am a standard procedure for large land transfers. Measures should also be introduced to deter the excessive use of fertilizers,herbicides and pesticides. Among the measures that seem especially relevant are: the permanent zoning of some parcels of land exclusively for parkland and recreationalpurposes; strict enforcement of land use regulationsby the Town Planning Board; and the treatment of capital gains from land sales as a trading gain and subjectingthem to the corporation tax.

6.29 Apart from the environmentaldimension, developing a diversificationprogram will require:

* establishingthe framework for cost-benefitevaluation of alternative crops in an open market trading system;

* Lncreasing the development of Lrrigable land for intensive cultivationof high value crops; and,

* developing routine research for crops such as yams, sweet potatoes, onions, carrots and tomatoes, and rLgorously re-examiningthe prospects for peanuts and Sea Island cotton from both the economic and ecological standpoint.

if A recent survey of world sugar policies describes the Lnterventions of governments - as is the case in Barbados - to protect producers and consumers from volatile sugar prices. It notes that "The average real price tof sugar) over the past 35 years (in 1985 values) is estimated at around US$ 0.16 per pound, and the average cost of production (worldwide) is estimated at around US$0.20 per pound. Because of the volatility of the world market, virtually all countries - even those exporting nations with low production costs - have attempted in some way to modify their domestic markets so as to insulate thelr producers from low prices. This protection has both compensated for, and sustained the long term excess of costs over export returns." Borrell, Brent and Duncan, Ronald C., "A Survey of the Costs of World Sugar Policies",Working Paper WPS 522, internationalEconomics Department,World Bank, October, 1990. The preferentialpricing and marketing arrangements"enjoyed" by Barbados in recent times, served to isolate producers from the extreme sugar price fluctuations. - 126 -

Inqk.tri

6.30 In the longer run, mr'ufacturLngwlll benefLt from the general trade pollcy reform propoeals outllned in Sectlon B above, i.e.. (a) ellmlnatlon of all NTB's deslgned to influence trade and replace them wlth a surcharge of 15% to 30%. to be phased out over time; (b) phase out import duty exemptlons and flscal incentlvesthat are given to firms lrrespectlveof market (domestlcor export). whlle preserving duty free access to imported inputs to all exporters, includlngtourlsm. Rates on imported lnputs other than to exporters would equal approximately30%, combinLng tarlff and stamp duty; and (c) phase out tax holldays for all firms.

6.31 These reforms would affect all sectors, includlng agrlculture. tourLim and constructlonas well as manufacturing. Understandably,their beneficial effect would emerge over the medium term, since in the short run, theee reforms will negatLvely affect the inefficlent import substltuting enterprises. The central policy thrust of these reforms is to eliminate the anti-export bias ln the current system and provide incentives for export oriented manufacturing (or at least reduce the dlslncentivecharacterlstic of the current system) and for the developmentof efflcient import substltutes. in addition, there are specific pollcy reform proposals relating to manufacturing.

6.32 Difficultieswith the Custom Service while moving goods lnto and out of Barbados are cited by virtually all manufacturing firms interviewed in a recent survey. A number of technical reconmendations to increase the efficiency of customs operatLon ln Barbadoe have been made by a consultant seconded from the Canadian Customs Service. Implementation of these institutional measures ls clearly an important complement to the trade reform and should be carried out in the first stage of the program.

6.33 Based on the conclusionsof a consultant's report and a Bank misslon's fLndings, it is highly llkely that certaln organlzatlonalchanges ln BIDC and BEPC would lead to more efficlent support for exportere and the manufacturing sector in general. one major current problem is that BIDC's role in building and rentLng factory space li costly and dlverte attention from its other roles. BIDC incurs large losses on its rentals not only because of its intended subeldy, but also because of lts high dellnquency rate, which li apparently due to the perception by its tenants that non- payment will not be punlehed. Furthermore, there does not seem to be any compelling reason why factory constructionshould be undertaken by the public sector ln dlrect competltlonwlth the private sector. Likewiee, BIDC's provision of marketing services for some handicraft firms gives it a role in an activlty that could easLly be handled by the prlvate sector. Flnally, BIDC and BEPC have increasLnglybeen drawn lnto performlng management consultancy servlces as a result of their attempts to provide individual flrm-level advice and support. It appears that thls kind of activity could be performed more efflciently by the private sector lf it were not being done free by BIDC and BEPC. wlth the advantage that these lnstltutlonscould then concentrate on their other roles. These other actlvlties-- which lnvolve collectlng and dLisemLnatinglnformation that ls not fLrm-specific- may be more efficiently undertaken by the publlc sector. aince they have characteristLcsof public goods. In additlon, relleving IIDC of its responsibilityfor factory constructlon and rental would eliminate a slgnlflcant fLical burden on the - 127 -

Government. The trade reform program in its first phase should include the development of an agreed action plan to divest BIDC of its actlvlties ln bulldlng and rentlng factorles and in dlrect marketing activitLes,and to limit BEPC to providing export-relatedgeneral market Lntelligence.

6.34 Trade reform along these lines will create export opportunitiesfor manufacturing firms in Barbados ln the longer term. In the short term, the reforms will squeeze profit levels in the sector as effective protectlon is reduced. Success of the strategy depends upon the ability and willingness of entrepreneursto shift product llnes and to seek new markets. Many small firms wlth limlted financial resources and poor management skills will go under. To facllitate their reorganizationand restructurlng,bankruptcy procedures should be improved along the line wlth recommendatlonsof the recent Maxwell Stamp study. However, adequate safeguards should also be introduced to avoid prolonglng the life of baescally non-viable enterprises. Successful flrms will experience productivLtygaine through the economies of scale achievable in penetratingexport markets, and employment prospects in these firms wlll expand. While it is imposslble to be pr3cLse. the net effect in the long term may turn out to be a manufacturing sector wlth roughly the same level of employment but internationallymuch more competltive, less susceptibleto the inevLtabledisruptions ln the CARICOM market, and less costly to local purchasers,especially the tourlit Lndustry.

Touris-

6.35 Throughout the 1970s and into the 1980. dynamic performance of the tourlsm sector has been the main source of growth of the Barbadlan economy. The growth of tourism since the mid-1980s, however, li mainly attrlbutableto the favorable effects of the depreciationof the US dollar and the preference of European tourists for Barbados. This favorable external circumstance masks a number of disturblng features affectlng the Barbados tourism industry.

3 When the recent increase of touriem activity in Barbados is evaluated relative to the Caribbean's performance, Barbados is shown to be losing its market share. With Caribbean arrivals increasing by 36% over 1985 - 1989, as compared to 28% for Barbados, Barbados' market share of overall tourism to the region, fell from a peak of 5.5% in 1980 to 4.3% ln 1989 .

* While other tourist countries in the region have increased investment and expanded capacity. Barbados' bed capacity has fallen. Furthermore,refurbishing Le laggLng so that on the whole the quality of accommodationsis deteriorating.

* Domestlc pollcies have resulted in a deteriorationof prlces of tradeables vs. non-tradeables,and hence, in a loss of domestic competitivenessof the tourism sector vis-&-vis other sectors of the economy. This in turn, has resulted in an Lncrease of relative prices vis-&-vis other Caribbean destinations. Labor market inflexibilityhas also had detrimentaleffects on the quality of tourism services. - 128 -

* As a result of theme policies, the Barbados' tourism sector ham increased its vulnerability to exogenous shockek in the absence of far reaching domestic adjustment efforts, a strengthening of the US$ would severely dampen Barbados tourism potential.

* CruLso ship activity has been very dynamic in recent years and arrivals have substantiallyincreased their share of Caribbean tourism. Nevertheless,cruise ship travel contributesonly a very small proportion of tourism expenditure,and, as a result of the lncreased perception of Barbados' as a costly destinationcruise ship passengers are reducing their expenditureon the island.

* The recently modified Hotel Aide Act has reduced the bias in the legislationagainst refurbishingof existing facilities as opposed to investing in new ones, but the remaining limited scopes of the present version still discriminates in favor of new buildings. Given the lack of investment in refurbishingin the sector in recent years. this bias could contribute to the deteriorationof the Barbados tourism product.

6.36 As already discussed in Chapter IV-C, domestic factors have been a critical factor determnilngthe loss of competitivenessof the Barbados tourism sector. Thus, the main focus of a strategy to promote tourism as well as improve overall efficiency in the economy will need to center on implementatLonof a conslitent package of macroeconomic,labor market and trade policy reforms to reduce the overvaluatLonof the RDS$, eliminate the anti-export bias and restore neutrality and simplicity to the tax structure (see Part B). Public sector expendltureon maintenance,roads and other tourism related infrastructurewill also play a key role in tourism performance over the next few years.

XgtornationalBusiness Saf Financial fervices

6.37 Thle is a small but rapidly growing industry with considerable potential for generating employment opportunities and tax revenues. As noted above, legislation is beLng prepared to codify existing rules and regulation and to provlde some additional benefits. Consideratlonshould also be given to improving the collection of informationon the structur'~and volume of transactions of the lndustry without, at the same time revealing sensitive information about any individual firm's business. In the final analysis, however, a large part of the industry is dependent on the decisione of third countries to permit offshore operation. of firms registered in their home country. In other words, Barbados is hostage to the propensitiesand political lnterests of foreign states. For example, a recent change in U.S. laws adversely affected offshore business in Barbados. The lesson of this experience is to continue to encourage offshore internationalbusiness and finance services, while recognizingthe evident risks involved. A more active interest ln exploring new opportunitiesin the SEM could be rewarding. ConeLderation should be given to a joint private-publicinitiative to open connection with potential European investors. - 129 -

D. Policies to Protect the Physlcal nviron*ont

6.38 Natural resources ln Barbados have been exploited with too little attention paid to their vulnerabilityand poselble destruction. Consequently, if the current rate of marine pollution continues; Lf groundwater resources are not protected; if soil erosion is not stabilized;and if appropriate technology is not developed soon for the benign dieposal of all types of wastes, the viabilLty of fisherles,touriem, and related service Lndustries and agriculturewould increasinglybe threatened as would the health and well being of all Barbadians. The process of environmentaldegradation is still reversible,but already constitutesa serious negative externalitywhich warrants intervention by the Government to correct it.

6.39 The Government'spolicy for environmentalprotection and conservatLon is articulated in the Barbados Development Plan, 1988-1993. The Plan calls for implementingmeasures to: establish an integratednational network of protected areas; develop national parks; establish a new institutionalenvironment for the environment,encompassing research, training and environmental legislation;and strengthen links with local non- governmental institutions,other Caribbean countries and as well as regional and internatlonalinstitutions to utilize fully the opportunities for cooperation and technical and financial assistance.

6.40 Among the internationalfinancial inetitutlonsthe IDB is taking a leading role in tackling environmentaldegradation in Barbados. It has been focusing on higl-priorityenvironmental projects in its lending program. It helped finance the now completed Bridgetown sewage system, is financing a similar project for the south coast and ultimately a final project on the west coast. The IDB plans also to support a solid waste disposal project, and continues to finance the innovativeCoastal ConservationProject Unit (CCPU).

6.41 Within the environmentalprogram enunciated by the Barbados Government, it is recommended that urgent consideration be given to the following actions;

e incorporate (through the appointmentof knowledgeablestaff) the environmental dimension in economic planning, all public investment decisions and in natural resource management;

* legislate a National EnvironmentalProtection Act that is forward looklng, provide a wide range of incentives as approprlate,and that has strong surveillanceand enforceable regulatory provisions covering a) the treatment and discharge (includingsiting and maintenance of outfall pipes) of sewage effluent by private hotels; b) the dumping of solid waste; c) the utilization of chemlcals in agriculture; and d) the importation,use and disposal of toxic chemLcals;

* to complement these controls, a system of LncentiveBthrough taxes and subsidies should be introduced,so as to encourage environmentallybenign decisions in the private sector; - I3O -

* strengthen (with staff, measuring equipment and independent laboratories) the monitoring of marlne and fresh water quallty and establih a bas-lLne data system for close tracking of changes;

* preserve the Scotland DLstrict because of lts attractlon to tourists and because it serves as a groundwater catchment area contributing one-fifth of Barbados' groundwater roserves;

* seek technical assistance from Lnternational or bilateral agencies on outfall pipe(s) placement for treated and untreated effluent - a major source of marlne pollutlon and reef destruction; seed money ohould be sought to finance networking,training, data base collection and informatlonexchange parties working ln thls area in the Caribbean;

* review existing physical planning rules and guidelines with a view to encouraging designs appropriateto a small island with limited land space and resources, prevent new hotel sitings too close to the beaches, and foster the design of sewage systems for small scale use; and

3 strengthen and formalize the Inter-institutionalCommittee to serve as an oversight body on the design and implementationof the environmentalprotectLon action program; it should be given the capacity for policy making and the technical review of projects and programs; the strengthenedCommittee is a preferred alternative to the creatiLn of a super minietry of the environment.

6.42 It is well to note a common problem faced by all small countries. viz., the unavailabilityof capital equipment and systems that are appropriate to their small-scaleneeds. In the environmentalfleld. e.g., currently avallable waste disposal systems are inappropriateto the needs of small island countries such as Barbados. It ia a general problem affecting other areas of economic actlvity.

B. access f Nxternal Fiauce

6.43 The public sector of Barbados is dominated by the Central Government whlch, in FY89/90, accounted for 90% of all current expenditures and two thirds of all capital expendltures. The flnanclng requirementsof the public sector are, therefore, determined principallyby the needs of the Central Government which, ln &ny case, acts as financial agent for the public sector as a whole.

6.44 It can be seen from the table below that, throughout the 19808. the Government has been able to self-financeonly a modest part of its capital expenditures from Lts current account surplus. While there have been considerableyear to year varlations,the current account surplus has typlcally accounted for about 10-20% of the capital program - leaving the bulk of financing requirementsto be met by borrowlng. - 131 -

ZQ11LYJ_a DARDAuoB - CUIT3AL oMONnEMOT FNANCRNO, 1980-819 (BDS$ million)

196o 1961 le2 1963 19"4 19s5 196 1967 it" 1969 1990 1991"

cagent Re*an. 420.9 446.6 46.1 545.9 566.9 622.1 658.0 700.1 619.0 1002.0 939.0 S65.0 Oaxent IMnd.1tute 371.6 442.0 461.5 466.2 532.6 609.5 642.0 701.3 757.0 U47.7 957.0 960.0 O.Afent sUrplua 49.3 4.4 24.6 $5.7 26.3 12.6 16.0 -1.2 62.0 154.$ -16.6 5.0 captal iturm 102.6 186.6 124.3 121.4 122.9 137.2 177.0 190.4 174.7 177.6 237.2 195.0 awinALt Omen -51.0 -162.1 -99.9 -67.4 -96.4 -110.5 -164.0 -19.6 -146.2 -26.0 -256.0 -190.0 ?nwucmm 51.0 162.1 99.9 67.4 95.4 119.5 164.0 169.$ 146.2 26.0 256.6 190.0 Domat1o 9.1 72.6 57.3 34.6 $7.6 4.3 32.5 57.7 21.6 12.8 264.2 216.9 Central Bank (Ibt) -6.7 21.9 26.6 -11.5 -15.4 -46.5 -41.6 -8.9 -28.4 24.0 159.7 128.9 Cmrotal Ranks (Not) 1S.1 20.9 21.2 -0.7 $7.1 1.9 48.1 56.9 37.2 -52.1 75.2 75.0 Otbr (not) 2.7 30.0 9.5 46.3 $0.1 44.9 24.0 9.7 12.6 40.9 29.3 15.0 Poreign 51.6 94.6 26.7 59.4 16.8 101.7 107.0 140.3 77.5 27.0 -2.5 -28.9 Caital Sbketa (Gabss) 40.0 62.7 - 34.9 - 68.6 105.6 120.0 60.4 50.0 74.4 61.0 Pioject in (aloe.) 22.6 45.6 34.3 40.6 42.6 40.0 40.0 66.0 48.6 26.8 65.5 60.0 oxtizAtion -10.8 -13.7 -7.6 -16.3 -295.3 -27.5 -38.0 -47.7 -49.7 -49.6 -142.4 -169.9 other (n..i.) -9.9 14.7 15.9 -6.6 20.6 13.5 23.9 -7.6 47.1 -13.8 -2.9 0.0

* cland year basis. PProjected. ouos Central Dank of 3arsoa.

6.45 Over the 1980s. as a whole domestic sources accounted for about one third of the Government's borrowing - mostly the commercial banks and the National Insurance Fund. The remaining two thirds of the Government's requirements was foreign-financed. This represented a significant change of strategy compared with the 1970. when the ratio of domestic to foreign financing was the reverse.

6.46 The most significant difference between the 1970e and the 1980. as far as Barbados' external financing strategy is concerned, relates to an increasing diversity in the sources of finance. Whereas in the 1970s. most of the foreign finance raised by the Government was project related, the Government became much more active in the capital markets in the 19809 and was successful in obtaining significantamounts of non-project finance. The Eurodollar market, the UK market and, later on, the Japanese market were particularly important sources. It was these funds (on top of a continued growth in project finance) that enabled the Government to sustain a substantially larger public expenditure program in the 1980s.

6.47 In the early 1980. the UK was a major source of capital market finance for Barbados. In addltlon, the nearby oil exportlng countries of Trlnidad and Tobago and took specLal initLativesin the Caribbean region from which Barbados was able to benefit. This became particularly Lmportant in the years from 1982-84 when Barbados was recovering from the fiscal crisis of 1981 wLth IMF support. During that period, the only sLgnLficant non-project finance obtained by the Government was a US$17 millLon loan from Venezuela to finance petroleum imports. Had Lt not been for the special Caribbean Lnitiative of Venezuela, the only source of external funds available to Barbados at this time would have been project finance from multilateral Lnstitutions. - 132 -

6.48 By 1985. after a successfulperLod of adjustment, LnternatLonal confidence in Barbados was restored and broader access to the international capltal markets war reestabllshed. Borrowlng from the Eurodollar market resumed ln 1985 and a major new market was breached wlth a VS billlon prLvate bond placement ln Tokyo. ThLe was to be the flrst of three Yen borrowings, and lt merits close scrutLny because lt marked a major departure from the Government'sprevlous borrowlng strategy.

External Borrowina Strateav

6.49 DiveroLty of the Debt Portfolio. There are many advantages for Barbados having access to diverse sources of finance. It gLves the Government greater flexlbilltyto seek alternatlvesln the event that any one market should be unresponsLve. It enables the Government to shop around for better terms and it enhances the stature of the Government ln the lnternatlonal flnanclal communlty at large. In princLple, access to diverse sources of flnance may also open up new prospects for lnnovatlve flnanclal management lncluding hedging and swaps.

6.50 However, diversLty ln sources of fLnance is not at all the same thlng as diversity in the currency composltlonof debt. Nowadays, with the globallzationof financial markets. lt is perfectly possible to borrow dollars in Tokyo and yen ln London. When lt comes to determinLngthe most advantageouscurrency composltlonof external debt for Barbados thLs is an issue that needs to be assessed withln the overall balance of payments framework.

6.51 Foreian Exchanae Risk. As far as the management of foreign exchange rlsk ls concerned, there are two conslderatlonsof particular importance. First, foreign exchange earnings accrue to Barbados prlncipally Ln US dollars, and to a lesser extent, in pounds sterling. In 1989, 33% of all touriet arrivals were from the USA and 25% were from the UK. That same year. 21% of commodity exports were destined for the USA and 12% went to the UK. Second, the Barbados dollar ls tied to the US dollar, so there is a simple and straightforwardrelationship between fiscal revenues and external debt obllgations denominated in US dollars. Being a very small and open economy, the fortunes of Barbados are closely tied to those of its principal trading partners, the USA, and the UK. When the economles of its princlpal trading partners do well, Barbados is likely to benefit in terms of increased export earnings and wlll, therefore, have the additlonal foreign exchange to service lts debt even lf the currency ln whlch that debt is denomLnated appreclates.

6.52 These consLderationsstrongly suggest that the cholce currencies for external debt should be either the US dollar or the £ sterling. Until the mid-1980s, Barbados followed that route and over 90% of external debt was denominated in those two currencies. By end 1989, however, the situation had changed sLgnificantlyand the currency compositionof the debt was much more diverse - whlle some 64% of debt outstanding and disbursed was still denominated in US dollars, the yen had replaced sterling as the second most prominent currency with 24% of the total. Of the remainder, sterling accounted for a further 10% and the rest was in a variety of other currencies including ECU. Canadian dollars, TT dollars and Bolivares. - 133 -

6.53 The Yen Market. Since 1985, when Barbados first entered the Japanese capital market, the Government has placed privately three bond issues for a total of V14.3 billion. The applicable interest rates have been attractively low in nominal terms -- ranging from 6.8% to 7.7%. However, when due account is taken of exchange rate movements the real cost to Barbados in terms of US dollars (or Barbados dollars) can be quite different. This was particularlytrue for the first placement of VS billion which was issued in February 1985 when the Yen stood at 259 to the dollar so that disbursements amounted to little more than US$19 million equivalent. Shortly afterwards the Yen appreciatedrapidly. Although interest was only 7.7% in nominal terms, the cost of buying the required Yen almost doubled and interest payments averaged 13.4% in dollar terms relative to the US$19 million equlvalent disbursed from the bond issue. Furthermore,when the bond became due five years later ln February, 1990, the value of the Yen stood at 157 to the dollar so that, to redeem the bond, Barbados had to assemble the equivalent of US$32 million. The difference between the value of the bond at iasue and its value at redemption increased the cost of funds to Barbados by an additional 10.5% annually. Hence, the total annual cost of the Yen bond issue was close to 24% in dollar terms -- not including fees and charges.

6.54 The 1985 yen bond issue li an extreme, though nonethelesstelling, example of downside foreign exchange risk. It illustratesdramatically the potentiallyoverriding importanceof foreign exchange risk for external debt management in the context of today's volatile currency markets. Differences in fees and charges between lenders, or differences in nominal interest rates may often be dwarfed ln comparison.

6.55 A second bond placement of Y4.3 billion was iseued ln October 1986 and this hap proved to be a much less costly proposition for Barbados because the Yen had already appreciatedto 154 at the time of issue. Even so, it is likely that the total annual cost of this bond will be about 10% in dollar terms - depending upon the exchange rate prevailing when the bond matures in the fall of 1991 -- compared with a nominal interest rate of 6.9% in yen terms.

6.56 The difference in outcome between the first bond issue and the second (which was placed just eighteen months later) shows that foreign exchange risk does not necessarily always result in large additional costs. Indeed, it may result ln a windfall gain if the borrowed currency depreciates. However, to base a borrowing strategy upon such considerationsis to enter a realm of currency speculationthat may be inappropriatefor an economy such as that of Barbados which has relatively small capital requirements,export earnings concentratedin only a few currencies and limited prospects for hedging.

6.57 It has been suggested by some financial analysts in Barbados that the downeide foreig.&exchange risk of borrowing in yen can be avoided by sustaining a continuity of presence in the yen market -- i.e., by rolling over yen obligations as they fall due. However, it is difficult to implement such a strategy in practice for the following reasons. First, whenever there is a change in rela;;ivecurrency values, creditor institutionsare likely to reevaluate the ability of borrowers to servlce debt denominated in the currency that has appreciatedand they may seek to reduce their exposure accordingly. Second, even when debt is successfully rolled-over, this will - 134 -

only protect the borrower (temporarily)against a foreign exchange loss on the principal. It will not protect the borrower against a foreign exchange loss on interest payments. Third, a bond cannot be rolled-over in the same way as a bank loan. A new issue must be placed to coincide with the maturity of the old and that is a much more complicatedmatter. In fact, when the 1985 yen bond matured in February. 1990 there was no new issue so Barbados absorbed the full foreign exchange loss at that time.

6.58 A more effective way of handling the risk would be to hedge against an adverse exchange rate movement by purchasing a call option for yen at the same time as the yen bond is issued. While this raises the cost of the whole transaction it would have been very advantageous for the Barbados Government in 1985 when the appreciationof the yen could have been offset by exercising a call option on yen. Given the volatilityof the foreign exchange markets it is to be recommended,as a general principal,that, whenever the Government borrows in currenciesother than those that it commonly receives from tourism or from merchandise exports, the loan should be hedged with the purchase of a call option in the same currency, or for longer term loans of more than five years maturity, with other hedging instrumentssuch as a currency swap.

Recent Developoents and the Current Prodicament

6.59 In 1990 the Government'sfinancing requirementsincreased sharply. A 13% rise in current expenditurestogether with a 9.3% fall in current revenues completelyeliminated the current account fiscal surplus. In fact the current account was in deficit by an unprecedentedBDS$L8.6 million. This coincided with a 33% increase in capital expenditures,so that the overall fiscal deficit of the Governmentamounted to some BDS$260 million -- about 8.8% of GDP. A more detailed account of fiscal developmentsin 1990 is to be found in Chapter V.

6.60 Although the escalating financing requirementsof the Government amounted to 8.8% of GDP in 1990. that was not a great deal more than the figure of 6-6.5% of GDP which prevailed in 1986-87 and it was significantly less than the 10.7% overall deficit which precipitatedthe financial crisis of 1981. Nevertheless,there are other factors which compound the financing problems of the Governmentat this juncture and which make for a much more serious situation.

6.61 In that context, a key factor has been the need to repay in 1990 the yen bond issue of 1985 which carried with it the obligation of a balloon (or -bullet") repayment. As a result of the 1985 bond coming to maturity, (and as a result of the additionalforeign exchange cost associatedwith an appreciatingyen, amortizationon the external debt increasedto BDS$142 million equivalent in 1990 compared with rather less than BDS$50 million in each of the previous three years. Thus the Government was faced with a net outflow of foreign finance for the first time in the , notwithstandingthe successfulnegotiation of two substantial additional loans from the internationalcapital market (one for £30 million sterling and another of US$20 million out of Tokyo). Although the net outflow was quite small (BDS$2.5million), it meant that the totality of the Government'sfinancing requirementshad to be raised domestically. - 135 -

6.62 Government domestLi borrowlng ln 199C can be summarLzed as follows on the basis of data furnlihed by the Central Ban&.

Sourge of Funds BDB ELlLon

Commercial Banks 75.2 National Insurance Fund 18.5 Other PrLvate Non-Bank 11.3 Treasury Cash -0.5 Central Bank 159.7

Total Domestic Finance 264.2

6.63 The most strlklng conclusion that emerges from of this summary is the very large amount that was borrowed from the Central Bank - BDS$159.7 million (whlch compares with a previous all-time high of BDS$26.6 million ln 1982). The potentlallydestabLlizLng effects of so hlgh a level of borrowing from the Central Bank cannot be ignored.

6.64 Yet, given the large eLse of the domestLc flnanclng requlrement,no other avenue was open to the Government. Borrowing from domestlc commercial banks rose to a record BDS$75 million ln 1990. The Natlonal Insurance Fund which, ln the mid-elghtles, furnLshed substantial fLiance to the Government, is now expandlng at a much slower pace and was able to lend only BDS$18.5 ln 1990 on a net basLi. And other sources of domestlc finance are small.

6.65 It may be concluded that the present financLal crlsls has three causes. (i) a deterioratlonof the current account. (LL) an expansion of capital expendituresand (LLL) a net outflow of forelgn flnanclng precipitated by the lump-sum redemption of maturlng yen-denomlnatedbonds The first two of these three problems are amenable to correctlveaction on the part of the Government. The thlrd problem, however, cannot be corrected in the short run.

Proscects for Financino

6.66 The Short Run. The customary procedure for preparing a government budget starts by projectLng the current account and the capltal program and then goes on to consider how the antLcLpateddeflclt may be flnanced. However, ln the current sLtuatLonof Barbados, financLng is lilkelyto be a bLnding constraLnt and the Government may do well to reverse the customary procedure by tallorlng lts current account and capital expendltureprogram to flt the lLmited flnanclng available.

6.67 FlnancLng prospects for the Government are unlikely to lmprove in 1991 and may even deterlorate further. As far as forelgn flnanclng is concerned, another balloon (or "bullet")payment li due in September on a V4.3 bond that was lssued ln 1986. As a result, total amortLzatLon (lncludlng slnklng funds) on the external debt is projected at BDS$170 milllon. Apart from project finance, prospects for addltlonal forelgn borrowlng are not very good because the capital markets wlll react cautlously to last year's poor flscal performance. Japanese fLnancial lnstltutlonshave not been receptlve thus far to the ldea of offsettLng the upcomlng yen payment wlth a new bond Lssue. The financing projectLons for 1991 made by the Central Bank (Table VI-2) assume that addltlonal loans amounting to BDS$81 million can be raised - 136 -

on the capital markets but this may be optimistic. Much will depend upon the confidence of the capital markets ._nthe Government's ability to overcome its present financial difficultles and to riestablish a macroeconomic framework conducive to stability and growth. If new loans do not materialize from the capital markets, the Government may have to contend with a net outflow of foreign finance even greater than the projected BDS$28.9 million.

6.68 As far as domestic financing is concerned, the Government is subject to the same constraints that applied in 1990. Financing from the commercial banks is already at an unprecedented all-time high. Further increases will not be forthcoming, and indeed, could not be furnished without crowding-out the private sector. The National Insurance Fund has little leeway for additional investment in government obligations. Other sources of domestic finance are small.

6.69 Given these financing constraints, the Government will have to make substantial progress towards reducing its overall deficit in 1991 if it is to avoid the potentially serious destabilizing effect of further heavy borrowing from the Central Bank. The Central Bank's own fiscal projections are for an overall fiscal deficit of BDS$190 million in 1991 which, while constituting an improvement over the 1990 deficit of BDS$259 million, could still not be financed without substantial borrowing from the Central Bank amounting to BDS$129 million. The only alternative is for the Government to redouble its efforts to reduce the overall deficit still further and. at the same time, to seek extraordinary sources of financial support while it is making the adjustment.

6.70 Creditworthiness and Confidence in the Medium Term. The maintenance of confidence will be a key factor in sustaining access to international financial markets and, thus far, confidence in Barbados' creditworthiness is holding up well. The relative rank of Barbados in the country credit ratings published by the Institutional Investor, for example, strengthened from 49th position in March 1989 to 46th position in March 1990 and further to 45th position in March 1991. Discussions with commercial banks and capital market institutions have revealed that, while there is evilent concern at the financial problems confronting Barbados, steps have not yet been taken to reduce country lending limits or the country credit rating. However, financial institutions are following the situatLon in Barbados very closely. insomuch as sound fiscal management is an important indicator of creditworthiness, a lot will depend upon the firmness with which the Government takes corrective fiscal action.

6.71 Other indicators of creditworthiness will be more difficult for the Government to act upon directly in the medium term. The burden of debt service is a case in point. From Table VI-2 below it can be seen that the debt service ratio (DSR) rose to an estimated total of 17% in 1990 which is quite high for a small country like Barbados where exports amount to 50-60% of GDP. This may very well be an underestimate if the Gulf War results in a greater-than-anticipated erosion of earnings from tourism.

6.72 The 17% debt service ratio includes private non-guaranteed debt which, genere!!- rpeaking, may be presumed to be self-servicing in the senee that it direc.Iy generates sufficient foreign exchange earnings to cover the debt service. Hence, tne internatio al financial markets are likely to focus - 137 -

their attention more particularly on government and government-guaranteed debt. A 14% debt service ratio on government and government-guaranteeddebt in 1990 in bound to be a source of concern. However, the concern will be dimLnLihed by an awareness that the debt servlce ratlo ln 1990 and 1991 Is exceptionallyhigh as a result of the government having to redeem two yen bond lnues. After 1991 the debt servLce on government and government-guaranteed debt li projected to fall back once again to a more manageable level of less than 10%.

fgk,t.z! UI2YEL DUBY zuDx@im' (sDe$ minion)

Actual NIL:. 1roj. 1985 1989 1990 1991

Bxports of Goods and NPS 1530.0 1741.6 1762.6 1953.2

Debt Service cn: Govt. and Govt. Guaranteed 111.7 157.5 246.9 239.8 ojw Central Governnent 56.1 104.7 201.2 214.3 Private (Non-Guaranteed) 44.6 53.2 58.4 40.2 Total Medium & Long Term 156.3 210.7 305.3 280.0

Debt Service Ratio: Govt. and Govt. Guaranteed 7.3 9.0 14.0 12.3 Total Medium and Long Term 10.2 12.1 17.3 14.3

Central Govt. Debt/M< Debt 35.9 49.7 65.9 76.5

A Datashown here may differ slightly from the World Bank Debt Reporting System. Souxce:Central Bank of Barbados.

6.73 Another aspect of external indebtednessthat has been a focus of attention in the internatlonalfinancial community is the increasing proportion of the public debt held by the Central Government. Whereas, in 1985, the Central Government was obligated for one thlrd of all debt service payments, that proportion will rise to three quarters in 1991. In part, this again reflects the two exceptionalyen bond redemptions. However, lt is also the case that the Central Government now holds some 77% of the total external debt outstanding and diebursed compared with only 36% in 1985. Hence, the external debt has assumed a fiscal dimension that did not previouslyapply.

6.74 The Lonq Term Outlook. Providing the Government can resolve its present financial difficultiesquickly and decisively,prospects for access to the internationalfLnancLal markets in the longer run are very encouraging.

6.75 Multilateral lenders have been an important source of finance for Barbados in the past and wlll remaLn so in the foreseeable future. As of end 1989, the World Bank data bank indicates that multilateraldebt amounted to almost one-third of Barbados, US$471 milllon total debt outstanding and dLsbursed. The relative importanceof individualmultilateral sources at end 1989 was as follows: - 138 -

21bl* V-N OJW Nflg2= O

Amount Outstanding& Disbuised Source December 31. 1989

lnter-AmaericanDevelopment Bank $77.0 million CaribbeanDevelopsent Bank $41.7 million World Dank $35.2 million Buropean InvestmentDank $ 6.2 million EuropeanDevelopment Fund $ 1.2 million OPEC Special Fund $ 1.2 million Total Multilateral $162.6 million

Source: World Bank.

6.76 Although the World Bank ranks third in the list of multilateral sources of finance, its relative importance may be rather greater than that because a significant part of the Caribbean Development Bank lending program is also financed by the World Bank. For that reason, the prospect of graduation from tho% World Bank has given rise to some concern in Barbados. In practice, however, other multilateral agencies are likely to expand their operational programs in Barbados as the World Bank withdraws so the net effect of graduation may be greatly reduced. The IDB has no graduation policy and its country exposure guidelines are sufficiently flexible to permit a considerable expansion of lending over and beyond current levels if suitable investment opportunities present themselves. As far as the Caribbean Development Bank is concerned, while it would be unable to onlend World Bank funds directly to Barbados after graduation, it has other sources of capital which it may draw upon to sustain its lending program or, at least, to cushion the effects of graduation. Hence, graduation from the World Bank may have only a minimal effect upon the availability of multilateral finance to Barbados.

6.77 Nor need the average terms of multilateral finance be adversely affected by graduation from the World Bank. The 1DB, which is the most likely substitute source of funds, currently lends for 20 years including 4 years of grace and that compares very favorably with the 15 year loans available from the World Bank. Furthermore, the IDB is able to finance a higher proportion of the cost of projects than is generally the case with the World Bank - 75% of total project cost is the standard for IDB loans and it may be as high as 80% in the case of social sector projects.

6.78 Bilateral lendino to Barbados has taken two forms in the past. First, there has been the traditional kind of development aid from such agencies as USAID and CIDA. The amounts involved were never very large and, as per capita income has risen in Barbados, they have progressively been phased out. Second, there have been a number of loans, principally from neighboring Caribbean states such as Trinidad and Tobago and Venezuela, made

§/ In , which has recently been graduated from the World Bank, the IDB has embarked upon a new program of lending which far exceeds the previous program of the World Bank. - 139 -

in response to Barbados special balance of payments needs or in a collaborative effort to assist third parties such as Guyana. The size of these loans have iometLmes been substantlal but they clearly relate to special situatLons and could never be considered as a regular source of finance. Furthermore, now that neighboring petroleum exporting countries no longer enjoy substantial capital surpluses, bilateral finance of this kind will be much more scarce. In general, it may be said that Barbados cannot count upon bilateral lenders as a signifLcant source of finance in the future.

6.79 SuRDliere Credits and Export Credits have been used very little by the Government of Barbados in the past. The sole exception was a loan of US$40.6 milllon in 1981 to flnance the Arawak Cement Plant. Apart from the amount outstanding on that single loan, other suppliers credits and export credits disbursed and outstanding as of end 1989 amounted to a total of no more than US$1.5 milllon. For a country that has a public lnvestment program of us$110 million a year -- with a very substantial import content -- this is a very small amount of suppliers credlts indeed.

6.80 It is interesting to note that the private sector in Barbados has been much more active in securing export credits (without the guarantee of the Government of Barbados) than has the Government. Most of the US$140 million private non-guaranteed debt outstanding at end 1990 were export credits. A source of flnance that can withstand the test of the market so well, should also be attractive for the Government itself.

6.8t The singular advantage of export credits as a source of finance is that the borrower has a natural ally in the exporter who, being eager to sell hls merchandiee, will do hli best to help the borrower secure attractive terms. Likewise, the governments of exporting countries will frequently expedite arrangements with their own export finance or guarantee facilities. Since the borrower of funds is also the purchaser of merchandise, there is a mutuality of lnterest between borrower and lender that can result in attractive borrowing terms. Given the size of the public investment program, it should be quite feasible for the Government of Barbados to aim at securing export credits of $10 million or more a year - which would contribute eignificantly to the Government's overall financing requirements.

6.82 At present, the Barbados Government has an arrangement with the Crown Agents to act on its behalf ln making contact with sources of export finance and, on the basis of anticipated import requLrements, negotiating lines of credit that may be triggered as needed. It would appear, however, that the budgetary procedures of government departments and public corporations are not geared to making full use of this source of finance.

6.83 The Cacital Markets have been a major source of finance for the Government in the past and wlll probably continue to be a major source in the future provlded the Government secures the confidence of the market by bringing its financial eituation under control. The UK market and the Eurodollar market -- where the Government already has strong traditional ties -- are llkely to be the most accessible.

6.84 The US market is, for the time being at least, closed. This does not reflect so much upon the creditworthiness of Barbadoe as it does upon the trauma sustained by US lenders as a result of the "debt crisLs." The mood of the US market today leads lt to shun developlng countries ln general and the - 140 -

countries of LatLn America and the CarLbbean ln particular. In time, however, it in to be expected that US commercialbanks will become more discriminating in thelr evaluationof individualcountry situations and Barbados wlll then be well placed to enter that market.

6.85 Barbados has already demonstratedan ability to extend its reach to other national markets such as Japan and there may well be opportunitiesin Europe, too. However, the foreign exchange risk of borrowing in currencies other than the US dollar and the pound sterling must be given verv serious consideration,unless the risk of borrowing in other currencies can be hedged by such devices as call options or currency swaps.

6.86 It would appear that Barbados may be able to mobilize the resources of the internationalcapltal markets more fully and, at the same time, improve the terms available to lt by invoking more explicitlythe potential linkages with the public investmentprogram -- thereby bridging a middle ground between project finance and strlctly non-project finance. There are likely to be areas of public investmentthat could attract financing from institutions which may not otherwise be interestedin sovereigndebt. This applies particularlyto areas of public investmentthat may be undertaken jointly with private enterpriseor where there is a prospect of cost recovery - such as, for example, a redevelopmentof the Careenage. For such undertakings,it may well be possible to assemble innovativefinancing packages of long-term debt, suppliers credits, equity and other instrumentstailored to the individual requirementsof the particular lnvestment. The Government should consider engaging the services of an investmenthouse to advise and assist in putting together financial packages of this kind.

*e iended-Borrigstrat-M

6.87 In the past, it would appear that Barbados has approached its external financing requirementsin a somewhat ad hoc manner, responding to needs as they have arisen. At the present juncture, it would be appropriate for the Governmentto develop a medium-term financing strategy that would include explicit objectiveswith respect to the overall structure of external financing- i.e., the desired balance between project and non-project finance, the desired structure of maturities and the preferred currency compositionof debt. Strategic objectivesof this kind should not be interpretedtoo rigidly nor need they obstruct the Government in pursuing new or unanticipatedopportunities when they arise. They would, however, provide a basis for evaluating options and a framework for action.

6.88 A number of i e principal issues that would need to be considered in establishingthe frameworkof an external borrowing strategy are indicated belows

* Of primary importanceis the need for the Government to secure the confidence of the internationalfinancial community by bringing its fiscal situation under firm control;

* Since multilateral lendere still constitutethe most advantageous source of concessionaryfinance available to Barbados, the Government should seek alternativemultilateral sources to substitute for its eventual graduation from World Bank lending. The IDB is the most likely and promising alternative. - 141 -

* Bilateral source of finance are unlikely to play a significantrole in the external financing strategy of Barbados and cannot be relied upon*

* The Government should explore much more actively the sources of finance that are readily available to it from suppliers - selection subject of course to competitLveadvantage on terms and on price and export financing, and should invoke guarant-ee from official export finance agencies where Advantageous.

* The UK and the Zurodollar markets will contiaue to be the major sources of capital market finance. Other national markets may be explored but care should be taken to minimize the foreign exchange risk by limiting external borrowlng to US dollars and pounds sterling (which reflect the foreign currency earnings of Barbados). Borrowing in other currencies should be undertaken only if there are opportunities for hedging.

C The bond market carries with it speclal risks when the bond must be redeemed in a lump-jum ("balloon" or *bullet*) payment. This can cause the debt service ratio of Barbados to rise sharply for short periods, thereby, precipitating a payments problem.

* in the longer run, Barbados should manage its financing requirements and its external borrowing in such a way that debt service amounts to no more than 10% of foreign exchange earnings from the export of goods and non-factor services. The perception of creditworthinessand the confidence of the international financial markets wtil thereby be enhanced.

F. FNture Scenarios - With and Withowt Policy Actions

6.89 Projecting the future course of economic development is a risky business; it is particularly risky to project the medium-term prospects for Barbados as of 1991 given the range of uncertaintlesit faces. Perhaps the most signlficant influence on the course of future economic developmentswill be the speedy and effective implementationof public polLcies to deal with the fiscal deficit and the external payments Lmbalance. Assuming that an effective adjustment program will be lmplemented, and historical experLence would argue in favor of such in assumption,another important influencewill be the Government's commitment to address some of the more troublesome structural defLciencies. As already outlined above, this will mean the creation of an economic policy frameworkconducive to restoring the internationalcompetltiveness of the Barbadian economy, recovering the historical trend growth rate, reducing the unemploymentlevel, and reversing the rate of environmentaldegradation. This suggestsa range of possible future development scenarios, but only two will be outlined here. The first and best case scenario of future growth prospects is based on the assumption that the Government will implement an adjustment program along the lines described earlier in this Chapter and will create an enabling environment for renewed growth at a sustainablelevel. The second and worst case scenario is based on the assumption that the Government fails to take the full range of measures necessary to revitalize the Barbadian economy and merely settles for a short-term stabilizationprogram. In this section, the results of the - 142 -

analysis in the preceding chapters are brought together withln the framework of a formal projectLon model in an attempt to Ldentify the key strategic issuesfor future developmsntpolicLes.

Exter^nl Environment

6.90 Growth prospects for Barbados are highly dependent on growth prospects ln its major markets. Present projections for the OECD countrles especially the U.S.. Canada, Japan, the U.K., and France - suggest a slowly lmprovlng output growth ln the 1990's, from 2.7% per year on average in 1991-95 to 3.2% durlng 1996-99. These growth rates, if attaLned, will stimulate increased demand for touriem services, and thus, help fuel the growth of the Barbadian economy. Similarly, during the 1990s, inflation ln terms of US dollars is projected to average about 3.5%, while the US dollar ie expected to depreclate slightly againet major currencies. Under the assumption that the Barbados dollar will remain pegged to the US currency, such an outcome would benefit Barbados, because it would make its tourist prices more competitiveespecially in the European markets.

The Rioh arowth scenario

6.91 The flrst scenario,whlch takes an optimistic but not unrealistic vLew of future developments, is predlcatedon the fact that the Government will take early action to reduce the fiscal deficit and the external account imbalances,and begin to correct the existing structuraldeflciencies, as described in Sections A and B above. Speciflcally,it is assumed that governmentwill:

D reduce expenditure and raise revenues to bring the Government deficit down to about 1% of GDP in FY1991-92 and eliminate it thereafter;

* hold the line on nominal wage increases in the public sector, and encourage the trade union and employers to follow sult in their activity sectors;

* implement the far-reaching trade policy reforms now being reviewed by the Government towards reduction of the anti-export bias of the current incentive structure as well as the technical recommendations for increasing the efficlency of customs operations;

* promote increased savlngs through financial sector reforms and the above public expendLture reductlon measures;

* rebuild the forelgn exchange reserve stock through appropriate macroeconomic pollcies and by prudent borrowlng abroad, preferably from the internationalflnancial agencLes;

* move quLckly to codify exleting rules and regulationsgoverning internationalbusiness and financlal services, and explore new opportunitlesprovlded by the European single market;

* reduce sugar production and dlversify into non-sugar activities; and

* undertake the measures needed to rehabilltate the physical environment. - 143 -

6.92 The successful implementationof these measures would, in the short term, go far towards adjusting the-economy. Moreover, the shift in relative prices favoring tradeables should lead to increasedutilization of tourism resources and the expansion of other services, and over medium term, capacity expansion in tourism as well as a redirectionof manufacturingtowards finding a niche in the world market in the context of efficient export oriented growth. On balance, the economy is projected to grow at an average annual rate of 2.3% during 1991-94, led mainly by the tourist and international businees services. For the period 1995-99, CDP is projected to recuperate its historical growth rate and reach an average annual rate of about 3.5% per annum.

6.93 Demand prospects for tourism in Barbados, given projections of sustained income growth in the major originating countries of North America and Europe are favorable. Nevertheless,the outcome also depends on the supply of local accommodationsand of associated infrastructure. Since capacity utilization has risen in recent years, and improvementsin accommodations and quality of service are not assumed to occur instantaneously, the projections assume a moderate rate of growth of tourism over the next few years averaging about 3% p.a. over 1991-94. The growth of tourism would in turn, stimulate a parallel expansion in related services. It is also assumed that, in the medium term, financing for expansion of capacity and refurbishings in hotels and tourist related infrastructurewould be forthcoming from private financial sources. Tourism would then rebound to an average growth rate of about 5% p.a. over 1995-99.

6.94 The manufacturingsector's output is projected to be constant as it undergoes restructuring. From the mid 1990e onwards, as incentives shift toward export oriented activities,manufacturing output is projected to expand at an average growth rate of 3% p.a. Services would also be expected to respond positively to the projected increases in touriem and manufacturing output. Agriculture is projected to remain stagnant up to the mid 1990's mainly because of sugar. Beyond the mid 1990s, diversificationcould contribute to expand agriculturaloutput. The internationalbusiness and financial services sector should provide a source of growth throughout the projection period.

6.95 The expenditurepolicies discussed above are projected to reduce the real growth of consumption below that of GDP and jointly with financial sector reforms enable domestic savings to increase from 14.7% in 1990 to about 20% of GDP by the mid 1990. and to 21% by 1999. Public savings are projected to increase to 2-4% of GDP throughout the projection period from -0.5% of GDP in 1990, aa a result of the programs' fiscal measures oriented to reduce and rationalizepublic expendlture and to a small increase in revenue. Apart from generating the resources for the domestic component of investment,the restrained growth of public consumptionenvisioned in the program will also be necessary to establish and maintain viable macroeconomicbalances.

6.96 Achieving these levels of savings will entail adjustments in the public sector. However, over the medium term, the unemploymentrate would fall as a result of the projected expansion in tourism, manufacturingand internationalbusiness services. Services could provide a major boost to overall employment levels. - 144 -

6.97 Over the medium term. lt li antlcipated that the implementationof the polLcLes proposed will stimulateprivate sector investment in the core productive sectors as well as new investment to lmprove the physLcal environment. Thus, gross Lnvestment li projected to reach 21% of ODP by 1992 and 22.5% by 1995 from 19.1% ln 1990. restoring the lnvestment ratlo to the levels achleved during the 1970s.

6.98 Another importantelement of the medlum term economic outlook li the viabilLty of Barbados' balance of payments. The country's terms of trade are not projected to improve over the medium term, based on the Bank's current long term price projections. The policies proposed, if adopted on a timely manner, would offset the negative effects of the deterloratlngterms of trade on economlc growth. Real exports of goods and non-factor services are projected to grow at 3.3% per year on average and 4.1% on average thereafter. Real imports on the other hand, are projected to grow by 2.5% per year on average during 1991 and 1994 and by 3.3% during 1995-99. The current account balance of payments deficit is projected to decline from -1.6% of GDP ln 1990 to under -1% of GDP throughout the projectlon perlod. abl* Vs-4i MXME-E s PR5PUOI d*IZURCOY 30 IZCx50Mh5uI OR OM=SC5 UO

annual PzoleotdriionJ 1985-68 198 1990 1991-94 19959

Annual Growth Rates (constant DZices) GrossDomestic Product 3.1 3.6 -2.9 2.3 3.5 GrossDomestic Income . 3.7 -3.6 2.3 2.4 Constmption . . -2.2 1.2 2.3 Public . . 1.4 1.1 1.2 Private . . -3.1 1.2 2.6 Exports (GNFS) . . -3.9 3.3 4.1 Imports (GMFS) . . -2.9 2.5 3.3 Shaxes of GDP%

Gross Domestic Income . lOC.O 99.0 100.3 99.0 Gross Domestic Investment 16.2 19.2 19.1 21.1 22.5 Gross Domestic Savings 15.2 16.1 14.7 19.0 20.7 Consumption 84.8 83.9 85.3 81.0 79.3 Public 17.8 18.0 19.6 18.3 18.1 Private 67.0 65.9 65.7 62.7 61.2 Gross National Savings 15.8 19.1 17.6 20.6 21.5 Exports(GNMS) 53.6 51.0 50.5 51.9 53.3 Isports (GWS) 54.7 54.1 54.1 54.3 54.2 Resource Balance (GNFS) -1.1 -3.1 -4.5 -2.1 -1.7 Current Account Balance 0.8 -0.2 -1.6 -0.5 -0.9 Government Revenues 26.4 28.9 27.0 29.4 29.0 Government Expenditure 31.6 30.3 35.8 29.4 29.0 Fiscal Balance -5.2 -1.4 -8.8 0.0 0.0 MemorandumItem: Terms of Ttade . 100.0 94.3 95.9 88.2

A/ Constant prices. Source: World Bank staff estimatesand projections; Statistical Appendix.

*R^|aLU R iourcaten

6.99 Barbados' past growth strategy has led to increased foreign Lndebtednessand high debt service ratios. As a result, the country has - 145 - become vulnerable to debt servicLng problems especLally lf access to external flnance were to become unduly restrLcted. However, lt is assumed that, with viable macroeconomlc balances, access to both prlvate capltal markets and internatLonal financial instLtutLonswill be enhanced.

6.100 The projected fairly steady medium and long term diebursementshave been assumed to consist of a mlx of official and commerclal loans. Predlcated on the timely adoptlon of the above measures, debt servicLng is not projected to create undue straLn to the economy. The debt servlce to export ratio li projected to decline from 15% in 1990 and 1991 - when balloon payments fall due -- to a range of 8% to 10% throughout the projection period and the interest burden ratio wlth respect to GDP is projected on average to remain the same throughout the period at a sustainable2% to 2.5% of GDP. Gross internationalreserves would need to rise gradually to an equlvalent of about three months of imports.

?1L VI -Se ULAJNC5 WPAi . 1985-99 a KM GROY RaO 5oVital z*qufte=tx aan s*ouzro.of tfiueig In U5$ miiUan)

Aetual gotaton 1985488 1989 1990 1991-94 1995-99

Resource Balance -18.7 -53.3 -78.0 -42.5 -46.6 Exportsof G&NFS 733.0 870.8 882.0 1048.8 1410.8 1457.4 Imports of G&NYS 751.7 924.1 960.0 1091.3 Met Factor Payments 2.8 44.8 45.0 26.5 13.0 53.8 of which: Interest on Public Debt 35.4 37.1 35.0 35.0 8.0 Net Transfers 9.3 5.9 6.0 6.7 Current Account Balance -6.6 -2.6 -27.0 -9.3 -25.6

Caeital Inflow 31.6 0.9 -68.0 69.3 41.4 Lo e -erm 8.5 13.0 Direct Investment 5.7 5.5 6.0 28.4 Net Long-Term Loans (DRS) 50.2 -29.6 -73.0 60.8 117.6 Disbursements 81.1 15.5 31.0 125.6 89.2 Repayments 30.9 45.1 105.0 64.8 0.0 Other Long-Term Inflows (Net) -24.3 25.0 0.0 0.0 0.0 Other Capital, n.e.i. -0.89 7.8 9.0 0.0

Chanqes in Net_Reserves -24.2 -6.1 86.0 -60.0 -15.8 (- - increase>-

External Debt Indicators Debt/GDP 44.0 45.9 39.8 41.9 36.0 5.5 Debt Service/GDP 5.8 5.3 8.8 5.7 10.1 Debt Service/XGS 11.5 9.3 15.3 9.8 Debt Service/Government Revenue 15.6 17.0 30.0 17.0 17.6 2.4 Interest/GDP 2.8 2.3 2.8 2.4

Suce: World Bank staff estimates and projections; Statistical Appendix.

6.101 The ratio of debt servLce to government revenue is a useful measure of the burden of debt, slnce the only way in the long run that a government can honor its debt is through payment out of government revenues. A long run debt service to the government revenue higher than 20% would Lntroduce signlfieant pressures to the Government's finances and llmit its capacity to undertake needed public investments; thus, wlth the adoption of the above pollcy measures thls ratio is projected to remaln at a level of about 17% throughout the 1990s. - 146 -

2he ISM growth Scenari

6.102 In contrast to the scenario described above, the low growth scenario envisages an economy operatLng at a reduced scale, generatlng lower rates of output, employment and lncome growth. This scenarlo will also requLre as a minimum, policy measures to correct unsustalnable flscal and lnternal imhalances (and hence, avold gross LnstabliLty),but some of the more aerLous structural defLcLencLeswould not be addressed.

6.103 ThLs scenarLo envLiages a flocal effort of lesser magnitude which keeps the overall deficLt at about 3.1% of GOP throughout the projectLon period. In thli low growth scenario,no major realignment of the real exchange rate occurs and the economy settles at a low GDP growth rate of 1.4% whlch originates malnly from Lncreaseddemand for tourLim and related servLces due to lncome lncreases ln OECD countrieag and from the supply side, on utllizatLon of exlstlng capaclty, slnce lnvestmentwould grow very modestly and remain at about 19-20% of GDP. Furthermore,the efficiency of investment li expected to fall as a result of continued distortions in the incentive framework.

iablo mz-6i=I=-U' MWsuo. BeLw. c zuerncae!osUe LOWOR== sCao

uXtu Esti ated Proietious 1985-6 1989 1990 1991-94 1995-99

Annual Growth Rates (constant Dpices) Gross DomesticProduct 3.1 3.6 -2.9 1.8 1.4 Gross Domestic Income . 3.7 -3.6 1.7 0.7 Consumption * * -2.2 1.4 0.8 Public . . 1.4 2.6 2.8 Private . . -3.1 1.0 0.0 Bxports (GNPS) . . -3.9 2.0 1.9 Invorts (GNFS) . -2.9 1.5 1.5 Shares of GDP%

Gross Domestic Income . 100 99 99.9 98.7 Gross Domestic Investment 16.2 19.2 19.1 19.4 19.5 Gross Domestic Savings 15.2 16.1 14.7 17.0 16.1 Consumtion 84.8 83.9 85.3 83.0 82.2 Public 17.8 18.0 19.6 20.1 21.7 Private 67.0 65.9 65.7 62.9 60.5 Gross National Savings 15.8 19.1 17.6 18.2 16.1 Exports (GNFS) 53.6 51.0 50.5 51.0 51.6 Imports (GNPS) 54.7 54.1 54.1 53.4 53.3 Resource Balance (GNPS) -1. 1 -3.1 -4.5 -2.4 -2.8 Current Account Balance 0.8 -0.2 -1.6 -1.2 -3.3 Government Revenues 26.4 28.9 27.0 28.3 28.4 Government Expenditure 31.6 30.3 35.8 31.0 32.0 Fiscal Balance -5.2 -1.4 -8.8 -2.7 -3.6 Memorandum Items: Terms of Trade . 100.0 94.3 95.9 88.2 A/ Constant prices. sMg2ie World Bank staff estimates and projections; Statistieal Appendix. - 147 -

6.104 Since this scenario does not assume a major real exchangerate depreciation through cost reductLon measures and improved trade polLeLso, nor a significant reductlon of the current anti-export bias, the export and overall economlc growth potentlal of the economy would be limited. Exports of OUNS are expected to grow by an average 2.0% p.a. throughout the projection period and imports of GUFS by 1.5%. As a result of slowed growth of exports, Lncreased flnancing needs and a projected deterioration ln the financing terms provlded ln capital markets, tho current account of the balance of payments is projected to deteriorate to -1.2% of GDP durlng 1991-94 and to -3.3% during 1995-99.

6.105 In this low growth scenario, it would be very difficult to maintain the comparativelyhigh levels of economlc and soclal welfare attalned by Barbadians in the past, and more than 1lkely the rate of unemploymentwould rise over the perlod.

6.106 The larger financing requirementsthat thli scenario would requLre would imply acquLescenceby the financialcommunlty to lend to Barbados. As seen ln Section F, lt is unlikely that such lendlng would materialize.

Uhbl$ V.-I,uSALI or *AnQX19s5-99. LO @65 BCaUxO (capital roqu"Xzats a souces of tinaneing Sn =s$ mUilon)

_ _=" txat fto1.atmo 1985-88 1969 1990 1991-9 199599

Resource Balance -18.7 -53.3 -78.0 -46.2 -74.0 Exports of G&NFS 733.0 870.8 882.0 1022.3 1255.6 inports of G&wS 751.7 924.1 960.0 1068.5 1329.6 Net Factor Payments 2.8 44.8 45.0 19.0 -17.8 of which: Interest on Public Debt 35.4 37.1 35.0 38.0 69.8 Net Current Transfers 9.3 5.9 6.0 6.0 6.0 current Account Balance -6.6 -2.6 -27.0 -21.2 -85.8 Long-Term Canital Inflow 31.6 0.9 -68.0 51.0 106.4 Direct Investment 5.7 5.5 6.0 6.0 7.0 Net Long-Term Loans (DRB) 50.2 -29.6 -73.0 44.8 99.6 Disbursements 81.1 15.5 31.0 109.8 184.4 Repayments 30.9 45.1 105.0 65.0 84.8 Other Long-Term Inflows (Net) -24.3 25.0 0.0 0.0 0.0 Oghr Capital,n.e.i. -0.85 7.8 9.0 0.0 0.0 Chanue in Net Reselyes -24.2 -6.1 86.0 -29.8 -20.6 (- - increase)

8xternal Debt Indicators Debt/GDP 44.0 45.9 39.8 41.6 42.7 Debt Service/GDP 5.8 5.3 8.8 5.9 6.5 Debt Service/XGS 11.5 9.3 15.3 10.3 12.1 Debt Service/GovernmentRevenue 15.6 17.0 30.0 21.3 29.0 TotalInterest/GOP 2.8 2.3 2.8 2.5 3.2 souzgQ: WorldBank staff estimates and projections; Statistical Appendix. - 148 -

TOURItS aT C CAL AM= Page L of vi

OUANTITATIVHANALYSIS O DRZERMINANTSOF BARBADOS'SARE OF TOURI1S

1.1 Tourism is the Caribbean's most important foreign exchange earner as well as a major englne of growth and development. Barbados' dependency on tourLem will probably continue Ln the future, as primary goods and ixports ouch as sugar face a declLnlng demand and manufacturinghas faltered in recent years. Therefore, a detaLled analysis of thLe sector is extremely lmportant In the assessment of the long run perspectivesof growth Ln the Barbadian economy. Previous findings have highlightedthe high Lntra-CarLbbeanprice substitutionamong Lslands and high Lncome elasticity.V In thls context, a study of the market share of Barbados in the CarLbbean market is quite approprLateattempting to understandthe effect of domestic factors on the competitivenessof Barbados vis-A-vis the other Caribbean islands as well as external factors.

1.2 A study of the quantitativeimpact of external and domestic factors on the relative share of Barbados Ln a sample of major CarLbbean competitors Ln tourLsm was undertaken using regressLonanalysis. The share of Barbados was explained by three external factors (real income of countrLes where tourLsm origLnates; the US dollar/Britishpound exchange rate, and the LnternatLonalprice of oil) and varLous domestic factors (domesticcost of llving and wages and the prices of food relative to other CarLbbean countries and the real price index of utilLtLes in Barbados).

1.3 A structuralmodel of tourLsm in Barbados was designed using econometric methods.V The estimates presented here correspondto a reduced form of the structuralmodel.

1.4 The reduced form estimated to address the quantitative Lmpact of external and domestic factors on the share of Barbados in CarLbbean tourLsm, was formulated as:

jj See L. rk C.; Wood, C. and Worrell, D. (1986) "Prices, Incomes and the Growth of Tourism Ln Barbados: 1956-83",Economic RevLew, Central Bank of Barbados, June, pp. 10-45.

Rosensweig, J. (1988) "Elasticitiesof SubstitutLonin Caribbean Tourism", Journal of DevelopmentEconomics, July, pp. 89-100.

Ye, S. and Shlbuya, H. (1989) "Tourism in East Caribbean CountriestAre There Still OpportunLtLes for Growth", Caribbean AffaLrs, July/September,pp. 73-110.

Z/ See R. Lopez, "The Role of Domestic Policles as Determinantsof TourLsm Exports in Barbados: A Conceptual Framework." The World Bank, Internal Document, LA3C2, December 1990. - 149 -

TOURISMXTICHNICAL ANNEX Page Li of vi

sb = a, + a,y + a2pl + a3 q + ae + a5 q. +a6 pu + (1)

where X. is Barbados' share of tourism arrivals to the Caribbean, defined as a sample of the Barbados' major competitors;y is income in the tourist generating countries; p, is the relative price of oil; q is the real exchange rate measured as the consumer price index of Barbados deflated by a weighted average of the consumer price indices in the competitor Caribbean countries; q, is the food component of the CPI in Barbados relative to the Caribbean sample; e is the exchange rate in the United Kingdom, expressed in US dollars per pound; p. is the real price of utilities in Barbados, and p is the stochastic disturbance.

1.5 The data used in this report cover the period 1974-89. The dependent variable. s. is measured as the ratio between tourist arrivals in Barbados and the Caribbean. For this study the Caribbean comprises the major competitors that Barbados faces in the tourism market, namely Bahamas, Bermuda, Cayman Islands, Dominican Republic, Jamaica, Puerto Rlco, and St. Lucia. The income in the tourist generating countries was calculated for the four main countries from which Barbados, tourism originates: Canada, United Kingdom, United States, and Trinidad and Tobago, in 1980 US dollars. These incomes were then weighted by the importanceof each country in Barbados' tourist arrivals. Thus, the income measure can be representedas:

y = wW (GNPGt)M 1 2. (2) where the weights are described above and e,is the exchange rate in units of the iLcountry's currency per US dollar.

1.6 The real price of oil, p, is the price of oil in Tijuana. Venezuela, deflated by a weighted index of the consumer price index for Canada, the United Kingdom and the United statee. The real exchange rate, q, is defined as the ratio between the Barbados consumer price index in US dollars and the weighted average of the consumer price index for the competitor Caribbean countries in US dollars, i.e.:

9/ The study covers the period 1974 - 1989, for which consistent data are available. For this period, the sample of major Caribbean competitors accounts for an average of about 60% of the total Caribbean market. The "total" Caribbean market includes the above islands plus all the other OECS countries, Other Commonwealth,and Dutch West Indies, French West Indies, U.S., Virgin Islands, Cuba, Haiti and Suriname. See Caribbean Tourism StatisticalReport (1989). ij/ The weights are 0.29 for Canada, 0.19 for the United Kingdom, 0.40 for the United States and 0.12 for Trinidad and Tobago, respectively.

EJ The weights are 0.22, 0.33 and 0.45 respectively. - 150 -

ROURI9aT3CBII Am= Page iLi of -ei

CPIB 91 q O (3) wj CPIj where e, is the exchange rate in units of j' country's currency per US dollar, and wj are the weights defined as the share of Bahamas, , Cayman Islands, Dominican Republic, Jamaica, Puerto Rico, and St. Lucia in Caribbean tourist arrivals.y Finally, the relative price of utilities, pu, is the price of electricity and water obtained from the Barbados National Accounts, deflated by the Barbados consumer price index. All variables were converted into indices with base 1980 - 100. Table 1 presents a summary of the available data.

TA&b It' DESCRIPTIVE STATISTICS: 1974-89

Standard Mean Deviation if nlum MaxLmuam

SW 0.070 0.0057 0.063 0.083 >' 92.53 5.14 91.79 108.37 Po 87.18 30.35 67-36 121.52 q 106.00 16.46 77.22 127.60 e 77.66 14.12 55.79 100.43 g 106.20 13.14 80.03 124.08 PU 98.50 16.30 67.36 121.52

Sorces 5s For 1974-79 Re ional Breakdown of World Tourism Stati tL. 1973-77 and 1973-79, World Tourism Organization. For 1980-89 Caribbean Tourism Statistical Report. 1989, Caribbean Tourism Organization. y*, pp, q, e International Financlal StatLstics, various years. qa, Monthly Bulletin of Statistics, United Nations. p,, National Accounts of Barbados.

1.7 The model presented in equation (1) was specified in lo-linear form in order to obtain direct elasticities from the estimated parameters. The econometric mothod used was ordinary least squares, and a maximum likelihood procedure to correct in case of auto-correlation.

S./ The weights used are Bahamas. 0.25; Bermudas. 0.10; Cayman Islands, 0.03; DomLnican Republic, 0.11; Jamaica, 0.11; Puirto Rico, 0.38; and St. Lucia, 0.02, respectively. - 151 -

!OUR^IUS $38ONICAL ANN3X Page iv of vi

Tible 2: 3STIMZNE OF PARMIITERB: BARBaDOS 1974-89

q* a. + a y* a. + a q+ a..* + a. + a. p. + p

(1) (2)

Constant -3.63 -6.11 (-1.23) (-4.47) a, -1.23 -0.89 (-1.39) (-1.82) a. 0.05 0.14 (0.76) (4.13) a. -1.39 -1.58 (-1.05) (-1.95) a. 0.37 0.51 (1.31) (2.99) a. 2.04 2.22 (1.18) (2.21) a. 0.37 0.38 (1.44) (2.74) d. -0.28 (-4.24)

N 16 16 R' 0.54 0.99

Dn 2.17 2.42 q -0.65 (-2.83)

Note: t-ratios are indicated in parentheses.

1.8 Table 2 presents the econometric estinMateL of the Barbados share ewatiuoz. The goodness-of-fit of the two re7 ressions presented is very good as reflected by the t-statistic values and R . Not all the signs, however, are the expected ones. Unexpected signs were obtained for the coefficients of - 152 -

TOURISNt TECHNICAL ANNES Page v of vi

the relative food prices vie-&-vie the other countries in the odmple and the real utilities price index in Barbados. It is difficult to explain the positive and significant sign. of these two coefficients. For the effect of food prices, it is possible that the increased relative food prices reflect improvement through time in the composition and quality of food in Barbados relative to other Caribbean countries rather than increased relative costs per se. The effect of the real cost of utilities may reflect a causality problem. As the share of Barbados in tourism against other countries decreases, the demand for utilities also falls as the tourism industry is a majo2 user of utilities. A fall in the price of utilities may be caused by the expansion of tourism rather than the other way axound, therefore explaining the positive correlation.

1.9 The result of the empirical analysis suggests that among the external developments the most important are the US $/£ sterling ratio and the real income of countries from which tourists originate. On the domestic side the critical factor is the evolution of the cost of living and wages in Barbados relative to competitor Caribbean countries.

1.10 Not surprisingly, the relative value of the British £ sterling vis-&-vis the US dollar is positively correlated with the share of Barbados in Caribbean tourism since Barbados receives a larger proportion of tourists from Britain and Europe than other Caribbean countries. An increase in the value of the European currencies relative to the dollar increases the proportion of Caribbean tourists originating in Europe. Given that European tourists tend to prefer Barbados over other Caribbean destinations, Barbados' share of Caribbean tourists Increases in this case. Thus, the observed 24% fall in the share of Barbados in the sample of major Caribbean competitors since 1982 would have been steeper if it w. ' not for the depreciation of the US dollar relative to European currencies. Between 1982 and 1989 the value of the British £ sterling increased by about 7%. According to the eccnometric estimates, a 1% increase in the value of the British £ sterling increases the share of Barbados by approximately 0.5%. This means that the 7% appreciation of the British pound in 1982-89 led to an increase in the share of Barbados in Caribbean tourism of about 3.5 percentage points.

1.11 Another quantitatively important external factor is the level of real income in the countries from which tourism originates. An increase of real income in these countries can in principle have a positive or negative effect on the share of Barbadoo in total Caribbean tourism; the actual effect depends on the differences in the income elasticities of tourism among the countries of origin and the differential locational preferences among tourists. If the income el&sticity for tourism of the European countries is larger than that of North America, the effect would be positive because in this case a similar increase in real income in the tourist originating countries would imply higher increases of European tourists than of North American tourists. This in turn would mean that the increased tourist flow would go more than proportionately to Barbados, which is a preferred destination of European tourists, and hence lead to an increase in Barbados' - 153 - TOURI8SM T3CHNICALAMEX Page vi of vi

share. Similarly, if income elasticitiesare higher in North America than in Europe, a higher proportionof the increasingtourist flow will go to other Caribbean countries, leading to a fall ini Barbados' share.

1.12 The empirical analysis shows that the share of Barbados in Caribbean tourism tends to decrease when income in the countries from which tourism originates increases, implying that the income elasticity for tourism to competitor destinationsis higher than to Barbados. Between 1982 and 1989 real income in tourism originating countries increased by about 18%. Given that according to the empirical analysis the effect of increasing real income by 1% in originating countries is to reduce the share of tourism by about 0.89%; the 18% increase in real income is likely to have caused a fall of the share of Barbados of about 16% during 1982-89.

1.13 Thus, while external factors are important in explaining changes in Barbados' share of Caribbean tourism, these factors have changed during 1982- 89 in such a way that their effects on Barbados' share tends to partially offset each other. The increased value of European currencies has led to a 3.5 percentage points rise in Barbados' share while the rise in real incomes of major tourist originating countries has led to a fall of Barbados' sIare of about 16 percentage points throughout the 1982-89 period. Thus, the net negative effect of external factors explains about only a 12.5 percentage point reduction of Barbados' share while the actual fall of the share during the period was 24%. That is, external factors explain about one-half of the observed decrease and loss of competitiveness of Barbados vis-&-vis the major Caribbean competitors.

1.14 The econometric analysis suggests that domestic cost factors in Barbados re,lative to those prevailing in its major Caribbean competitors tend to explain most of the tourism share losses during 1982-89. The domestic cost of Barbados relative to its major Caribbean competitorsZincreased by approximately15% between 1982 and 1989. This increasing relative cost trend of Barbados ie not peculiar to the 1982-89 period; it has, in fact, been in evidence over the whole period of analysis. 1974-89. The econometric estimates indicate that the effect of a 1% increase in the relative dollar cost-of-livingin Barbados vis-&-vis the sample of Caribbean competitors is to decrease Barbados' share by about 1.58%. Hence, the 15% increase of the relative dollar cost-of-livingin Barbados during 1982-89 has induced a 23% fall in its share in Caribbean tourism. That is, the relative cost-of-living increases in Barbados is the key factor explaining the fall of Barbados, competitivenessin the Caribbean. This factor by itself explains almost all the loss of share of Barbados against mejor competitorsobserved during the last 8 years.

IS As measured by the Barbados Consumer Price Index (CPI)expressed in US dollars at the official exchange rate divided by the CPI of the sample major Caribbean compstivzorsalso expressed in US dollars, using the official exchange rates. - 154 -

STATISTICAL APPENDIX

TABLE OF CONTENTS

TABLE

I. POPULATIONAND LABORFORCE 1.1 PopulationTrends, 1966-89 1.2 Labor Force, Employmentand Unemployment, 1966-89

II. N*ATIONALACCOUNTS

2.1 Sectoral Origin of at Current Prices, 1976-89 2.2 Sectoral Origin of Gross Domestic Product at Constant Prices, 1976-89 2.3 Expenditure on Gross Domestic Product at Current Prices, 1976-89 2.4 Key Indicators,High Growth Scenario 2.5 Key Indicators,Low Growth Scenario 2.6 Nationsl Accounts Projections,1989-99, High Growth Scenario 2.7 National Accounts Projections, 1989-99, Low Growth Scenario

1II. BALANCE OF PAYMENTS

3.1 Balance of Payments Summary at Current Prices, 1976-89 3.2 Merchandise i.xports(F.O.B.) By Major Commodities, 1976-89 3.3 Merchandise Imports (C.I.F.) By End Use Category, 1976-89 3.4 Direction of Trade, 1976-89 3.5 Merchandise Exports (F.O.B.) to CARICOM and Othet Commonwealth Caribbean Countries, 1976-89 3.6 Merchandise Imports (C.I.F.) to CARICOM and Other Commonwealth Countries, 1976-89 3.7 Official InternationalReserves, 1976-90 3.8 Balance of Payments Projections, 1989-99, High Growth Scenario 3.9 Balance of Payments Projections,1989-99, Low Growth Scenario

IV. EXTERNAL DEBT

4.1 External Public Debt Operations, 1976-89

V. PUBLIC FINANCES

5.1 Central Government Finances, 1977/78-1989/90 5.2 Central Government Revenues, 1977/78-1989/90 3.3 Central GovernmentCurrent Expendituresby Economic Classification, 1977/78-1989/90 5.4 Central GovernmentCapital Expendituresby Economic Classification,1977/78-1969I90 5.5 Central Government Transfers, 1977/78-1989/90 5.6 ConsolidatedPublic Sector, 1977/78-1989/90 - 155 -

VI. BANKINGSYSTEM

6.1 Sumuary Accounts of the Banking System, 1976-89 6.2 Summary Accounts of the Monetary Authorities, 1976-89 6.3 Summary Accounts of the Comercial Banks, 1976-89 6.4 Detailed Accounts of the Trust Companies, 1976-89 6.5 Commercial Banks Selected Interest Ratos, 1968-89

VIZ. PRICES AND WAGES

7.1 Retail Price Index, 1980-89 7.2 Nominal Wage Index, 1970-89

VIII. SELECTED SECTORAL STATISTICS

A. Agriculture

8.1 Productionof Selected AgriculturalCommodities, 1977-89 8.2 Sugar Statistics, 1977-89

B. Manufacturing

8.3 Production of Selected ManufacturedGoods, 1977-89 8.4 ManufacturingProduction Indices, 1981-89

C. Tourism

8.5 Main Tourism Statistics, 1966-89 8.6 Visitor Arrivals (Stayover)by Country of Residence, 1966-89 Table 1.1: BARtAD - POATIWt TRlS, 1966-89

1966 1970 197 1977 1976 1979 1980eo 191 g 1963 1964 sets 196 196 1906 1969

(in thousands)

Ppul.tion (birming of eriod) a/ 24.5 2386.9 246.1 248.7 247.S 248.2 246.8 249.4 250.4 251.2 2m2.0 262.1 253.0 253.5 253.7 255.2

lbtural increas 4.8 2.8 2.3 2.2 2.2 2.2 2.1 2.5 2.7 2.4 2.8 2.2 2.0 2.0 1.9 1.6 Bi;rth 8.3 4.9 4.6 4.8 4.8 4.8 4.1 4.4 4.5 4.5 4.2 4.8 4.1 4.1 8.9 4.0 Dath 2.0 2.1 2.8 2.1 2.1 2.1 2.0 1.9 1.8 2.1 1.9 2.1 2.1 2.1 2.0 2.2 Not migration -4.0 -2.8 -1.7 -1.4 -1.I -1.6 -1.5 -1.5 -1.9 -1.6 -1.8 -1.7 -1.5 -1.6 1.5 -0.1

Population (end of period) 235.3 239.4 246.7 247.5 246.2 248.6 249.4 250.4 251.2 252.0 252.3 252.6 258.5 253.7 255.2 256.9

(in percent)

Rate of natural increas 1.8 1.2 0.9 0.9 0.9 0.9 0.8 1.0 1.1 1.0 0.9 0.9 0.8 0.8 0.7 0.7 Birth rat. 2.7 2.1 1.9 1.7 1.7 1.7 1.6 1.6 1.8 1.68 1. 1.7 1.6 1.6 1.5 1.8 Death rate 0.9 0.9 0.9 0.9 0.8 0.8 0.6 0.8 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.9

Rate of not migration -1.7 -1.0 -0.7 -0.6 -0.6 -0.6 -0.6 -0.6 -0.6 -0.6 -0.7 -0.7 -0.6 -0.6 0.6 0.0

Rats of population increase 0.2 0.2 0.2 0.8 0.8 0.2 0.2 0.4 0.8 0.8 0.2 0.0 0.4 0.1 0.6 0.7 (e-d of year) a/ Eatimted population in censu of Nay 12,1960 we 249,042.

Source: Barbados Statistical Service. Tabl- 1.2: BWARAD9S- LABORFE 99 W. ANDUE,lOENt'.9668-9 a*/

l59 19617 1968 1969 1968 1970 l978 1?n 1978 1979 1960 1961 1962 1983 1964 19s

(in thousand)

178.9 176.9 177-7 178.7 179.8 1e0.1 1U1.0 Mutt Populligcn bt 142.9 149.8 1C3.8 166.O 167.9 170.5 172.4 178.6 174.7 61.6 62.2 62.6 82.9 68.3 68.7 .ble 62.9 69.1 74.9 76.2 77.3 78.7 79.7 80.0 60.6 81.3 94.6 98.1 9s.8 96.1 9.4 98.6 97.3 Fowls 80.0 80.7 86.6 89.8 90.8 91.8 92.7 98.3 98.9

113.5 112.3 118.2 116.9 119.3 221.6 121.6 Labor Force 98.8 89.8 104.0 103.4 101.8 108.6 118.3 112.2 112.7 61.4 61.1 60.8 61.8 68.0 62.8 68.2 Role 56.2 88.9 57.6 87.7 87.1 59.8 61.4 61.9 61.8 82.1 81.2 62.7 58.8 56.3 66.6 58.4 Fample 40.1 85.9 46.4 48.7 44.2 49.8 81.9 60.0 81.4

97.0 93.1 92.1 6.1 97.9 100.4 102.7 Total Emloyed 81.1 62.0 87.7 67.2 87.8 94.6 99.4 100.2 97.6 64.6 6S.2 82.0 SS.8 84.7 54.9 66.0 -le 46.8 80.4 50.8 81.6 80.7 84.4 86.2 87.4 86.1 42.4 s9.9 40.1 42.6 48.2 48.5 46.7 V Femle 82.6 81.9 37r1 88.6 86.6 40.4 43.2 42.6 42.2

16.8 19.2 21.1 20.6 21.4 21.2 18.9 Total tUneployed 12.2 7.8 16.8 16.2 18.8 14.0 18.9 12.0 18.4 7.9 8.6 8.1 8.8 7.9 7.2 hle 4.9 8.8 7.0 6.1 6.4 8.1 8.2 4.8 6.2 6.6 11.3 12.6 12.7 18.1 18.8 11.7 Fale 7.8 4.0 9.3 10.1 7.4 6.9 6.7 7.8 9.2 9.8

(C 2 of adult population)

64.8 63.8 6e.7 68.4 66.8 67.8 67.2 Labor Force c/ 68.8 69.9 63.6 62.8 60.8 63.6 65.7 64.6 64.8 84.6 84.0 84.8 88.1 84.9 34.9 Ibis 87.2 86.0 68.2 84.6 84.0 84.9 88.6 88.7 88.1 84.9 29.8 28.9 29.7 80.9 81.4 82.6 82.8 F_mls 28.1 24.0 28.4 27.S 26.8 28.9 80.1 29.0 29.4

(as 0 of Iabor forte)

17.1 18.6 17.6 17.9 17.4 18.8 epoyaant d/ 18.1 8.4 18.7 18.7 18.6 12.9 12.8 10.7 18.7 14.6 7.0 7.6 6.9 7.0 6.8 6.9 PhI. 8.8 8.9 6.7 8.9 *.3 4.7 4.6 4.0 8.8 6.0 10.1 11.1 10.9 11.0 10.9 9.6 F_1n- 7.8 4.5 8.0 9.8 7.8 8.2 7.7 6.7 6.2 8.6

*/ Bed an the 196 population m and qunrterly or talf yarly tabor force earva tnta. Reaulte of e 1960 n are uced to _eti the proprtion of adult population in inter-c_nau y_ere. b/ Peroane 18 peare of age and over. 2/ In relation to the adult population. d/ In relation to the labor force; _1epoyed perheo co"ras thae actively samking awk within a three-aonth period prior to the date of intervlew.

Source: ilrbJed Statiaical Serice. Table 2.1: esAR - SELCM ORIGINOF U0SS OD TC PDFlUCTAT .R7 PRICE, 197649 (We06mIlIIon)

1976 177 197 1979 1960 l61 19 1968 14 198 1966 1967 19e 19

46.1 84.7 81.7 64.0 96.o 69.6 86.2 57.0 89.0 86.7 61.6 66.7 67.1 So.8

Other Ariculture end Fishing 29.7 87.1 40.0 48.0 6.2 89.1 65.8 76.6 60.2 79.8 64.6 102.9 106.8 100.8

Mining ad Swarrying 2.3 4.4 6.9 9.8 11.5 13.1 1s.1 16.8 61.1 27.9 16.9 18.4 17.1 17.8

ibwttring 64.6 102.6 112.4 136.41 169.0 169.7 206.8 22.7 264.1 28.7 39.8 223.6 260.2 231.2

Electrticity en Water 11.2 14.1 1S.? 18.8 88.1 16.6 44.7 82.9 66.0 72.7 72.2 80.7 64.8 91.6

Construction 85.6 60.1 78.1 68.1 118.2 136.8 12.1 112.8 180.0 117.9 181.4 144.8 170.8 196.7

Wholesle ad Ret.. I Trade 165.2 102.2 204.8 2s9.4 819.0 t86.6 G89.0 878.8 412.3 481.1 468.7 129.9 847.8 89.2

Touris 68.8 67.7 109.7 144.0 111.9 206.8 1.1 166. 206.6 228.0 2m.9 270.0 818.1 846.1 00

Trwoport, Storage 4 coemumictian 58.9 60.1 64.2 70.1 86.9 118.0 U14.6 184.1 171.0 1S5.0 197.5 225.4 226.6 227.6

Businese mi omerel Service. 142.9 145.1 158.4 181.1 192.7 2m9.6 826.9 889.6 68.6 867.4 405.2 410.8 457.7 881.1

aDern,mnt Services 17.8 142.2 WO.6 179.6 218.2 229.7 228.0 264.8 295.5 844.0 879.0 424.6 485.1 808.4

MP at Factor Cost 768.0 890.1 964.5 1196.1 148S.8 1706.2 1784.2 19.9 2074.5 2180.7 2297.8 249.0 2667.8 2:96.6

et ndirect Taxes 88.4 108.5 127.6 12.2 194.7 198.4 206.8 218.7 36.2 229.3 848.7 414.8 481.6 817.8

DP at Market Prices 673.4 998.6 1112.1 1848.4 1678.8 1904.6 1990.0 2112.7 202.7 2410.0 264.2 2918.6 8099.2 6414.1

SUrce: Berbed-. Statiatical Service; Central ank. Tuble 2.2: eAsA - STORAL CRIGIN OF ROSS DOMEIC PRODUCTAT COTDA PRICES. 1976-89 (1974 M million)

1976 197t 1978 1979 1980 1981 1982 1968 1984 198S 1986 1987 1968 1969

Sugar 48.0 61.1 48.0 48.5 s7.e 41.6 18.0 86.8 42.6 42.5 47.1 88.4 34.1 21.2

Other Agriculture an Fishing 27.1 21.8 29.4 20.8 25.0 26.8 2S.8 88.1 88.4 38.1 81.7 84.6 81.6 81.8

Mining and tbarrying 2.8 2.4 8.8 8.6 4.8 8.9 4.0 4.9 6.8 7.8 7.7 7.2 6.7 6.2

Iufacturing 81.0 79.8 1.4 92.8 94.8 91.4 86.5 86.7 90.4 81.8 66.0 80.8 85.7 90.8

Electricity and Water 10.8 12.8 14.2 18.8 16.6 16.8 16.8 19.5 20.4 21.4 22.8 28.7 25.8 26.1

Construction 49.9 48.1 46.8 52.7 86.4 56.7 51.7 51.2 81. 88.8 88.5 86.8 61.9 66.9 I

Wholesale an Retil Tre 2.2 124.6 129.8 142.0 186.6 156.2 148.5 141.2 146.6 181.2 168.8 172.8 176.6 181.0 %0

Tourim 57.9 77.1 86.8 107.0 111.0 168.6 89.1 67.3 98.4 90.6 96.7 111.4 128.1 188.8

Tranport. Storage A cmoinilcatia 44.4 45.8 46.0 48.8 49.7 81.9 58.8 84.8 86.4 86.0 61.4 84.8 64.8 66.9

aeleaa an ameral Service. 11F.3 121.8 128.0 126.1 128.1 130.8 138.8 1"4.1 185.4 187.1 145.0 145.7 0.1 18.S5 awarnment servlcaa 97.2 101.1 109.2 182.0 102.0 104.0 100.8 100.8 101.8 105.4 111.6 116.2 117.4 1S.6

GP at Conatwnt Factor Price. 685.4 679.8 712.4 7U8.6 602.8 786.9 748.2 751.4 777.6 779.7 527.0 848.1 87.5 909.0

Not Indirect Taxes 71.0 79.0 92.8 97.8 106.8 91.5 66.8 84.6 85.8 62.0 12.5 140.8 142.0 162.4

86P at C smtat rket Price. 7.4 786.8 04.7 866.4 907.6 6M7.4 84.5 6M.0 868.1 661.7 962.8 966.9 1019.8 1071.4

Real Oratb 4.4 8.6 4.9 7.9 4.4 -1.9 -4.9 0.4 8.5 0.8 8.1 2.8 8.8 8.8 GOP Deflatw (1974a 180) 120.2 181.0 186.2 1.6 184.9 218.8 230.8 262.7 26.8 279.7 27.8 294.7 804.0 818.7

Source: Derbada Statistical Service; Central 1nk. Table 2.3: BR4840 - EXPEOIDrt£ ON GWRSSO0tEC PRJuCT AT CURRETPRICES. 1976-89 - - ~~~~~~~~(8DSm l lion)

1976 1977 1978 197w 1980 1981 1982 193S 1934 1985 1986 1987 ±988 1989

Canaumtian 789.7 930.9 957.4 1140.9 1408.3 1668.4 1665.3 1804.3 1935.3 1954.6 2262.7 2520.3 2675.1 2864.3 Private 63.3 758.8 767.7 930.6 1150.1 1345.2 1336.3 1458.2 1i47.7 1487.2 1793.9 2022.8 2137.8 2250.2 Qovernment 151.4 172.1 189.7 210.3 258.2 821.2 329.0 346.1 387.6 467.4 463.8 497.5 537.3 614.1

Grog fixed capital formtior. 235.9 194.1 254.5 317.2 424.3 525.0 450.5 421.2 373.9 371.6 423.9 466.7 543.3 656.3

Resource Balance -152.2 -1S1.4 -99.8 -109.8 -102.0 -286.8 -125.8 -112.8 -6.S 83.6 -40.4 -73.2 -119.2 -106.5 Exporto af goods and NiFS 404.4 507.4 645.6 867.8 1129.4 1072.6 1215.2 1353.8 1573.7 1658.8 1462.4 1315.6 1527.2 1741.6 Imparts of goads and NFS 556.6 6S8.8 745.4 977.6 1251.4 1359.4 1341.0 146S.6 1580.2 1475.2 1502.8 l138.8 1646.4 1848.1

Croas Douatic Product at a.p. 873.4 993.6 1112.1 lU3.4 1730.6 1904.6 1990.0 2112.7 2302.7 2410.0 2646.2 2913.8 30e9.2 3414.1

Not Factor Inacoa -6.4 -8.2 -1.2 -9.9 -4.0 -0.2 -5.0 -29.4 1.2 -14.0 -15.2 -49.8 92.1 89.6

Cre. National Product at .o. 867.0 985.4 1110.9 1838.4 1726.6 1904.4 1985.0 2083.3 2303.9 2W6.0 2631.0 2864.0 3191.3 3503.7

Dometic Saviras 83.7 62.7 154.7 207.4 322.3 238.2 324.7 308.4 367.4 455.4 363.5 393.5 424.1 549.8

Net Factor Incroe -6.4 -8.2 -1.2 -9.9 -4.0 -0.2 -5.0 -29.4 1.2 -14.0 -15.2 -49.8 92.1 89.6 Private Transfer& 28.2 30.7 35.5 39.4 48.5 54.3 40.9 41.3 41.4 37.6 47.7 52.7 68.4 70.4

National Savings 105.5 85.2 189.0 236.9 366.6 292.3 360.6 320.3 410.0 479.0 416.0 396.5 584.6 709.8 0

(as percentage of CDP)

Consumption 90.4 93.7 86.1 84.6 81.4 87.5 83.7 85.4 84.0 81.1 85.5 86.5 86.3 83.9 Private 73.1 76.4 69.0 69.0 66.5 70.6 67.2 69.0 67.2 61.7 67.8 69.4 69.0 65.9 Covernment 17.3 17.3 17.1 15.6 14.9 6.9 16.5 16.4 16.8 19.4 17.7 17.1 17.3 18.0

Gross flued capital formation 27.0 19.5 22.9 23.5 24.5 27.6 22.6 19.9 16.2 15.4 16.0 16.0 17.5 19.2

Exports of goods and NFS 46.3 51.1 58.1 64.4 65.3 56.3 61.1 64.1 68.3 64.7 55.3 45.2 49.8 51.0

Imports of goads and iFS 63.7 64.3 67.0 72.5 71.2 71.4 67.4 69.4 68.6 61.2 S6.8 47.7 53.1 54.1

Cros Domestic Product at a.p. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Barbados Statistical Service; Central Bank and mission eatimotes. Table2.4: BARBADOS- KEY INDICATORS- HIGH GROWTHSCENARIO

Act Prel. Projections

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

GOP Growth Rate 3.6 -2.9 1.0 2.5 2.8 3.0 3.6 3.5 3.6 3.6 3.6 WI 'GrowthRate 3.7 -3.0 0.6 1.S 2.7 2.8 3.4 3.4 3.3 3.3 3.4 GIG/Capita Growth Rate 3.2 -3.4 0.1 1.0 2.1 2.3 2.8 2.9 2.8 2.8 2.8 Pvt.Cons/Capita Growth Rate .. -3.6 -2.1 0.1 1.1 2.0 2.3 2.7 2.7 2.8 2.7

Total DOD_1/ (in US$) 784.3 692.0 714.8 830.9 900.7 962.4 1016.1 976.4 997.8 1006.7 992.4 DOD/X¢S -2/ 80.6 89.5 85.8 72.7 78.2 77.7 76.4 88.3 64.7 61.0 68.2 DOD/GDP 46.9 89.8 39.0 42.6 43.1 43.0 42.1 37.7 35.8 Debt 33.6 30.7 Service (in USS) 90.3 1i2.8 180.9 87.3 91.8 111.0 123.8 145.7 166.8 178.8 175.6 ebt Servic./XGS 9.3 15.' 14.8 7.8 7.8 9.0 9.3 10.2 10.2 10.8 Service/GWP 9.9 Debt 6.3 8.B 6.8 4.6 4.4 6.0 5.1 5.6 6.6 6.0 6.4 Interest/XGS 4.0 4.8 4.0 3.7 4.2 4.6 4.6 4.6 4.3 4.3 4.1 Interest/GDP 2.3 2.8 2.3 2.2 2.4 2.6 2.6 2.6 2.4 2.4 2.2 Gross Investment/GDP 19.2 19.1 13.4 21.0 22.0 22.0 22.6 22.6 22.6 22.5 22.5 Domestic Saving*/GDP 16.1 14.8 18.6 19.1 20.2 19.9 20.6 20.7 21.1 21.1 21.1 National Savings/GDP 19.1 17.7 19.0 20.6 21.6 21.1 21.8 21.7 22.0 21.8 21.7 Goverment Revenue/GOP 28.9 27.0 28.6 31.0 29.0 29.0 29.0 29.0 29.0 29.0 29.0 Government Expenditure/GDP 30.3 35.8 30.1 29.4 29.0 29.0 29.0 29.0 29.0 29.0 29.0 Deficit (-) or Surplus (.)/GDP -1.4 -8.8 -1.6 1.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Export Growth Rate (GEffS) .. -3.9 2.9 3.0 3.3 3.8 4.1 4.1 4.2 4.1 4.1 Exports/GDP (GMNFS) 61.0 60.8 53.8 62.9 61.0 49.8 49.9 60.1 50.6 60.6 60.6 - Import Growth Rate (GCWS) .. -2.9 0.4 3.6 3.4 2.7 3.6 3.2 3.2 3.3 3.3 Imports/GOP (GAFS) 64.1 56.2 66.6 64.7 62.6 61.8 61.8 51.9 52.0 62.0 52.1 Current Account (USS)-- -2.6 -27.1 -10.8 -3.0 -4.8 -18.9 -21.6 -22.1 -17.8 -29.1 Current -37.8 Account/GOP -0.2 -1 6 -0.6 -0.2 -0.2 -0.8 -0.9 -0.9 -0.6 -1.0 -1.2 Termsof Trade 100.0 94.S 89.0 99.7 100.4 94.8 92.6 90.3 88.1 86.0 83.9 aj Total debt include long and mdium-term, short-term and IMF credit. IBRD projections. Table 2.5: BARBADOS- KEY INDICATORS- LOWCASE SCENARIO

------

Act Prol. Projectionx ~~~~~------1989 1990 1991 1992 1998 1994 1995 1996 1997 l998 9m

CDP Growth Rate 8.6 -2.9 1.0 1.9 2.8 2.1 1.7 1.6 1.4 1.2 1.0 CW Growth Rate 3.7 -3.0 0.8 0.8 1.8 1.8 1.6 1.3 1.0 0.8 0.6 OW/Capita Growth Rate 3.2 -3.4 0.1 0.3 1.3 1.3 1.0 0.8 0.6 0.3 0.0 Consumption/Capita Growth Rate -3.6 -2.1 0.9 1.7 1.4 1.1 0.8 0.6 0.4 0.1

Total DOD_a/ (in US$) 784.3 692.0 714.8 848.8 854.6 916.9 972.9 981.8 i074.6 1199.0 1304.6 DOD/Export. 80.6 69.6 66.8 74.0 72.9 74.6 74.9 71.4 73.4 77.2 79.1 DOD/UDP 46.9 39.8 89.0 43.4 41.3 41.8 41.9 40.1 41.6 44.1 46.7 Debt Service (in USS) 90.8 162.8 160.9 90.6 96.4 113.9 131.7 161.1 161.6 189.7 202.3 Debt Service/Exports 9.8 15.8 14.8 7.9 8.2 9.3 10.1 11.0 11.0 12.2 12.3 Debt Service/CP 5.3 6.8 8.8 4.7 4.7 5.2 5.7 $.2 6.3 '.0 7.1 Interest/Export, 4.0 4.8 4.0 4.0 4.7 4.9 6.1 E.1 5.5 6.8 6.5 Interest/GP 2.8 2.8 2.3 2.3 2.6 2.7 2.8 2.9 3.1 8.3 3.7

rosw Investment/U0P 19.2 19.1 19.4 19.4 19.6 19.5 19.5 19.6 19.6 19.6 19.6 Domeic Savings/DP 16.1 14.8 16.6 17.8 17.8 16.9 16.8 16.6 16.7 16.4 16.2 National Savings/UDP 19.1 17.7 19.0 18.9 18.8 17.4 17.0 16.6 16.4 15.8 14.9

Government Rovenues/W 28.9 27.0 28.6 28.4 28.4 28.4 28.4 28.4 28.4 28.4 28.4 Governmnt Expenditures/GDP 30.8 36.8 81.0 32.0 82.0 82.0 82.0 32.0 82.0 32.0 32.0 Deficit (-) or Surplus (*)/UDP -1.4 -8.8 -2.5 -3.8 -3.6 -3.6 -8.6 -8.6 -3.6 -3.6 -3.6

Export Growth Rate . .. -8.9 2.9 2.0 1.9 1.9 1.9 1.9 1.9 1.9 1.9 Exports/GDP 51.0 50.8 63.3 51.1 50.9 60.9 61.0 51.2 51.6 61.9 52.4 Import Growth Rate .. -2.9 0.4 1.7 2.0 1.7 1.7 1.5 1.4 1.4 1.3 Iports/GDP 54.1 65.2 65.6 53.4 65.8 58.1 63.2 65.2 53.2 53.4 53.5 Current Account (in US11) -2.6 -27.1 -10.6 -10.4 -18.3 -4 .9 -64.9 -67.2 -78.6 -102.4 -127.6 Current Account/GDP -0.2 -1.8 -0.6 -0.6 -0.9 -2.0 -2.4 -2.7 -3.0 -3.8 -4.5 Terms of tlade Index 100.0 94.8 89.0 98.9 99.7 98.8 91.9 89.6 87.5 85.4 83.3 __~------_ __-- __------_ _--__--- _-----_------Debt outstanding and disbursed includes long and medium-term,short-term and IMF credit. IBRD projections. 26-Apr-91

Table 2.6 BARBADOS- NATIONAL ACCOUNTS PROJECTIONS, 1989-99 - HIGH GROWTHSCENARIO - . (1989 BD3 ml lion)

Prel. Projections

1989 1990 1991 1992 1998 199 1995 1996 1997 1993 1999

CONSUMPTION 2884.5 2802.6 2776.6 2799.8 2844.8 2909.3 2988.1 8067.9 3155.2 3248.1 8389.4 Private 2250.4 2179.8 2143.9 2157.2 2192.6 2247.7 2311.6 23886.4 2468.4 2543.9 2626.6 Public 614.1 628.8 682.7 642.2 651.8 061.6 671.5 681.6 691.8 702.2 712.7 GROSSDOMESTIC INVESTMENT 050.8 038.8 849.7 720.8 776.4 799.7 846.2 876.6 905.8 93?.1 969.6

RESOURCEBALANCE -108.6 -120.0 -84.5 -79.7 -88.0 -80.7 -78.6 -72.5 -64.8 -56.0 -48.4 Exports 1741.6 1674.1 1728.0 1775.4 1884.1 1908.6 1980.9 2061.7 2146.1 2284.2 2826.3 Imports 1848.2 1794.1 1800.5 1886.2 1925.6 1977.4 2049.3 2114.1 2181.4 2252.8 2826.1 GROSSDOMESTIC PRODUCT 8414.2 8316.9 8848.8 8482.8 8529.2 W86.1 s780.9 3891.1 4026.8 4165.1 4809.8 term of treo adjustmnt -0.0 -25.9 -26.1 28.6 83.9 -1.7 -7.6 -20.5 -26.2 -50.3 -74.9

GROSS DOMESTICINCOME 8414.2 8290.0 8823.7 8460.8 8683.2 8688.4 8758.8 3870.6 4000.5 4114.7 4284.8 GROSSDOMESTIC SAVINGS 549.7 487.5 547.1 681.6 718.8 724.1 770.2 802.6 846.8 s8.7 894.9 GROSSkATIONAL SAVINCS 651.0 688.8 680.7 714.4 768.9 767.1 810.4 840.6 878.8 891.3 917.6

Source:IBRD 26-Apr-91

Table 2.7: BARBADOS- NATIONALACCOUNTS PROJECTIONS, 1889-99 - LOW GROWTH SCJNA!UO (1989 9DI ol II ion)

Pr*l. Projt- on* 1889 1990 1991 1992 1993 1994 199S 1996 1997 1996 1999

CONSUMPTION 2884.6 2802.6 2776.6 2830.2 2892.6 2948.1 Private 2996.3 3033.1 3066.3 3092.6 3110.2 2260.4 2179.8 2143.9 2149.3 2187.8 2218.7 2240.4 2261.7 2256.6 2256.6 2248.9 Public 814.1 623.3 632.7 880.9 704.7 729.4 754.9 781.3 808.7 837.0 866.2 GROSSDOMESTIC INVESTMENT 668.3 683.3 849.7 O62.0 680.6 694.6 706.5 717.1 726.9 735.6 742.9 RESOUCEBALANCE -106.8 -120.0 -84.6 -79.7 -83.0 -80.7 -78.6 -72.5 -64.3 -66.0 -48.4 Exports 1741.6 1674.1 1723.0 1744.0 1777.8 1812.8 1847.5 Imports 1883.4 1919.7 1SS8.7 1994.5 1848.2 1794.1 1800.6 1823.7 18A0.8 1893.1 1926.1 1956.9 1984.0 2012.7 2087.9 GROSSDOMESTIC PRODUCT 3414.2 8816.9 3848.8 3412.6 3490.1 8561.9 3823.2 3677.7 3727.9 3772.2 3809.7 terms of trade adjustment -0.0 -25.9 -26.1 17.7 22.4 -13.2 -19.6 -32.6 -38.7 -41.8 -83.2 GROSSDOMESTIC INCOME 3414.2 3290.0 3823.7 3430.3 3612.5 3848.7 3603.7 3645.1 3889.2 3710.6 3726.5 GROSSDOMESTIC SAVINGS 649.7 487.6 647.1 600.1 620.0 600.6 608.4 612.0 624.0 618.0 616.3 GROSSKATIONAL SAVINGS 650.6 583.3 630.7 043.3 648.1 618.5 616.8 612.2 609.6 688.6 66.8 0'

. , t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Table 3.1: BALANCEOF PAYNlOS SLW4ARYAT CISRW PRICE5. 1976-89 __ tlLFA Nit I ion)

1976 1977 1978 1979 1980 1981 1982 1988 1984 198s5 196 1987 1988 1989

A.1. Exports of GNR; M82.. 253.7 322.8 433.9 S64.7 S36.3 607.6 676.9 786.9 779.4 731.2 687.8 763.6 870.8 2. Merchandise (FOS) 76.3 85.6 111.6 132.2 181.7 163.7 209.3 273.7 341.6 302.2 245.6 132.2 145.7 147.8 a. of which: Manufacture 37.8 45.3 65.9 92.9 96.4 127.9 160.3 186.4 252.0 199.0 .88.0 76.0 95.0 3. Non-factor aervices 125.9 168.1 211.2 501.7 383.0 372.6 398.3 403.2 44S.3 477.2 485.6 525.6 617.9 723.0

8.1. Isporta of QFS 278.3 319.4 372.7 488.8 615.7 679.7 670.5 783.3 790.1 737.6 751.4 694.4 823.2 924.1 2. Nsrchandie (FOB) 23S.5 272.8 814.8 415.3 52S.4 576.2 854.2 603.0 662.6 611.0 605.7 585.8 603.2 699.9 a. of which: Manufacture 189.9 164.5 196.2 267.6 329.8 864.9 882.5 396.5 461.0 890.0 420.0 349.0 383.2 3. IMn-factor service. 42.8 46.6 57.9 73.5 90.3 103.5 116.3 1230.3 127.5 126.6 145.7 158.6 22D.0 224.2

C. 1. Reaurce balance -76.1 -S5. 7 -49.9 -54.9 -51.0 -143.4 -2. 9 -S6.4 -8.8 41.8 -20.2 -36.6 -59.6 -53.3

D.1. Not factor ince_ -3.2 -4.1 -0.6 -5.0 -2.0 -0.1 -2.5 -14.7 0.6 -7.0 -7.6 -24.9 46.0 44.8 2. Factor receipts 32.0 34.1 39.8 54.0 62.1 71.9 64.5 63.7 77.4 75.6 95.9 95.3 93.1 102.4 a. of which incme labor 6.4 5.2 5.9 6.7 9.5 11.4 9.6 9.3 11.2 9.0 11.7 11.9 9.4 8. Feator payments 35.2 38.2 40.4 59.0 64.1 72.0 67.0 78.4 76.8 82.6 103.5 120.2 47.1 57.6 a. of wh. LT interest (DRS) 2.0 1.6 3.5 5.3 S.9 8.8 1S.8 17.1 23.4 28.6 36.0 89.3 37.6 37.1

E.1. Not current transfers (prv) 14.1 15.4 17.7 19.7 24.2 27.1 20.5 2D.6 2D.7 18.8 M.9 26.4 34.2 35.2 2. Transferreceipts 15.1 16.5 18.6 22.0 28.2 82.9 25.9 25.7 25.3 23.6 29.8 31.7 40.0 45.3 1 a. of ht.workers resit...... 3. Transfer paymnts 1.0 1.1 0.9 2.3 4.0 S.8 5.4 5.1 4.6 4.8 5.9 5.S 5.8 10.1 VI F.1 Curr A/C bal before Off Trans -65.2 -54.4 -32.8 -40.2 -28.8 -116.4 -44.9 -50.5 18.1 £S.6 -3.9 -35.1 20.6 26.7 2. Mat official transfer 1.0 2.8 1.3 5.7 1.6 -9.0 2.8 0.1 -6.0 -13.3 -12.1 -17.S -13.3 -29.3 3 Curr A/C ba) after Off Trans -64.2 -51.6 -31.5 -34.4 -27.1 -12S.3 -42.1 -50.3 12.0 40.3 -16.1 -52.6 2.3 -2.6

C.1. Long-term capital inflow 23.0 19.5 11.9 -7.5 22.8 77.5 8.1 21.7 -17.4 11.5 12.8 70.6 31.3 0.9 2. Not d;rect investmnt 5.9 4.5 8.9 5.1 2.2 7.2 4.1 2.2 -1.5 2.6 5.0 4.6 10.5 5.5 3. Net LT Loan- (M) 4.9 18.9 15.0 4.0 29.7 79.5 53 . 68.8 26.3 48.0 88.0 -11.6 76.2 -29.6 a. disbursement. 6.8 26.1 19.4 10.9 38.4 87.0 60.5 80.1 39.3 71.9 114.1 28.5 109.8 15.5 b. rpeymente 1.9 7.2 4.4 6.9 8.7 7.5 7.2 11.3 13.0 28.9 26.1 40.1 S3.6 45.1 4. Other LT Inflows (net) 12.1 -8.9 -12.0 -16.6 -9.1 -9.1 -49.4 -49.4 -42.2 -39.1 -80.2 77.6 -55.4 25.0

H.1. Other ;tes (NMt) 24.1 29.5 48.6 53.5 23.8 0.9 2S.2 9.7 8.5 -29.6 11.4 7.0 7.8 7.8 2. NMt ehort-term capital 2.8 10.7 18.4 16.4 28.0 36.2 12.4 4.2 0.6 -38.6 8.3 25.7 21.9 27.2 3. Capital flows n.e.i. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4. Errors and omiesion 21.3 18.8 30.2 37.1 -4.2 -3S.3 10.8 5.5 2.9 9.0 3.1 -18.7 -14.2 -19.4

1.1. Change ir net reserves 17.2 2.7 -29.0 -11.5 -19.4 46.9 10.9 19.0 1.9 -22.2 -8.2 -24.9 -41.4 -6.1 2. Use of DF credit 5.2 7.9 0.6 0.1 -5.7 -2.0 23.6 13.0 5.3 5.1 -8.2 -17.5 -11.7 -6.1 3. Other reservechange 12.0 -5.2 -29.6 -11.6 -13.8 48.9 -12.7 6.0 -8.4 -27.4 0.1 -7.4 -29.7 °0.0 4. Escrow Acct. (- inflow)in ......

Source: Barbados Statistical Service. Table 8.2: 8AR9ADS - B ZISE BOORTS (F.O.6.) BY M= CCWIOITM , 197649 (W- millIon)

1976 1977 1978 1979 196N 1961 1902 1968 1964 1968 1906 1907 196 1969

A. Tatal Dsomic Export. a/ 1a.4 181.0 186.6 285.4 887.2 297.0 872.8 510.4 83.7 496.8 420.s 214.8 246.o 2SO.S

Primry Product. 68.4 67.4 66.4 78.9 135.4 76.8 84.8 62.2 62.2 74.0 69.7 78.1 6e.8 71.0

Suar 46.9 80.6 47.0 86.0 109 4 81.5 61.9 87.6 57.8 50.8 46.7 6.9 63.0 471 "lD 9.8 5.8 6.7 6.9 11.9 8.6 6.9 7.1 8.4 7.6 4.6 8.8 8.8 8.8 Other 7.2 11.0 12.7 14.0 14.1 18.8 16.8 17.8 16.8 16.1 16.4 12.9 18.8 20.4

lhnufsctured Products 70.0 e8.6 120.2 186.8 201.6 218.7 28e.2 448.2 801.8 422.8 880.9 189.4 162.7 179.8

R"- 4.4 8.7 6.0 2.6 8.8 4.1 8.8 8.0 6.8 6.0 a.6 7.2 10.9 9.7 Clothing 80.6 37.2 40.6 45.9 49.1 82.2 68.6 70.4 64.8 48.1 88.6 28.6 80.6 26.3 Chmicals 8.9 8.6 9.8 15.2 21.7 24.2 26.8 27.2 28.9 21.1 18.9 21.9 28.7 84.2 a Electrical Component. 13.6 18.8 87.9 45.1 68.8 77.8 121.7 266.8 888.9 80.2 241.8 82.4 44.1 48.4 a largarino and Lard 8.1 8.7 5.4 4.8 6.1 4.8 8.8 4.1 4.6 2.8 2.2 1.6 1.9 2.0 Sports Equlpant - - 1.9 8.8 10.3 6.2 0.8 - 0.2 0.2 0.0 0.0 0.0 0.0 Others 12.2 13.1 19.1 88.1 47.8 48.2 68.0 75.2 64.6 41.1 4t.6 U.8 48.8 61.9

p qgporte 40.1 88.0 68.6 71.8 118.1 94.0 144.9 188. 160.1 146.4 181.7 99.0 10.2 124.1

Patrol.u. A Petro Product, b/ 21.8 88.9 8.7 26.7 64.1 46.8 94.8 94.4 162.4 108.6 71.2 61.0 68.4 78.0 Ohr 18.6 17.1 24.9 44.6 64.0 47.8 80.1 41.4 87.7 42.6 60.6 86.0 42.6 46.1

C. Total Exprt. 178.8 2D4.0 250.2 806.7 488.8 891.0 817.4 646.2 74s.6 642.9 82.8 823.8 84.2 874.6

a/ Visible trade. b/ 1977 and 1978 differs frui official figures due to a timing adjustmnt of BD11.1 m illon of stores nd bunkers re-exported in 177. but reported in 1976.

Sources: Annal OwvremasTrade Reorte; Stetiabtcal Service. Table 8.8: SA.tADOS- MRAISE D9OT (C.X.F.) BY EN UE CATE0R, 1976-09 _ million)

1976 1977 1978 197 1980 1961 1982 1968 1964 196 1966 1967 1968 1989

Conmer Goads 189.8 212.3 248.8 299.9 868.7 86S.4 888.8 889.6 872.6 882.8 8n.8 894.6 428.9 486.6

Man-durable 144. 161.1 1*6.8 zs.a 261.2 268.4 254.2 268.9 268.8 289.1 266.2 279.1 297.8 816.6 Food aed beverage 9.2 104.8 124.1 140.8 168.2 1*2.0 164.7 18.8 160.4 184.4 18.9 177.4 192.6 218.9 Othe.r 48.1 86.8 68.4 88.0 98.0 101.4 69.5 106.6 123.4 104.7 10.8S 101.8 106.2 102.9 Ourable. 2S.4 25.8 24.7 W6.7 48.s 81.4 #32. 71.? 48.7 50.7 68.1 U.2 68.6 78.9 Motor car, 10.9 10.9 6.6 14.2 20.1 26.0 15. 6 81. 28.4 27.1 88.4 80.4 85.9 41.0 Others 12.8 14.6 16.1 22.5 26.7 28.4 10.7 40.1 22.8 28.6 29.7 82.8 29.7 *2.9 0th.- mufactured cmmr go_d* 21.6 28.7 80.8 89.9 87.7 So.6 49.0 24.0 41.8 42.8 .42. 62.8 60.6 77.9

Iauteradste GO de 1L49.6 178.0 1.8 804.0 858.0 407.6 878.4 814.0 6u4.9 6.4 82.4 417.2 481.9 864.8

Fuels 40.2 47.8 28.1 92.8 106.0 148.7 84.6 89.8 229.7 266.8 187.6 180.2 201.6 287.0 20.8 26.9 *2.7 88.5 228.7 269.8 16.8 1811.4 22.0 19.2 22.7 Caheicals 22.1 24.8 29.8 41.6 52.5 88.7 48.8 82.4 47.0 47.2 8D.8 U1.0 6S.85 71. Teat; low 28.2 26.2 27.8 86.1 40.0 44.8 89.6 48.0 88.6 80.0 27.6 80.2 89.8 41.8 Feeds, fate an crude mterials 19-i 22.4 22.4 27.4 27.1 80.0 27.8 29.9 87.0 26.6 26.0 26.7 84.9 87.7 Other mfd. Intermediate goads 48.0 82.4 6.2 64.1 101.8 108.2 94.2 108.8 97.6 96.5 100.0 .s 1*2.2 44.8

Capital Goods 94.1 112.9 142.1 186.4 288.8 279.4 272.7 24.8 244.2 22D.2 228.4 287.8 28.06 841.2

Vhchinery 61.9 78.2 102.6 181.6 160.2 196.2 198.6 189.* 166.8 172.7 181.7 172.6 196.6 280.8 Costruction m_terial, 82.2 84.7 9.6 s84.8 78.6 88.2 77.1 64.8 87.9 47.8 81.7 6.7 74.8 90.9

UWlsasified Goo"ds 1.1 15.9 17.8 9.0 16.8 7.6 12.8 12.8 21.6 26.5 20.0 22.1 *2.2 32.4

Total Nbrch. Imports (c.i.f.) a/ 448.5 814.1 870.0 799.8 979.8 1068.0 996.9 1141.8 31*3.7 1261.4 1210.6 1071.4 1206.6 19.7

a/ Visible trade. Source: Central Bank; Barbados Statietical Service; and Barbados Oversea Trad tnnuals. Table 3.4: B8WSi - DIREIOrN 0F TRADE,1976-89 -- ~~~~~(MOmilIlion)

1976 1977 1978 1979 1980 1981 1962 1968 194 1963 1966 1? 1089 1969

1mport(C.;.f.) 448.5 514.1 680.0 799.3 979.8 1063.0 998.9 1141.8 18.7 121.4 1O.$ 1071.4 1206.6 96.7

Ee a/ 128.8 141.8 167.8 202.6 213.2 195.4 116.2 196.0 166.7 195.9 246.9 210.4 2.4 256s.2 (United Kingdm) 88.5 103.0 115.6 186.8 157.8 140.8 9.8 122.4 100.0 110.2 127.9 120.5 188.7 146.8 Le 108.9 188.2 175.4 266.6 8s6.6 89.4 89.4 878.7 a82.7 506.0 477.0 845.1 409.7 477.7 CARIM 82.2 88.7 92.0 186.8 189.5 188.2 144.1 150.8 154.7 176.3 125 9 143.2 162.8 184.2 Canada 40.7 88.9 46.2 64.8 76.8 98.2 68.7 68.0 74.9 62.2 78.4 61.3 s2.8 101.8 otew 92.9 111.5 88.6 126.8 148.0 207.8 234.5 151.8 294.7 269.0 28.4 291.4 829.4 377.o

Exporte (f.o.b.) b/ 178.5 204.0 20.2 8O0.7 456.3 891.0 617.4 840.2 74.8 642.9 S52.3 81.5 884.2 874.6

EB: a/ 6.9 39.7 48.4 60.1 70.7 42.4 68.7 85.9 64.5 49.3 76.2 60.7 76.9 66.1 I (UR;ted xingdom) 6.6 15.7 82.5 88.8 29.9 26.6 47.0 29.8 54.4 41.0 42.2 6e.0 66.2 47.6 - LIS 52.8 61.7 66.6 110.9 165.1 146.0 196.8 418.7 418.5 869.7 249.2 66.6 06.7 62.4 CARIM 45.8 48.6 6.1 76.2 12.7 121.1 141.8 189.0 175.9 16.4 96.1 74.7 94.7 12O.9 Cada 12.2 10.7 12.1 16.0 18.8 18.2 10.7 9.8 12.6 9.9 28.2 13.2 12.2 11.0 Other 57.3 46.8 60.o 48.5 74.6 64.8 97.9 42.8 74.8 49.6 107.6 78.4 88.7 99.2 a/ EelgiumLUx,ebourg, Drnmrk. France, Germat FR, Ireland. Itly. . P.Kand GCreece(ince 196). b/ Incldes r-exports.

Sourc: Owereee Trade reports; BSrbde Statisticel Service. I~~~~~ ! t I. *

-1 ; -. -. - Sb ii* 1U9 fi 8.3 11h

Iii | *e

U- |||20a Vce 10g i | 8i | § E fl Z E n ko~~~I I

1"Eu|| JggZI | I.;.g !E|0 I 1I I j

10@ i | i |§i c | I '- - 691 -V Table 8.6: SAR64ADS- HERCK*XISE DWTS (C.I.F.) TO CWV=A4 A40 OTE CU@1EALTH CARIUAN COUMIB. 1976-f9

197 1977 1978 1979 1960 1961 1962 1968 1964 196 19 1967 16 1969

0o, 9709 10480 O2m 66 61ml 646 84 4e 6112 8m8 45f0 OOOD s70 6400 Trinidad and Tobao 6 54879 M68 89 146816 1269 1t 1118U 11J172 120 61 00O OD tOU104900 121400 .hmla 171 1l 690 14994 28415 21188 26178 O0 28447 MU SM7 29o0 260 80600 81Zo100 Deoinicn 1062 1819 1714 969 1443 1218 790 1867 16 2284 1SSl 19i 17 272 6s 6s 2s 891 62 1078 6a2 496 687 497 308 148 1819 1490 St. Vincent (loci. Or_edin"e) 748 967 2962 8216 2810 46 6144 2290 2106 12 1l91 2206 2676 m71 St. Lucia 268 446 4947 am am 31 4247 4445 4624 4698 4Zm 7UO 10416 166 Monterrat 12 14 2o 20 86 391 177 221 60 121 64 11 9 a ° Antigu 5sS 817 119 1641 2207 1680 1178 2841 2118 1679 280 26 268 2646 St. Kitta-Nei. 220 259 241 679 Om 422 117 126 496 570 281 64 178 296 Belize lo 480 862 212S 189 4 458 498 241 106 is 29 156 2149 1214 Other a/ 46 e6 45 U4 10 8S 141 190 97 799 o -27 14 -82 Total 8202 86810 92039 186791 96 1 145218 1540 15610 1764 129612 14621 162795 14

a/ Bahain. ermuda and Britiah Virgin Islanda.

Source: Annual Overees Trade Yerb; Barbad Statistical Service. Table 3.7: BRSAOB - OFFICIAL VTVEATIONALRESOV , 197-00 (UIP million)

December 81

1976 1977 1978 1979 ItO 1981 1982 1988 1964 1968 1966 1907 19" 1969 190

Mt Official International beer,.. 28.8 19.2 41.8 81.2 71.2 47.0 40.7 48.1 48.2 68.4 92.8 104.2 141.8 99.2 117.7

Central Oan 'net) 20.1 11.8 81.4 89.2 86.0 80.8 22.8 20.4 27.1 49.1 76.1 66.7 79.6 48.1 111.2

Ae-et. 20.1 29.4 49.9 68.6 64.6 87.4 107.6 110.4 107.8 151.8 142.4 18.7 117.8 99.8 lSS.8

LiabilitIes 0.0 17.9 18.8 16.6 8.9 86.9 65.1 82.0 60.7 74.4 64.3 47.0 87.8 54.8 82.4

DF (CFF) - 7.9 8.5 6.6 2.9 0.9 14.0 12.4 11.8 18.0 7.2 0.1 0.1 0.1 0.1 4.2 0.7 St%anbp ------10.6 25.4 81.8 88.2 88.2 22.2 10.4 Trinida and Tobaoo / - 10.0 10.0 0.0 6.0 7.a 9.2 9.8 9.2 9.2 2.6 1.6 0.0 0.0 0.0 Venezuel Inveetomt Fund - - - - - 8.8 7.8 9.9 7.7 0.8 0.0 0.0 0.0 0.0 1.4 we - - - - - 1.0 1.0 2.0 2.0 1.8 0.4 0.2 0.1 0.0 0.0 Comercial Bon. - - - - - 44.2 40.0 20.0 19.0 9.4 19.0 26.0 27.0 80.8 80.8 0.0 0.0 0.0 OICF: ------S.0 8.0 0.0 0.0 0.0 0.0

Oernmnt Aso*e 6.2 7.7 10.1 12.0 18.. le.6 18.2 19.7 16.1 19.8 14.4 15.4 81.8 84.1 14.8

Sinking Fund 8.8 6.9 9.1 11.2 18.8 14.6 16.6 18.8 18.4 16.9 14.8 14.8 20.7 18.7 14.8 OUher 2.9 0.6 1.0 0.8 1.4 1.7 1.4 1.4 0.7 2.4 0.1 0.6 40.6 40.4 0.8

INorandum Item:

Groe Official Reervee 28.8 87.1 60.0 e7.8 o0.0 108.9 125.6 1U0.1 22.9 142.6 188.0 151.1 178.6 188.6 170.1

*/ Include Trinidad and Tobago deposit. and ol. facillty.

Source: Central Bnk of Barbados nd DF. Table 8.8: BAR8AD0 - BALANCEOF PAYMENT:PROJECTIONS, 1989-99 - 4IGN MOMTHSCENARIO (USI: * Iion)I

Act Prel. Projections 1989 1990 1991 1m 1998 1994 1995 199U 1997 1996 l999

A. Export. ot GoodsA FS 871 882 978 1035 1966 1116 12s2 1298 1. Merchandise 1411 151S 1629 (FOB) 148 162 15S 174 176 173 17B 18S 191 197 2. Non-Factor 204 Serwlces 728 78o 822 881 896 943 1i23 1114 1229 1317 1425 9. Import. of Goods A NFS 924 980 1037 1669 1099 H 1186 1248 1344 1451 1662 1683 1. rcbhndise (CIF) 7?6 722 777 8as 83a 892 969 1554 1146 2. Non-Factor 1246 1866 Services 224 288 260 268 203 288 279 291 306 a31 328 C. Resource Balance -68 -78 -S9 -34 -33 -44 -46 -46 -46 -47 -64 D. Not Factor Ince 45 45 42 24 21 19 17 17 16 1. Factor 16 8 Receipt. 102 114 1Z8 168 117 123 127 131 133 136 16 2. Factor Paysnte 68 89 87 84 96 1R4 119 114 118 126 128 (interest payments - lt) 39 35 30 29 37 44 48 St 63 68 69 E. Not Current Transfer* 6 p 7 7 7 7 7 8 8 8 8 F. Current Account Balance -3 -27 -11 -3 -6 -19 -22 -22 -18 -29 -38 G. Long-Toro Capital Inlofn I -a8 -5 124 86 72 ea 44 8S 23 42 1. Direct lvesteent 6 6 7 8 9 16 11 12 13 2. Official 14 15 Capital Grntt a 0 0 a a 0 a 0 0 0 a 3. Not LTLoans (DRS data) -30 -73 -12 116 77 62 62 32 a. Disburseomnts 22 9 27 1O at 106 11 119 116 114 114 112 117 131 b. Ropaynent. 45 106 118 46 42 64 63 82 108 4. Other LT inflows 91 1U4 (not) 25 0 -0 0 0 a 0 0 6 0 0 H. Total Other Items (nt) 8 9 0 0 o o 6 6 6 a 1. NotShort Term Capital 27 0 0 0 0 0 0 0 2. Capital Flows N.E.I. 0 0 a 0 0 6 a 0 6 a a 3. Errors and Omissions -19 9 0 0 a6 0 0 1. Changes in Net Resorves -6 88 16 -121 -81 -53 -41 -22 -17 8 -5 Shares of CDP (Current US8): 1. Reource Balance -3.1 -4.6 -8.2 -1.7 -1.6 -2.0 -1.9 -1.8 -1.4 2. Total Interost -1.6 -1.7 Payment 2.3 2.8 2.3 2.2 2.4 2.6 2.5 2.5 2.4 2.4 2.2 3. Current Account Balance -0.2 -1.8 -0.6 -0.2 -0.2 -0.8 -0.9 -0.9 -t.6 4. LT Capital -1.0 -1.2 Inflow 0.1 -3.9 -4.3 6.3 4.1 3.2 2.6 1.7 1.2 0.8 1.3 Lumorandum Item: CDP ( Mina. of Current US$) 1707 1738 1834 1955 2099 2239 2409 2692 2789 3801 Gross Res. in Months Imports 8229 1.9 0.8 0.0 1.8 2.8 3.6 3.1 3.1 3.0 2.8 2.7

IB1RDprojections. Table 3.9: BARBADOS- BALANCEOF PAYMENTSPROJECTIONS, 1989-99 - LOWOMTH SCENARIO __,__-- (USS million)

Act Prrl. Projections 1989 1996 1991 1992 1993 1994 199 1996 1997 1998 1999

1323 1392 A. Exports of Goods & NFS 871 882 977 1016 10o8 1062 1120 1184 1259 140 162 155 174 170 173 178 104 191 198 205 1. Merchandise(FOB) 1)87 2. Non-Factor Services 728 736 822 942 856 889 942 1W 1968 1126 1465 1484 S. lIporta of Goods A NFS 924 I"UO 1037 1052 1668 1117 1180 1261 1328 (FOB) 790 698 777 761 776 826 876 928 989 1054 1123 1. Merchandiso 351 364 2. Non-Factor Services 224 262 266 291 292 298 810 a23 I." -92 C. Rsource Balance -53 -78 -69 -38 -36 -65 -.0 -67 -69 -82 -41 Not Factor Incom. 45 46 40 20 11 S -1 -6 -16 -26 0. 124 1. Factor Rscelpta 103 114 168 107 116 116 118 119 129 122 S8 69 67 87 105 111 119 125 136 148 165 2. Factor Paymant. 94 (interest paymnts) 39 35 a3 33 42 47 53 57 67 78 O O O 6O E. Not Curreot Transfers 6 6 7 6 6 6 -102 -128 F. Current Account Balance -3 -27 -11 -16 -18 -45 -6S -67 -79 131 164 C. Long-Term Capital Inflow 1 -68 -6 117 24 es 61 86 99 6 8 7 6 6a8 6 6 7 7 I Oirect lnvestmet 0 a 2. Offlcial Capit.l Grant* 0 o 0 0 a o 0 0 (RS -30 -74 -12 111 18 82 56 80 93 124 147 3. Net LT Loans data) 243 a. Disbursements 1S 31 108 1S8 es 117 121 161 174 223 45 10S 118 45 42 64 66 81 82 99 96 b. Repayments 0 4. Otber LT lnflows (not) 2S 0 0 0 0 0 0 6 a 0 a 0o 6 o6a 0 G O H. Total Othbr Ites (not) 8 0 Not ToromCpital 27 0 -0 0 0 0 60 a 0 1. Short O Capital FlowsN.E.I. 6 0 0 0 o 0 0 0 9 O 2. 0 0 a O a.Errors and Omissions -19 9 0 0 a 0 0 -26 I. Changes In Net Reserves -6 B C -106 -B -24 -4 -19 -21 -29 Shares of GOP (Current USS): -3.2 1. Resourc Balance -3.1 -4.5 -3.2 -1.8 -1.7 -2.6 -2.6 -2.7 -2.7 -3.9 2.3 2.0 1.7 1.7 2.0 2.1 2.3 2.3 2.6 2.9 3.3 2. Total Interest Paymton -4.6 Account Balance -0.2 -1.6 -1.2 -0.5 -4.9 -2.0 -2.4 -2.7 -3.9 -3. 3. Current 4.8 6.4 4. LT Capital Inflow 0.1 -3.9 -6.3 6.6 1.2 3.1 2.6 8.6 3.8 amoreadumIt_m Current USS) 1767 1738 1834 943 2667 2194 2321 245S 2583 2718 2855 GDP(Ans of 2.3 2.4 4. Gress Res. In Months Import 1.9 0.8 9.6 2.0 2.0 2.2 2.2 2.2 2.2

IIRD projections. Tablo 4.1 BARBADOS- EXTERNALPUBLIC DEBT OPERATIONS, 1978-89 *J (USt ill1ion)

1978 1970 1980 1981 1082 1988 1984 I9ns 1988 1987 1988 1989

Debt Outstandingat the nd of the

Period 64.2 68.7 97.9 176.8 226.0 292.9 806.a5 860. 485.5 497.2 585.3 505.9

Net Disbursements 16.0 4.0 29.7 79.7 65.2 68.9 20.2 48.2 88.0 -11.6 76.6 -29.5 Disbursements 19.4 10.9 88.4 87.1 60.4 80.2 89.2 72.0 114.0 28.6 109.7 16.5 Amortization 4.4 6.9 8.7 7.4 7.2 11.8 18.0 28.8 28.0 40.0 84.2 45.0

Valuation Adjustment -0.6 0.6 -0.6 -4.6 -5.8 -8.8 -16.8 8.9 18.9 52.3 -9.9 -81.1

Debt Service Paymnt 7.8 12.1 14.6 18.2 22.9 28.4 27.9 48.9 67.1 72.9 71.8 34.2

Amortization 4.4 6.9 8.7 7.4 7.2 11.8 18.0 28.8 26.0 40.0 34.2 45.0 Interest 8.4 6.2 5.8 8.8 15.7 17.1 14.9 20.1 81.1 82.9 37.6 89.2

MemorandumItem (Percentngcc):

Debt Outstanding/COP 11.5 10.2 11.8 18.4 22.7 27.7 26.5 29.9 85.2 34.1 86.6 29.6 Debt Service/Exports b/ 8.4 8.7 8.4 8.9 5.2 5.8 4.8 7.8 10.6 14.9 12.2 12.6 Average Interext Rate c/ 5.8 7.6 5.9 .0 8.09 5.8 4.9 5.8 6.7 6.6 6.6 7.7 a/ Refers only to long- and medium-term debt (i.e It excludes short-term debt and IMF credit). b/ Domestic Exports and gross travel roceipts. c/ As percent of debt outstanding at beginning of period. Tabl 8.1: BAMAos - CENTRALcOVSRW FI4A3 1977/76-169/90

(SW ni IlI on)

1977/78 17/79 1979/80 1980/81 1961/62 196/88 193/84 1964/3 1968/86 1986/87 1967/86 19"/89 199/9

Current Rbasnu" 243.5 306.4 354.3 441.0 469.4 495.6C 541.1 8n.9 643.4 671.1 726.7 662.2 s67.6 Current Expendituree 232.2 256.0 304.2 387.1 433.7 477.4 490.0 o88.9 66.3 627.6 748.8 781.7 682.7 Current Surplus/Dficit (-) 11.8 50.4 80.1 83.9 35.7 16.2 1. 1 16.0 17.1 43.5 -22.1 100.5 14.9

Capital Revenue 1.9 0.0 0.0 0.0 0.0 0.0 0.0 O.M 0.0 0.0 0.0 0.0 0.0

Cpital Expenditure & Net Lending 65.9 72.2 86.7 141.0 173.3 132.3 137.7 161.6 1s5.s 16.O 16.9 15S6. 209.5

Overall Surplus/Deficit (-) -72.7 -2. -386.6 -87.9 -137.6 -114.1 -86.6 -145.6 -142.4 -15.5 419.0 -56.0 -74.6

Financing 72.7 21.6 38.6 67.9 137.6 114.1 66.6 145.6 142.4 152.5 219.0 86.0 74.6

Oros external borrowing 84.8 38.4 21.1 89.6 104.3 71.2 46.7 73.6 119.3 168.8 146.6 142.3 148.2 Tr' Idad A Tobaso 0.0 0.0 0.0 81.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cl 6.9 8.4 2.9 0.3 1.8 0.2 0.4 4.4 0.0 0.0 4.6 0.0 0.0 0.0 * - 0.0 0.0 0.0 o/ 10.6 8.4 18.0 16.0 0.0 0.0 0.0 0.0 UK 0.0 0.0 1.9 1.8 0.0 0.3 0.0 0.0 0.9 0.0 0.0 0.0 0.0 ISIlD 0.0 0.0 0.0 2.1 8.6 17.5 12.6 8.6 10.8 14.7 6.6 7.1 7.0 8.0 coo 2.1 1.4 8.6 7.4 *.6 2. 6.8 1.6 0.6 18.1 14.2 a 0 Dw8 1.38 6.6 11.2 11.2 14.6 7.2 6.0 6.6 4.8 22.9 21.6 22.3 22.0 Commercial bank* 12.0 20.0 0.0 11.7 68.9 32.6 1.2 0.6 60.0 60.0 93.3 0.0 90.0 OP1 0.0 0.0 1.5 4.0 1.8 2.0 2.0 0.0 0.0 0.0 0.0 0.0 0.0 SF 0.0 0.0 0.0 0.0 1.0 0.7 0.2 0.0 0.0 0.0 0.8 0.0 0.0 Japan 0.0 0.0 0.0 0.0 0.0 0.J 0.0 31.6 80.0 85.6 0.0 60.4 0.0 Other. C/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -8.8 8.2 0.0 4.0 24.8 16.2 Grnts 0.6 1.8 0.8 2.2 0.9 1.6 2.9 4.0 1.3 0.0 0.0 0.0 0.0 Aortizstion 0.9 7.9 9.0 10.9 18.9 14.6 26.9 253.5 3.7 89.6 66.6 72.1 129.7 Nat external borrowing 28.2 80.3 12.9 &..9 91.8 86.4 24.7 84.8 AIK.9 146.9 76.0 70.2 1S.8

Nat backing yet_ 26.8 18.4 81.5 2.t 45.7 12.8 6.0 -22.5 22.6 -21.8 73.6 -2.0 10.0 Central bnk 6/ 7.3 14.6 24.8 19.2 27.6 7.1 -10.2 -70.5 0.6 -71.6 70.8 -1.6 32.0 Co_ercial bank 21.2 6.6 7.2 4.4 18.1 6.4 16.2 46.0 21.0 60.8 6.0 40.8 -2.0 OUer. 16.0 -2.9 -7.6 -16.6 0.6 43.2 68.9 11S.6 26.9 25.1 64.2 6.8 51.1 Trust companies 0.2 O0.8 0.2 0.2 0.0 0.0 -1.0 0.9 1.0 *1.1 -8.8 24.2 -14.8 Special funds -0.7 -0.4 0.4 -0.2 0.1 -0.3 -0.1 2.9 -8.3 0.0 0.0 0.0 0.0 Natinl numrance Find 9.9 8.2 2.8 0.6 24.1 41.7 87.6 81.1 27.1 4.8 4.9 14.2 17.0 Insurance compani;e 8.8 0.9 0.7 2.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Oter (residul) 2.8 -80.8 -11.4 -19.6 -'2.6 1.6 19.4 73.2 6.1 21.9 8s.; -31.6 46.4 lot dome_ti finaning 44.5 -6.5 26.7 7.0 46.8 85.7 61.9 91.8 4.8 3.6 141.0 -'4.2 61.1

ul Ion in 1983/84. */ Repreaeto C F and Baie Humn Nade finefcing c_onnel d thea CD8, except for 3067 b/ Included in ClS. c/ Includes Venezuelan Investment Fund loan in the amount of I6068.8 million in 1984/85 and WD.0 sillion in 19Co/3 d/ Includes UAID Rediscount Account of iDS84.6 million in 1966/86.

Source: liinietry of Finance and Planning; Accountant General s Office; xnd sieslon *atietee. TAle 5.2: BAROADOS- CENTRALCOV _NC RtEVE8 19n7V/7199/90 -- (1DS rillion)

1977/78 1978/79 1979/80 1980 61 1981/82 1828 1963/84 1964/83 1961/86 1966/87 2 7f/ 196/U9 196/90

Taxes mn PM Income mi Pofiito 105.6 lQ.G 139.7 161.6 177.J 193.8 194.7 86.8 204.1 10.5 135.7 227.7 24.8

Cnoepise 34.6 44.2 47.4 64.7 66.9 68.4 61.2 80.7 86.8 71.3 72.6 101.7 110.6 Inividuoal 66.0 82.2 8S.6 89.0 096 113.2 1O.0 12.2 134.5 77.o 2.8 114.8 1.8 Others S.0 6.2 6.7 7.8 10.8 12.0 13.8 12.6 12.6 12.2 10.3 1.8 14.8

Levies 0.0 6.0 4.1 8.1 -2.7 23.3 25.8 30.1 29.5 43.7 69.5 76.- 8B.0

Taxes on Property 9.4 13.0 17.8 21.6 27.s 26.4 28.1 26.3 34.7 42.4 38.1 47.8 48.8

Lend tax 7.2 8.0 11.7 11.8 18.8 19.6 21.9 22.9 26.0 29.1 25.5 31.6 34.8 etx A Sueccsion DOuti 2.2 8.0 6.1 10.1 11.7 6.6 6.2 5.4 8.7 13.3 10.6 16.2 14.0

Tax an DoImetic Goods Services 80.6 62.1 76.3 Q6.2 113.7 124.9 138.3 15. 166.6 189.6 220.9 =5.7 303.9 . - Cone.w ,on Tax 17.2 19.6 23.6 _: 86.4 80.3 98.0 98.9 99.9 120.6 147.0 13.6 214.3 Excis Duties 4.7 8.2 8.8 4.9 8.3 4.3 4.6 5.0 8.0 4.8 4.9 5.2 4.9 Taxes on *btor apirit.,Oieel OilI A Aviation Fuel 11.8 14.1 16.4 19.7 17.3 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 I HaeI * Restaurant Tax 7.2 10.3 13.4 14.7 14.6 12.4 14.8 14.6 17.3 17.4 1S.8 17.7 '4.1 Other 9.7 12.9 19.3 17.9 22.7 26.1 24.4 43.0 44.4 47.1 S3.2 89.3 68 6

Taxes an Intemntionl Trada 40.1 84.9 74.4 09.8 80.6 74.7 89.7 84.1 96.9 US1. 116.0 119.8 12.7

Import Duties 48.1 84.9 74.4 89.8 69.6 74.7 89.7 84.1 96.9 11.S 116.0 119.6 126.7

Other Taeas (Stomp duties) 2.2 8.0 4.1 t.2 8.6 17.8 26.8 48.7 74.8 6.8 106.1 82.7 104.8

Total Tax Revenue 21.9 27n.6 318.4 387.4 416.0 480.4 802.1 533.2 606o.0 33.4 664. 818.6 916.0

Total bnw-tAxRevenue 27.6 34.8 36.9o .6 83.4 3W.2 39.0 38.7 87.1 82.7 42.1 63.4 n.6

Cov't Departoonto 18.1 21.2 18.1 26.1 27.0 16.7 24.8 19.8 13.4 13.9 14.4 33.4 48.0 Water A Poet Office (Net) 1.4 0.6 1.3 0.3 0.7 0.4 1.8 1.0 0.4 1.9 1.1 1.8 0.3 Property Icme 2.2 3.8 7.3 11.1 11.2 12.6 8.8 8.4 9.8 7.2 18.1 u1.s 9.3 Special Receipte 8.9 9.2 9.2 17.1 14.8 5.8 6.9 6.8 11.8 9.7 11.5 16.9 17.0

Total Current Revenue 243.6 306.4 354.3 441.0 489.4 498.6 641.1 871.9 64a.4 6n.1 720.7 80.2 907.6 Source Mi- M _ _ - _ _ -

Source: Ninietry o6 Fi aece and Planning. Accountant enral ani elesion esieste. Table 5.3: BARBADOS- C9N?RALOSVENT Ol.iITE EXPNDrF BY ECOOIC CLASSIRCATION. 17/78.4909/0 (U13 ai llion)

197/78 1978/79 1979/80 1980/81 1981/82 1982/83 1U/d 1L /65196I/66 19661/87 1987/as 196/89 16/90

Oda VW Services 15.0 148.1 169.2 217.1 226.9 2s5.0 261.0 296.8 335.5 3S8.8 421.7 43.3 474.6

_gs aN salnries 101.1 112.8 126.7 173.1 163.7 203.4 207.2 248.2 2e6.s 291.8 387.4 3S3.5 374.s Other 33.9 85.8 42.5 44.0 43.2 49.6 53.6 58.6 68.7 67.5 84.3 81.a 100.5

Interet 16.4 22.8 28.4 29.9 62.4 71.1 62.7 64.9 69.8 61.2 99.6 109.7 120.9

Domesic 15.4 17.2 18.5 20.2 87.4 50.1 86.8 40.1 J8.5 86.0 45.0 44.9 67.5 Exterml 8.0 5.6 9.9 9.7 15.0 20.5 2a.9 I..$ 81.5 43.2 54.6 64.6 65.4

Operating Deficit of DeprteintaI

Enterprim (Printiang Dpartment) 0.8 0.6 1.0 1.1 1.4 1.4 1.8 1.6 1.5 0.0 0.7 0.6 1.0

Other Domestic Transfers 75.7 82.8 102.7 18.6 150.1 147.9 160.8 185.0 213.5 12.1 219.9 260.0 248.5

Notional Insuranac contributim 1.9 8.4 8.8 7.6 8.4 11.3 12.2 1l.S 15.9 16.1 20.3 22.3 24.0 tNk-finnecial public eoterpriee 10.6 11.5 16.2 27.7 28.5 21.5 18.0 17.4 19.9 19.5 88.0 20.1 20.6 Penions 12.9 14.7 16.7 19.7 22.3 26.8 2° f 88.9 85.5 40.4 42.3 48.6 62.8 Non-profit inatitutioe 1.2 1.8 1.6 8.9 1.6 9.7 8.4 12.0 12.6 12.6 17.6 15.3 15.8 Other tanders 19.1 19.9 28.5 26.7 28.1 13.0 7.5 u2.8 6.7 9.0 20.8 11.6 10.9 Other public institution 30.0 81.5 41.4 S1.0 61.0 66.1 64.8 96.1 1U2.4 96.8 111.5 103.1 117.7

Reginal A Internatial Aencies 2.8 2.0 2.9 2.4 2.9 4.0 4.7 5.6 6.0 4.9 6.g 5.9 7.5

TOmALamENT EXPNITU. 232.2 266.0 804.2 887.1 488.7 477.4 490.0 586.9 62.8 027.6 748.8 781.7 852.7 __ -_- --- -_- - _

Source: Ninistry of Finance an Planning; Accountant enral rnd *imicn stinte. Table 5.4: wWMaDS - CUdMAL68VO4T CAPTAL 0SIT1UL ff EgtNIC aASSCATI. 1977/7819S9/90 (MI mTIllIon)

1977/78 1978/79 179/80 1960/81 1981/82 1962/83 1963/64 1964/68 19W8/6 1966/67 1967/68 19068/9 1969/90

Eonomle Classification

Acquiition of Assets 2.8 2.7 0.0 2.0 4.8 4.7 7.0 7.5 5.1 6.1 11.6 8.1 2.4

Capital Formaion 87.8 27.4 51.0 90.7 113.9 89.8 U0.4 84.8 96.7 221.8 116.6 111.7 145.2

Trrnm r 29.6 84.3 85.0 44.0 40.8 27.6 84.9 84.6 84.2 61.0 21.1 22.2 #6.1

Nonfinancial PUblic Enterprises 26.8 80.4 81.0 85.4 81.2 25.8 27.6 29.0 29.5 22.8 12.4 18.9 21.1

Public Financiel Institution 2.8 2.2 1.6 1.0 1.8 0.8 0.5 1.5 2.6 0.5 6.4 8.0 0.9

Abroad 0.0 1.8 1.2 7.1 5.7 1.7 6.0 8.4 1.2 6.6 1.2 2.0 10.0

Other Public LntItution 0.8 0.6 1.6 2.5 1.9 0.8 0.6 0.7 1.0 1.2 4.1 8.3 4.1

Nat Lmndeno 18.7 7.6 0.4 5.1 14.6 40.0 29.4 35.2 21.5 67.6 47.2 19.5 25.6

IEaity Centributioe 12.6 5.2 0.2 4.6 14.7 14.8 25.7 20.8 2D.9 22.4 2t.5 15.7 18.8

loans and advane a/ 8.1 2.4 0.2 0.6 0.1 25.2 8.7 14.4 0.6 18.2 20.7 8.8 10.0

Totl Capital Ecpenditura 4 Nat

Leading b/ 86.9 72.2 66.7 141.8 178.8 1U2. 137.7 161.6 19.5 196.0 196.9 156.5 209.5

a/ Includes 6124 miII;on loan to the Petrolum Companyin 162/611. b/ 1982/83-8S/84 includes expnd;ture of the Transport Levy Fund.

Source: Ministry of Finance and Planning; Accountnt Ganral and mission eatieate. Tablki .S: 64O - CENTRAL OV5ERUNT1RANSPS, lq7?/7g1-99t/O P 1 . I of 2 (W mlIIiotn)

MM77/78 7/79 1979/0 low/8l 1961/32 1 38 196/84 1964/36 198/3/6 196/87 167/ lw/go 19/90

Currant Trnsfers 78.8 #5.1 146.6 140.1 154.4 l12.8 134.9 190.6 220. 200.7 254.1 22m.8 247.5

Non-f;naneinl Public Enterpris 10.6 11.5 16.2 27.7 26.L 21.5 16.0 17.4 19.9 19.5 9J.0 20.1 20.6

Ntional lHuing Corporation 1.7 2.6 3.3 8.9 4.9 2.9 2.6 8.2 2.7 3.1 4.5 8.0 4.2 Wate,rorks Department 2.7 2.7 8.2 7.8 6.4 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Post Office 0.0 0.0 0.0 1.2 0.0 0.3 0.0 0.8 0.2 0.6 1.4 0.6 2.0 El'de indutrial Dow. Corp. 1.2 1.2 1.7 2.9 8.0 2.5 2.2 8.1 8.0 8.4 4.9 3.6 4.4 Trwsport kerd 4.6 4.5 7.8 11.9 15.0 14.5 18.0 10.6 14.0 12.4 22.0 12.9 10.0 B'Je Marketin Corporation 0.4 0.5 0.4 0.5 0.2 0 0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.6 11.8 16.2 27.7 21.5 21.5 18.0 17.4 19.9 19.5 8#.0 2D.1 20.6 Operating dficit of Dert_n tl I

Enterpri (Printing Office) 0.8 0.6 1.0 1.1 1.4 1.4 1.8 1.6 1.S 1.7 1.? 1.9 2.1 *D

Other Public Institution 80.0 81.6 41.4 61.0 61.0 66.1 34.8 96.1 112.4 96.8 111.5 108.1 117.7

Barbados ODfens Force 0.9 1.8 2.1 5.1 7.6 9.7 11.9 15.5 10.7 12.0 16.3 14.7 18.0 Sch-ola, colle"e a unlversities 14.9 1S.1 21.4 22.0 25.7 26.8 8 .2 87.2 80.1 41.9 34.9 84.2 40.2 Tourisa promotIon 8.9 4.2 8.8 6.8 7.S 10.2 11.5 18.4 16.5 18.6 19.2 10.2 22.5 Sanitation aervices 5.0 5.2 6.2 8.1 9.2 6.9 11.2 10.9 10.9 11.3 18.9 13.9 15.8 Pork. a"n beaches 1.6 2.8 2.8 8.8 4.1 8.4 8.0 6.6 5.7 6.2 16.6 18.6 18.5 Export p rootion 0.2 0.2 0.8 0.4 0.8 0.7 0.8 1.6 1.9 2.1 1.6 1.4 1.8 Coves Authority 0.0 0.0 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Wslfore agencI 2.1 2.7 8.0 4.8 5.4 6.6 6.9 7.7 9.0 3.0 8.3 7.1 6.9 Other 1.2 0.5 0.8 1.6 0.6 1.8 0.8 1.2 1.6 0.5 0.0 0.0 0.0 80.0 81.8 41.4 51.0 61.0 66.1 84.3 9C.1 112.4 96.8 111.5 108.1 117.7

National Insurance Bard 1.9 a.4 8.8 7.6 8.4 11.8 12.2 1.8 18.9 16.1 20.8 22.3 24.0

Mtmprofit Istitutions 1.2 1.8 1.6 8.9 1.8 9.7 8.4 12.0 12.8 12.6 17.6 15.8 15.6

Penio 12.9 14.7 16.7 19.7 22.8 28.8 29.9 88.9 85.6 40.4 42.3 48.6 8a.8 Page 2 af 2 Table 5.5: BAPAlOS - CtRUAL CNvee3t TRAMNS5 1977/78-1989/90 cont'd m(DIeiII ion)

1977/78 1978/79 197I/80 1980/81 1981/82 1982/83 1988/84 1984/85 196/86 1980/87 1987/86 1908/89 1960/90

Other Tranfer, to Individuals 19.1 19.9 2J.5 26.7 28.1 18.0 7.5 12.3 6.7 9.0 20.8 11.6 10.0

Welfare grants 17.1 16.4 19.4 21.5 22.4 9.8 4.1 5.8 1.4 3.5 14.4 3.2 1.6 Scholarships and burearies 0.5 1.8 2.2 0.0 3.2 2.0 3.8 8.9 2.9 8.0 2.8 2.4 8.0 Sc-ool hus f.... 1.4 1.6 1.8 1.9 2.4 0.5 0.0 2.4 2.2 1.5 0.0 1.9 2.0 Other 0.1 0.1 0.1 0.8 0.1 0.1 0.1 0.2 0.2 1.0 4.1 4.1 4.3

Contribution to Regional and

International Organizations 2.8 2.0 2.9 2.4 2.9 8.5 8.9 4.2 Z.6 4.9 6.9 5.9 4.1

Other Tranfers o/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.0 0.0 0.0 0.0 0.0 ______- -_ _ _ _- _…___ … _ … _ _ _…_ _--

Capital TranfOr. 29.6 84.5 85.8 44.0 40.3 27.8 84.9 84.6 84.2 81.0 21.1 22.2 86.1

Won-financial Public Enterpri_s* 26.3 80.4 81.0 88.4 81.2 28.8 27.6 29.0 29.6 22.5 12.4 13.9 21.1 1

National IHaing Corporation 8.7 4.8 8.6 8.3 6.0 6.0 8.6 5.6 12.9 4.5 5.4 5.2 6.7 D'do Agric. Dew. Corp. b/ 0.5 3.8 0.2 0.8 5.1 8.1 4.2 2.8 2.8 2.2 8.1 0.0 8.2 Civil Aviation 9.8 11.5 20.1 8.6 2.4 0.2 0.0 2.5 6.5 14.0 1.8 1.7 8.4 Vataroorh- Depart_nt 8.2 8.1 4.0 4.9 8.7 a.0 2.1 1.1 1.8 0.9 0.0 0.0 0.0 Poet Office 0.C 0.0 2.0 4.4 4.0 1.5 8.7 4.7 2.1 0.4 0.0 0.0 0.0 b'doa Industrial Dow. Corp. 8.6 4.1 5.7 6.7 6.8 5.8 7.3 4 4 2.9 0.5 2.4 4.0 8.0 Transport Boerd c/ 4.5 1.2 2.0 2.5 4.1 6.0 6.7 7.9 0.0 0.0 0.0 0.0 0.6 O'do. Marketing Corporation 1.6 2.4 0.4 2.2 0.1 0.0 0.0 0.0 1.0 0.0 0.0 0.0 0.0

Other Institution. 0.0 0.6 1.8 2.5 i.9 0.8 0.8 0.7 1.0 1.2 4.1 8.8 4.1

Caves Authorit y 0.5 0.2 0.6 1.5 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Park. and beache. 0.8 0.4 0.9 1.0 1.1 0.8 0.8 0.7 1.0 1.2 4.1 8.8 4.1

Public Financial Intitutions A/ 2.5 2.2 1.6 1.0 1.5 0.5 0.8 1.8 2.S 0.5 8.4 8.0 0.9

Transfer& Abroad 0.0 1.8 1.2 7.1 5.7 1.7 6.0 8.4 1.2 6.8 1.2 2.0 10.0

*/ Subsidy to the augar industry in 1985/66. b/ 1960/81-82/83 includes expenditure on thc Integrated Rural Dsvlopaent nd Spring Nall .and Leane Schee. c/ Includes transfer. from tho transport fund. d/ 1977/78 includes transf.ra abroad.

Source: Ministry of Finance and Planning and mision estimtes. Table 5.6: BARBALO- CO6LIDATED PWUC SC8R. 1977/70-1989/90 Page 1 of 9 ______(MI i IwIion)

1O77/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1980/90

CDWOLIDATEDPALSC SECTCR

Current revenue 323.3 407.5 479.8 472.3 570.5 455.2 643.7 693.2 950.4 952.8 1028.4 1208.8 lS26.1 Currant espenditure 287.1 323.8 389.5 487.2 566.1 657.9 695.5 790.7 865.1 903.1 1025.6 1108.5 1169.8

Current eurplus/def;cit (-) 86.2 83.7 90.4 -14.9 4.4 -202.8 -51.8 -97.5 8s.3 49.6 2.8 105.8 156.3

Capital revenua 0.0 0.4 0.5 0.0 0.6 0.5 2.2 9.4 4.2 0.0 0.0 0.0 0.0 Capital expenditure 87.2 72.9 95.9 144.2 178.4 168.6 165.0 191.5 187.1 215.0 213.9 172.1 222.9

Overallsurplu*/doficit (-) -5.0 11.3 -5.0 -150.1 -173.4 -870.9 -214.5 -279.7 -97.6 -165.4 -211.1 -66.9 -66.6

Financing (not) 51.0 -11.3 5.0 159.1 173.4 370.9 214.S 279.7 97.6 165.4 211.1 66.9 66.6 External 28.2 30.3 12.9 80.4 91.2 58.4 27.2 54.3 89.9 148.9 83.3 72.7 20.5 Domest;c 22.8 -41.6 -7.9 78.7 82.2 312.5 187.S 225.4 7.7 16.5 127.8 -5.8 46.1

1. CUL CDY

Current revenue 273.1 345.6 398.1 380.5 4C9.3 815.6 489.8 520.3 778.6 796.0 868.3 1028.7 1159.1 From NEP 1.3 1.1 1.8 2.2 2.1 1.9 2.7 2.. 0.6 0.0 0.0 1.5 1.1 Current expenditure 241.2 266.8 317.6 401.2 459.0 5S3.2 S66.8 642.2 704.1 744.8 858.8 900.5 976.6 To 10.6 11.5 16.2 27.7 28.5 21.5 18.0 17.4 19.9 19.5 88.0 20.1 20.6

Current erpluo/df icit C-) 81.9 78.8 80.5 -20.7 0.8 -217.6 -67.5 -121.9 69.5 51.7 10.0 228.2 162.5

Capital expenditure & net lending 88.0 73.1 88.9 139.3 174.1 188.5 138.1 161.9 159.7 196.2 197.6 156.7 210.3 To NFPE* 26.3 30.4 31.0 89.4 81.2 25.8 27.6 29.0 29.5 22.5 12.4 18.9 21.1

Overa I surplus/deficit C-) -56.1 5.7 -8.4 -160.0 -173.8 -851.1 -205.6 -283.8 -90.2 -144.5 -187.6 -28.5 -47.8

Financing (net) S6.1 -5.7 8.4 160.0 173.8 351.1 205.6 283.8 90.2 144.5 187.6 28.5 47.8 External 28.2 30.3 12.9 80.4 91.2 58.4 24.7 54.3 89.9 148.9 77.0 70.2 1S.5 Domtic 27.9 d.0 -4.5 79.6 82.6 292.7 180.9 229.5 0.3 -4.4 110.6 -41.7 84.3

______-______-- Table 5.6: BARBADOS- CNS8LIDATEDPUBLIC SECTet. 1977/78 - 1989/90 P329 2 of 9 (MI(8 milion)

1077/78 1978/79 1979/80 1980/81 1981/82 1982/83 19838/4 1984/85 198S/86 1986187 1987/88 1968/89 1989/90

le. CENTRALADNINISTRATIOWN a/

Current revenue 267.0 339.8 391.7 374.7 454.S 311.6 487.4 509.6 765.8 794.1 868.2 1027.9 1138.5 From NSs 1.8 1.1 1.8 2.2 2.1 1.9 2.7 2.3 0.6 0.0 0.0 0.0 0.0 Current expenditure 28v.5 264.5 315.9 398.8 456.4 S30.9 558.9 635.9 697.8 742.3 857.3 899.8 975.8 To NFP8a 10.6 11.t 16.2 27.7 28.5 21.S 18.0 17.4 19.9 19.5 33.0 20.1 20.6

Current surplue/defieit (-) 27.8 7s.3 75.8 -24.1 -1.9 -219.3 -68.5 -126.3 68.0 S1.8 10.9 126.6 162.7

Capital revenue 1.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital expenditure A net lending 85.9 72.2 86.8 141.9 178.4 133.5 137.9 161.9 159.7 196.2 197.6 156.7 210.3 To 26.3 30.4 31.0 38.4 31.2 25.3 27.6 29.0 29.5 22.5 12.4 13.9 21.1

Overall surplu/deficit (-) -56.5 3.1 -11.0 -166.0 -175.8 -882.8 -204.4 -288.2 -91.7 -144.4 -186.7 -28.1 -47.6

Financing (not) 86.3 -8.1 11.0 166.0 175.3 352.8 204.4 288.2 91.7 144.4 186.7 28.1 47.6

External 28.2 30.3 12.9 80.4 91.2 S8.4 24.7 54.8 89.9 148.9 77.0 70.2 13.5 Do_atic 28.3 -33.4 -1.9 85.6 84.1 294.4 179.7 2a3.9 1.8 -4.L 109.7 -42.1 84.1

lb. CBEAL 80V6I

Current revenue 243.5 806.4 854.3 441.0 489.4 495.6 841.1 571.9 4S.4 671.1 726.7 882.2 987.6 From HFPE& 1.8 1.1 1.8 2.2 2.1 1.9 2.7 2.3 0.6 0.0 0.0 0.0 0.0 Current expenditure 282.2 256.0 804.2 387.1 433.7 477.4 490.0 555.9 626.3 627.6 748.8 781.7 852.7 To NFPEi 10.6 11.5 16.2 27.7 28.5 21.5 18.0 17.4 19.9 19.5 33.0 20.1 2D.6 To other Central Admin. 1.9 8.4 8.8 7.6 8.4 11.8 12.2 13.8 15.9 16.1 20.3 22.8 24.0

Current surplus/deficit (-) 11.3 50.4 50.1 53.9 85.7 18.2 51.1 16.0 17.1 48.5 -22.1 100.5 184.9

Capital transfers fr. other gov't 1.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital expenditure A net lending 85.9 72.2 86.7 141.8 178.8 182.3 187.7 161.6 159.5 196.0 196.9 156.5 289.5 To 1Em 26.8 30.4 81.0 83.4 81.2 25.8 27.6 29.0 29.5 22.5 12.4 13.9 21.1

Overall surplus/deficit (-) -72.7 -21.8 -36.6 -87.9 -137.6 -114.1 -6.6 -145.6 -242.4 -152.5 -219.0 -86.0 -74.6

Financing (not) 72.7 21.8 86.6 87.9 137.6 114.1 86.6 145.6 142.4 152.5 219.0 56.0 74.6

External 26.2 30.3 12.9 80.9 91.3 U8.4 24.7 54.3 89.9 148.9 78.0 70.2 13.5 Domlstic 44.5 -8.5 2S.7 7.0 45.8 55.7 61.9 91.3 52.5 8.6 141.0 -14.2 61.1

______-______-___ -____- Table. 5.6: 84aWOS - CNSOLIDATEDPLJC SE=Ft, 1w77/7.19S9/90 g a of 9 ------.---- (0 *ilt n)

177/78 p978/79 079/80 1980/81 1981/U2 1982/85 191/84 lJ84/85 19851/6 1906/87 1067(6 1966/39 109/9.0

Ic. NATINAL INSUMUN RRD

Current ravwne 25.4 86.8 40.7 -56.7 -9.7 -163.5 -41.5 -49.0 13.3 139.1 160.6 166.9 174.0 Contributions 19.1 28.0 81.4 -77.S -29.0 -207.0 -60.7 88.5 92.4 101.8 113.9 116.8 124.7 Traaf.rf tf. gov't contrib. 1.9 3.4 8.3 7.6 6.2 20.5 12.2 u3.3 15.0 16.1 19.1 21.2 23.1 Int.rc.t incomwA other* 6.S 8.0 e .8 11.0 14.1 23.0 27.0 26.2 a0.0 21.2 27.6 28.9 26.2 Current eapendltere 0.2 I1.0 15.0 19.3 81.1 64.8 76.1 93.8 67.4 180.6 125.8 139.9 147.1 Bene Ito 7.7 10.4 1S.1 16.8 25.5 61.2 72.4 67.9 88.6 125.1 1a.7 111.8 11.1 Auenistr,tion 1.5 1.5 1.9 2.5 2.6 3.6 3.7 6.4 3.6 5.7 5.1 0.1 9.0

Currant mrpuat/dficit (-) 16.2 24.9 25.7 -73.0 -40.8 -028.3 -117.6 -342.8 50.9 68.8 1.6 27.0 25.9

Capital *sperAiture 0.0 0.0 0.1 0.1 0.1 1.2 0.2 0.5 0.2 0.2 0.7 0.2 0.6

Overall urplu/ddiclt -) 16.2 24.9 25.6 -78.1 -40.9 -229.5 -117.8 -142.6 50.7 6.1 31.1 28.6 26.1

Hot financing -16.2 -24.9 -26.6 76.1 40.9 229.5 117.8 142.6 -60.7 41.1 -1.1 -26.6 -26.1

Uaternal fianme., 0.0 0.0 0.0 -0.5 -0.1 0.0 0.0 0.0 0.0 0.0 -1.0 0.0 0.0 W Oms_tic fineacias -16.2 -24.9 -25.6 78.6 41.0 229.5 117.8 142.6 -50.7 -S.1 -31.1 -26.8 -26.1 1 boI;ng *y s_ -2.0 -20.4 -28.4 -2D).1 6.3t -ll.1 -6.7 -7. I -8.6 -11.S -12.6 -4.4 -2.1 Ceateal gtpt borrowing -9.9 -8.2 -2.3 -0.6 -24.1 -29.0 47.6 -36.6 -14.7 -2.3 0.0 -0.4 -7.0 Otare -3.5 -1.8 5.1 99.8 59.0 269.6 161.1 166.5 -27.5 5.6 -U8.3 -22.0 -17.0

id. SLWtMDOSR FRICESTADILU7ATI4 RAO

Current raee 1.0 0.8 1.0 1.0 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interest reciusvd 0.5 0.6 0.6 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 other 0.5 0.2 0.3 0.4 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Tr nmma from C.C. 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Current epameniture 0.0 0.8 0.1 0.8 0.8 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Overall aurplua/daficit (-) 1.0 0.5 0.9 0.7 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Domeatic financing (net) -1.0 -0.5 -0.9 -0.7 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

le. SUft ItODUSRYLABI W AFARERJO

Current r"eeue 1.4 1.1 1.4 1.8 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Current e.amndituro 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Overall urplus/eficit (-) 1.4 1.1 1.4 1.3 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Omestiec financing (net) -1.4 -1.1 -1.4 -1.3 -0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 _____ ~ ___ ~ ~ ~ ~ ~ ~ ~ _-__-___-___~ ~ ~ ~ ~ ~ ~__ ~_ _ ~ -___-___--- ______

____ - -______-______-_ TlOW 5i6: BAwoa - CN6OLM7W iR C Set. 1977/761986/6 Pow 4 of 9 (W0s a; Iionu)

1977P/ 1976/79 1979/80 lo60/el 1981/62 1962/68 1968/64 1914/16 195/8 19t6/7 7^/6 29111/9 1969/90

If. SUV ViRKS PFVdB5T RtO

Currmntntw*"n 1.5 1.5 1.4 1.9 2.0 2.1 0.6 2.3 2.6 1.9 0.1 0.6 0.6 Current *Vnoditur. 1.6 1.6 1.5 1.8 1.5 1.7 1.5 2.6 2.6 2.0 1.0 1.2 0.6

OvetaSl surpluu/deficit (-) -0.1 -0.1 0.1 0.6 0.5 0.4 -0.9 -0.2 0.0 -0. 1 -0.9 -0.4 -0.2 ibeutic financing (net) 0.1 0.1 -0.1 -0.6 -0.5 -0.4 0.9 0.2 0.0 0.1 0.9 0.4 0.2

Is. SUWARDIDUSl CAPITAL MO inA6LDlTATIM FIO gd

Cart t rem" 1.4 1.1 1.4 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Current es odrtfe. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Carrmt surplus/deficit (-) 1.4 1.1 1.4 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Capital *apditur (truht.rs) 1.4 1.4 1.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 S-

Overall surplsu/dsf.cit (-) 0.0 -0.8 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Oo_etic financing (not) 0.0 0.8 0.0 -0.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

;. SW WIR LEVY RIO b/

Current reweue 0.6 o.6 0.8 0.7 0.7 1.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 ft, lwini 2.6 -0.5 0.7 -0.7 0.7 0.0 0.2 0.1 0.0 0.0 0.0 0.0 0.0 To Cntnal Governmbnt 1.9 0.0 0.0 1.9 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 To 0.0 -0.8 -0.8 0.0 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0 0 0.0

Overall surplus/defleit t-) -2.0 1.8 0.1 1.4 0.0 1.0 -0.1 -0.1 0.0 0.0 0.0 0.0 0.0

IOk_tec financing (not) 2.0 -1.8 -0.1 -1.4 0.0 -1.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0

Ij. SUAR iRCH JlO DVELJMBET RO

Carreat evnwu 0.0 0.0 0.0 0.0 0.0 0.0 0.9 1.4 1.1 0.0 0.0 0.0 0.0 Currmt .xpaeditur. 0.0 0.0 0.0 0.0 0.0 0.0 1.1 1.3 0.9 0.0 0.0 0.0 0.0

Current surplus/d.ficit -) 0.0 0.0 0.0 0.0 0.0 0.0 -0.2 0.1 0.2 0.0 0.0 0.0 0.0

Db_tec financing (not) 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0. 1 -0.2 0.0 0.0 0.0 0.0 Table 5.0: A05 - CNLATED PULIC SEWR 1977/7f-19"190 Fal a of 9 (MI oillion)

1977/78 1978/79 1979/0d 1980/81 1901/82 198/83 1983/84 1984/55 1985/85 1965/87 1"57/81 985/9 169/90

11. UME SPECIAL FRJNS

Current revenwu 1/ 0.2 0.5 0.4 0.8 0.9 0.7 0.3 7.0 4.1 0.0 0.0 0.0 0.0 Current espenditure 0.1 0.4 0.3 0.8 0.8 0.4 0.3 2.5 2.8 0.0 0.0 0.0 0.0

Current surplme/d.f.c.t (-) 0.1 0.1 0.1 0.0 0.1 0.3 0.0 4.5 1.3 0.0 0.0 0.0 0.0

lostic financing (not) -0.1 -0.1 -0.1 0.0 -0.1 -0.3 0.0 -4.5 -1.3 0.0 0.0 0.0 0.0

II. CO6NOLIDATD1N-FIN&CIAL FULIC lt4ImS8

Current revenu 62.1 74.5 99.7 121.7 141.8 162.9 175.0 192.6 197.3 176.8 193.1 201.7 205.6 From reeral governant 10.8 11.5 16.2 27.7 28.5 21.5 18.0 17.4 19.9 19.5 J3.0 20.1 20.6 Current eapendit.*r* 57.8 69.6 89.8 115.9 137.7 148.1 159.3 168.2 181.5 178.3 200.3 224.6 214.8 To Central go9 rnMent 1.3 1.1 1.8 2.2 2.1 1.9 2.7 2.3 0.6 0.0 0.0 1.5 1.1

Currant urplue/deficit (-) 4.3 4.9 9.9 5.8 4.1 14.8 15.7 24.8 15.8 -2.1 -7.2 -22.9 -6.2

Capital evenue 26.3 30.8 31.5 3S.4 31.8 25.8 29.8 38.4 33.7 22.5 12.4 13.9 21.1 From Central governmnt 2S.3 30.4 31.0 83.4 31.2 25.3 27.8 29.0 29.5 22.5 12.4 13.9 21.1 1 Capital eapenditure 25.6 30.2 35.0 38.3 35.6 60.4 54.6 58.8 86.9 41.4 28.7 29.4 33.7

Overall aurplus/deficit 5.1 5.6 3.4 0.9 0.4 -19.8 -9.0 4.1 -7.4 -20.9 -2S.5 -38.4 -18.8 ------…------…------…------

Net Financing -5.1 -5.6 -3.4 -0.9 -0.4 19.8 9.0 -4.1 7.4 20.9 23.5 s8.4 18.8

Eaetrnal (not) 0.0 0.0 0.0 0.0 0.0 0.0 2.5 0.0 0.0 0.0 6.3 2.5 7.0 Ocisatuc (not) -5.1 -'.6 -a.4 -0.9 -.0.4 29.8 6.5 -1.1 7.4 20.9 27.2 3S.9 12.8

Ila. NATIONALOUiC CIOPRATION bf

Current rvenwe 8.5 4.5 4.9 8.2 7.1 6.3 6.8 8.8 8.0 7.6 6.5 9.9 11.8 Fro. genral governmat 1.7 2.6 3.3 8.9 4.9 2.9 2.8 3.2 2.7 3.1 4.5 3.0 4.2 Current espenditure 8.3 4.0 4.9 5.7 7.5 6.2 7.0 8.3 9.7 11.5 13.1 13.6 12.8

Current aurplus/deficit (-) 0.2 0.5 0.0 0.5 -0.4 0.1 -0.2 0.0 -1.7 -4.0 -6.6 -3.7 4.5

Capital rewweu 3.7 4.3 6.6 8.8 6.0 6.0 3.6 6.6 12.9 4.5 5.4 5.2 8.7 Frog Central governmet 8.7 4.3 8.6 8.3 6.0 6.0 3.6 5.8 12.9 4.5 5.4 5.2 8.7 Capital sependiture 3.7 4.3 6.6 6.9 8.4 6.0 3.6 4.1 12.9 4.5 5.4 5.2 10.0

Overall urplus/deficit 0.2 0.5 0.0 1.9 -2.8 0.1 4.2 1.5 -1.7 -4.0 -6.6 -3.7 -1.8

Dcmetic financing -0.2 -0.5 0.0 -1.9 2.8 0. 1 0.2 -1.5 1.7 4.0 6.8 3.7 1.8

11 Includsa the Not,onal .laaltb Service in 1984185 onl, Table 5.6: WMAM - C3N0LWATED FU'LIC .TII, 1977/71969/90 aes a of e - ~~~~~~~(W$D*iell

1977/78 I9M6/79 1979/80 1960/61 191682 1912/85 1963/84 19%4/35 1965/6 MOM/ 1967/ 198/69 1969/90

Ill. B 05AMAIOJLTURL DeVa.eT CWATI. C/ Current roen.., 2.6 2.6 3.6 2.9 2.7 2.0 3.7 3.4 a.9 Current 6.t 5.3 3.1 *.0 .v.;iture 4.3 4.3 4.1 4.6 4.5 5.6 6.5 6.6 G. 9.6 9.3 C.5 7.0 Curret 1A /dofict -) -1.7 -1.5 -0.6 -1.7 -1.a -2.7 -2.8 -2.2 -4.4 -3.1 -4.0 -5.4 -4.0

Capal revenue 0.5 8.8 0.2 0.6 6.1 3.1 4.8 2.6 2.6 2.2 3.1 a.0 2.2 From Cot1 moverwnmt 0.5 S.a 0.2 0.0 5.1 3.1 4.2 2.6 2.6 2.2 3.1 COpitel 3.0 3.2 expenditure 0.0 0.1 0.2 0.4 6.0 8.1 2.4 0.0 0.0 0.8 0.7 8.0 2.2

gerall eu a/dieit -I.5 2.2 -0.6 -1.5 -2.7 -2.? -. 9 -0.4 -1.6 -1.6 -1.6 -5. -4.0

Doeetic finmca og 1.5 -2.2 0.6 1.3 2.7 2.7 0.9 0.4 1.6 1.5 1.6 5.4 4.0

llc. rwr ATm M Of*/

Carr"t rewen 7.7 5.6 17.6 22.1 25.6 24.4 27.6 26.0 27.8 26.8 26.6 Current peadit.. 35.4 m.2 S.8 8.3 13.2 17.9 20.7 20.0 21.3 24.2 24.6 1.ate,ot 26.5 25.6 32.6 32.1 to Centtral 0Ot 1.0 0.9 1.6 2.2 2.1 2.0 1.5 1.7 1.6 1.5 1.5 1.1 1.4 Currt urplua/deicit -) 8.9 2.3 4.6 4.2 2.9 4.4 6.2 1.8 2.7 2.3 2.6 2.6 2.1

Capital upenditero 0.7 0.3 1.S 2.5 1.0 0.4 1.6 0.3 2.6 0.4 6.6 2.7 9.0

Overall ewrplua/d.ficit 3.2 2.0 3.3 1.7 1.9 4.0 4.7 1.8 -0.1 1.9 -3.6 .0.1 4.9

Ds_setic fnacing -8.2 -2.0 -3.3 -2.7 -1.9 -4.0 4.7 -1.5 0.1 -1.9 3.6 0.1 6.9

11d. CIVIL AVIATlI bl

Current revene 4.4 4.7 5.7 9.7 9.6 9.6 10.6 11.0 9.7 9.6 Current 12.4 12.7 11.1 expenditare 8.7 8.8 4.8 7.2 5.0 8.4 9.4 11.0 9.7 9.6 12.4 12.7 11.1 Tranfere to Centrol GOv't 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.2 -1.5 -1.5 -1.5 Current urplue/dficit (-) 0.7 0.9 0.9 2.5 1.6 1.4 1.4 0.0 0.0 0.0 0.0 0.0 0.0

Capital revenue 9.8 11.6 10.1 3.6 2.4 0.2 0.0 2.5 6.5 14.0 1.7 1.7 5.4 From Central gvm.nt 9.S 11.5 10.1 3.6 2.4 0.2 0.0 2.6 6.5 14.0 1.7 Capital 1.7 S.4 expenditur. 20.0 12.4 11.0 5.1 4.0 1.6 1.4 2.6 6.5 34.0 1.7 1.7 3.4 Overall arplue/deficit 0.0 0.0 0.0 -0.0 -0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Domestic firancing -0. 0 0.0 0.0 0.0 0.0 -0.0 -0.0 0.0 0.0 0.0 0.0 0.0 0.0 Table 3.6, W45 U - CONSOLIDATED U a!, T1.7/77? -1 GS a

1977/76 1676/79 1979Som 1960/61 1961)52 19wo8 198/S4 19616 1 n ""la7 16171/S 1163/11 16

n.. RAMMOISWATSt AUTif2rr b/ Cargemi r_'~m 8.9 10.2 10.9 16.6 20.6 93.7 26.0 80.1 80.1 9.4 5.6 80.4 26.2 From gmral gmrnmit 2.7 2.7 8.9 7.s 5.4 1.J 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Caremt oxefluro 6.9 10.2 10.9 16.6 19.6 90.6 l.0 22.9 25.8 91.1 25.9 29.2 27.0 CArrOmI68rPlUM/4d0ici (- 0.0 0.0 0.0 0.0 1.1 S.1 2.0 6.2 4.8 2.6 2.9 1.2 1.2

Gapi 5_ 9.2 5.1 4.0 4.9 8.7 8.0 2.4 2.3 1.8 0.9 Pro. Central g_. mmab 5.2 8.1 4.0 4.9 S.7 8.0 2.1 1.1 0.0 0.0 Capital *apeAItVre 8.2 8.1 4.0 4.9 5.7 8.0 2.1 2.0 2.6 0.9 O-rall mrplu4dmflot 0.0 0.0 0.0 0.0 1.1 6.1 2.5 6.2 8.8 2.8 2.9 1.2 1.2 hamatic f6 a@iag 0.0 0.0 0.0 0.0 -1.1 -8.1 -2.8 -4.2 -6.8 -2.8 -2.9 -1.2 -1.2

316. OwT 0awI b/ go Cerreet r _ 8.1 5.7 6.7 7.8 5.1 0.2 9.6 9.1 9.4 10.6 12.5 12.1 18.5 From _maral omrA 0.0 0.0 0.0 1.2 0.0 0.6 0.0 0.8 0.2 0.6 1.6 0.4 2.0 Currant expeniture 5.1 5.4 6.1 7.3 8.1 6.2 7.S 9.9 10.6 10.6 12.5 1V.1 18.8 To C_nral goverammnt 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.4 0.5 0.0 0.0 0.0 0.0 Correa%emrplow/dafle ( 0.0 0.8 0.6 0.0 0.0 0.0 1.5 0.2 -1.2 0.0 0.0 0.0 0.0

C tal ra i 0.0 0.0 2.0 4.4 4.0 1.5 4.3 4.7 2.2 0.4 Frm Con" ls oramet 0.0 0.0 2.0 4.4 4.0 1.S 4.8 4.7 2.2 0.4 Capital aapiditure 0.0 0.6 2.6 4.4 4.0 1.6 4.6 4.7 2.2 0.4

oraml surplue/4deflo 0.0 0.0 0.0 0.0 0.0 0.0 1.6 0.2 -1.2 0.0 0.0 0.0 0.0

tl,. WDII DUAIItL teB.ME aUIIl 6/

Carremt r n 1.7 1.7 2.2 4.6 8.6 7.7 7.6 7.8 7.8 7.4 6.9 9.3 12.2 From me1 goerman 1.2 1.2 1.7 2.9 8.0 r.8 2.2 8.1 2.9 8.4 4.9 8.6 4.4 Curret expmditure 1.7 2.0 2.6 4.6 8.4 7.8 7.6 7.S 9.S 7.6 $.8 9.4 6.8

Cerreat "eupl./idfiai (-) 0.0 -0.8 -0.4 -0.2 0.4 0.4 -0.2 0.0 -2.. -0.2 2.4 0.1 8.4

Capitfl re J. 4.3 8.2 8.7 8.6 0.0 7.9 8.7 8.6 0.a 2.4 4.0 8.0 Frm Cmntral powdramat 8.6 4.1 8.7 0.7 8.8 5.8 .7.8 4.4 2.9 0.6 2.4 4.0 8.0 Capital expe;dture 8.1 4.6 8.1 6.3 8.8 8.7 9.2 6.6 2.9 8.2 2.0 4.8 6.0

Overall mrplus/deficit 0.5 -0.4 0.7 0.9 0.4 -2.8 -1.5 0.1 -1.6 -2.9 2.6 -0.2 1.4

Domeetic f6loenug -0.5 0.4 -0.7 -0.0 -0.4 2.3 1.5 -0.1 1.8 2.9 -2.8 0.2 -3.4 ______------_ ___-___-_____-______-

_----______-__--_ --______--___----___------______- ______-- _------___ _-_ _ __-__--__-__-_-__-___-____-__-______-__-_-______-__-- Table 5.6: BRUOOS - COI.WTID R1_IC IIt. 16977/71-199p 8pal *of 9 (a ailliic)

1977/78 978/79 1979190 1960/ 1961/2 1962/81 190/4 1HUS94/8136 196/8/7 12W7,_ 1968/9 1969/0

Mll. rWM6rl t /

Current revemq 14.0 17.9 25.0 25.6 38.4 33.9 8.6 84.8 26.2 39.0 40.6 40.2 40.V Fo eneral gornent 4.6 4.5 7.6 11.e 16.0 14.8 13.0 10.6 14.0 12.4 22.0 12.9 10.0 Currnt e*ped ture 12.4 17.4 20.8 2S.9 8.6 34.2 85.7 8.1 a9.7 89.9 40.8 44.2 42.

Current surplus/deficit (-) 1.6 0.5 4.7 -0.1 -0.2 -0.8 -1.9 -0.6 -8.5 -0.9 0.3 -4.0 -2.0

Capital re 4.5 1.2 2.0 2.5 4.1 6.0 6.7 7.9 .. 0. From Central t wernret 4.5 1.2 2.0 2.5 4.1 6.0 6.7 7.0 ...... 0.6 Capital ompeaditure 4.2 1.2 2.5 2.8 4.1 6.6 4.3 7.9 0.5 0.6

Overall urplue/dfcit 1.9 0.5 4.2 -0.1 -0.2 -0.9 -1.5 -0.6 -4.0 -0.9 0.5 .4.0 -2.0

Oamet.c fimaneig -1.9 -0.5 -4.2 0.1 0.2 0.9 1.5 0.3 4.0 0.9 -0.5 4.0 2.0

III. BJMWDO NWOTDQD CMPUIATI b/f/

Current reveue 9.5 11.7 14.9 18.4 19.5 14.5 10.9 10.2 10.6 10.6 15.0 16.6 17.2 _ From genra l gornant 0.4 0.5 0.4 0.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 am Current epediture 10.5 11. 15s.1 18.4 19.5 16.1 10.5 10.1 10.1 10.6 14.8 16.3 15.5 68

Current surploeldeficit C-) -1.0 -0.2 -0.2 0.0 0.0 -1.6 0.4 0.1 0.5 0.0 0.7 0.8 1.7

Capital reve 1.6 2.4 0.4 2.2 0.1 0.0 0.0 0.0 0.9 0.0 0.0 0.0 0.0 Fra Central governmnt 1.5 2.4 0.4 2.2 0.1 0.0 0.0 0.0 1.0 0.0 0.0 0.0 0.0 Capital eup4eiture 0.1 1.1 0.4 0.5 0.8 0.0 0.0 0.1 0.1 0.0 0.0 0.0 1.0

Oerall eurplua/dai;cit 0.4 1.1 -0.2 1.7 -0.2 -1.8 0.4 -0.0 1.3 0.0 0.7 0.3 0.7

oestic financing -0.4 -1.1 0.2 -1.7 0.2 1.6 -0.4 0.0 -1.8 0.0 0.7 -0.3 -0.7

Ili. TIONL PETRJI CMfA l/

Current revenae 2.0 2.1 2.4 3.1 4.4 5.4 6.2 6.7 6.7 5.7 6.8 7.7 8.7 Current euP.nditure 1.4 1.5 1.9 2.9 4.2 6.1 6.0 6.8 6.2 5.8 6.1 6.3 5.5

Current eurplue/def,cit (-) 0.6 0.6 0.5 0.2 0.2 0.3 0.2 0.9 0.5 -0. 1 0.2 1.4 8.2

Capital r."eave 0.0 0.0 0.0 0.0 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 Capital expediture 0.5 1.8 3.0 2.4 0.8 0.9 1.4 2.1 3.0 1.7 1.7 1.4 1.5

Overall surplus/deficit 0.1 -1.2 -2.5 -2.2 0.0 -0.6 -1.2 -1.2 -2.5 -1.8 -1.5 0.2 1.7

Domet;c fi;ancing -0.1 1.2 2.5 2.2 -0.0 0.6 1.2 1.2 2.5 1.8 1.5 -0.2 -1.7 Table 5.6: BRBADOS- 01VLWATED RLI C 6EM . 1977781s9f/0 Pge e of 9 -~~~~~~~~tD (M*i I11;on)

19T7U? 1976/79 1 C/80 19D0/81 1901/82 1982/83 1983/84 2964/ 19015M 190/8 19107/8U 19a/9 1i0o90

Ilk. 8ADOS lWTIOM OIL COAl b/

Curret rtvenu 0.0 0.0 0.0 0.0 0.0 18.5 25.5 36.6 36.2 13.7 17.1 13.4 15.4 Cil 0.0 0.0 0.0 0.0 0.0 14.6 25.7 34.9 34.5 12.a 15.7 10.4 13.3 m o0.0 0.0 0.0 0.0 0.0 0.9 1.6 1.7 1.? 0.9 1.4 3.0 2.1 Current eupanitura 0.0 0.0 0.0 0.0 0.0 9.1 15.1 17.S 26.9 10.6 17.7 22.4 1U.5

Current aurplJFic C-) 0.0 0.0 0.0 0.0 0.0 6.4 10.2 19.1 19.3 .1 40.6 -9.0 -3.1

Capital rant 0.0 0.0 0.0 0.0 0.0 0.0 0.6 6.0 3.6 0.0 0.0 0.0 0.0 Capital eaepditur. 0.0 0.0 0.0 0.0 0.0 27.0 22.3 24.4 22.8 5.3 0.9 2.2 7.0

O.erall ulm/deficit 0.0 0.0 0.0 0.0 0.0 ^20.6 -11.6 1.5 0.1 -2.2 -9.5 -11.2 -10.1

Finecig 0.0 0.0 0.0 0.0 0.0 20.6 11.5 -1.5 -0.1 2.2 9.5 11.2 10.1

Foreign financing (net) 0.0 0.0 0.0 0.0 0.0 0.0 2.5 0.0 0.0 0.0 6.3 2.5 7.0 Disbursement 0.0 0.0 0.0 0.0 0.0 0.0 2.5 0.0 0.0 0.0 7.4 2.5 7.0 mortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.0 0.0 Dometic finuncing (not) 0.0 0.0 0.0 0.0 0.0 20.6 9.0 -1.5 -0.1 2.2 5.2 8.7 3.1 Losn frm Central go't o.0 0.0 0.0 0.0 0.0 26.0 2.9 21.0 2.0 0.0 0.0 0.0 0.0 AMttit,tiOn (to Central gVt) 0.0 0.0 0.0 0.0 0.0 -2.8 -5.8 4.7 -5.8 0.0 0.0 0.o 0.0 aking sytem 0.0 0.0 0.0 0.0 0.0 0.0 6.9 -6.9 -7.6 0.0 0.0 0.0 0.0 g Other 0.0 0.0 0.0 0.0 0.0 -2.6 5.0 -6.9 11.3 2.2 3.2 8.7 3.1 20

I11. CARU4AN IWAOCAStDC CaWmATZ3 d1

Corent revene 2.9 3.7 4.9 5.4 6.1 7.2 7.5 8.4 9.5 9.7 10.9 10.7 12.4 Current expenditure 2.7 3.3 4.1 4.4 6.7 6.0 7.3 7.8 9.2 10.1 10.9 14.3 17.S

Carrnt surplum/deficlt (-) 0.2 0.4 0.8 1.0 0.4 1.2 0.2 0.6 0.3 -0.4 0.0 -4.6 -4.9

Cipitat expenditure 0.1 0.1 0.4 0.2 1.0 0.8 1.5 1.3 0.6 6.5 3.8 4.7 2.2

Overil surplus/deficit 0.1 0.8 0.4 0.6 -0.6 0.4 -1.3 -0.7 -0.o 4.7 -4.e .. -7.1

Domestic fiancing -0.1 -0.8 -0.4 -4.0 0.6 -0.4 1.3 0.7 0.8 6.7 3.8 8.3 7.1

a/ inclde Central toverant. NItional Inmnrane Fund an Transport Fund. b/ yTear ding lrctt 31. c/ Vest etring .1 30. 41 Year ening Decemer 31. e/ t;til 1977/78 the financial yer e'r.dd 3br 1: 1978/79 accwunt. were for a nineaonth period. April-acemer. fJ Uitil 1m9/ the financet year nd Jliy 31; 1976Mf7 accounts ware for an eigh-moth. period. Auguet-brcb. g/ Year seding July 81. h/ From Sur Levy Fund.

4ourcee: Ninletry of Financ an Planning. Nbtiral 2neuanco bard, accunts of publi i nterpriee and ;mision essintea. Table 6.Oa: 00 - S1.M ACCOUNTSOF TM SAW= SST. 197-89 (WS*; IIion)

197 1977 1978 1979 1960 1961 162 1968 1964 1968 1966 167 19S 1969

Nt Itratirgl Reerve a/ 42.4 29.0 6s.6 111.2 148.9 6e.6 72.0 68.6 107.0 188.2 172.0 171.6 54.9 246.8

Central Bank (net) w6.6 86.4 S5.0 102.4 142.2 92.7 61.4 96.6 90.0 102.2 18.2 180.4 249.9 196.8 Assets 66.6 74.2 120.0 11.6 160.0 206. 251.4 260.4, 251.4 260.3 61.8 279.0 857.8 307.2 Libilities 0.0 8.6 67.0 86.2 17.6 114.1 170.0 168.6 161.4 176.1 18.1 146.6 107.9 1oB.9 Cercial ank (not) -14.2 -9.4 8.6 e.o 4.7 -24.1 -9.4 -11.2 17.0 W.0 16.6 41.4 5.0 49.2 No* Oversas p-eraticnsi21.9 -19.7 -3.8 -2.6 -89.4 -44.6 -49.0 -a6.6 -02.8 -8U.5 -89.3 25.6 U.3 39.4

14s Domestic Dmet- 386.8 488.9 479.8 1OL.6 862.7 666.7 947.9 1044.5 1107.1 1148.9 1267.1 1897.2 1800.6 152.3 NetsClaim. a Publ ic Sector 48.8 9s.5 6.6 76.1 64. 111.9 16.4 118.6 117.6 60.6 28.8 226.5 259.7 28.9 Not Cntra l Goverrment b/ 120.9 169.5 164.9 204.4 220.1 260.8 297.8 296.0 819.6 278.0 290.2 341.7 441.4 422.6 Met Other Gnral 0overnent -29.6 -27.8 -2.1 -88.1 -87.2 -88.6 -4.4 -4.e -s5.0 -4.3 -4.3 -2.7 -18.6 -146.8 Not Other ODentraliz Agenie -4.8 -9.8 -10.6 -19.0 -2.6 -22.9 -16.4 -27.6 -2.7 -9.9 -12.0 -8.0 -25.7 -16.8 Net Social Security Fu -41.5 -89.2 -86.4 -78.2 -9.6 -69.1 -99.6 -102.8 112.5 -112.9 -e.6 -69.8 -. 2 -17.1 knfinencial Statutory 8&1e. 0.0 0.0 0.0 0.0 0.0 -8.0 0.0 -0.7 -0.8 -38. 0.0 0.0 0.0 0.0 Officital Capital an Surplus -20.4 -s6.9 -19.8 -20.0 -20.0 -20.0 -20.0 -20.0 -20.0 -20.0 -20.0 -0.0 -20.0 -0.0 Cred; to RAst of Fisnancial Systm 25.2 21.9 87.2 40.1 47.4 78.0 76.6 79.7 106.0 115.6 92.2 82.0 107.7 22.9 Credit to Private Sector 3.2 882.7 807.8 495.8 5".o 725.1 m.6 661.0 ee.S 916.7 991.2 1280.2 1248.5 1442.9 Export Credit Oarantse 0.0 0.0 0.0 0.0 0.0 -2.0 -2.6 -2.6 -2. 0.0 -8.2 -8.6 -1.0 -0.7 t4nonetary Int.r'l Organization. -1.2 -2.6 -0.9 -0.7 -2.6 -1.7 -1.0 -2.2 -2.0 -1.7 -1.6 -1.8 Not thnclaaifled Aests -1.6 -1.9 % 7.9 -8.8 -6.7 -18.4 -27.1 -2.4 -t8.8 -7.1 -7.8 85.9 62.9 72.2 24.4 0.1 ° NOt Interbank Float 8.1 19.6 6.4 24.4 27.6 22.8 20.0 22.1 24.9 1.8 2S.5 -86.8 -116.9O-23. Counterart Uhrequ;itd Foreign

Exchange 6.6 6.1 18.4 20.1 29.2 61.0 19.4 21.1 16.2 -O1.7 8.4 -4.6 -11.4 17.0 lULTForeign LiabiIitie. C/ 7.8 18.6 20.6 17.5 11.6 18.6 20.5 61.8 61.9 98.6 76.9 9Q.1 8.4 86.8 Liabiities to Rest of Financial

Syste 25.1 22.7 26.6 40.2 38.8 87.9 68.1 67.8 92.1 61.4 45.9 85.6 99.9 76.1

LiabilitIes to Private Sctor 869.6 422.6 482.8 6W.1 711.1 606.2 67.6 9w7.6 "I.1 1106.1 2I2696 1446.0 1685.1 1727.6

Currency outside Sak. 46.8 58.4 61.2 72.0 96.1 109.1 106.1 114.1 118.1 3.8 187.4 186.6 171.4 1M.6 OD_nd Dopoi to 85.9 6e.6 76.8 120.9 228.9 112.6 111.0 12.1 1*6.6 166.4 193.6 22e.1 39.6 240.5 qus.i-liquid Liabilities 264.8 2e4.7 86.6 406.8 476.5 578.1 638. 661.8 714.0 796.6 94.7 1026.7 1I1611 1274.9 Private and Csp;tal Surplus 8.1 8.9 8.9 10.4 12.6 18.4 13.0 7.1 21.9 21.6 8.9 83.7 38.0 29.6

*/ Include _ediuw-term foreign Ia bitlties of .he Central ibk of Barbados. b/ Lana in foreign currency to the Government by the First Nationl Sank of Chicalo. e branch office in arbados cldod in 1978, or. treated as foreign borrowing throughot. c/ Include counterpart deposits of , Government'. foreign sssets.

Sources: Central Sank of Barbado-; DF. Table 6.2: BARBADDS- SUMMARYACCOUNTS OF THE IETARY AnTRlTIES, l97889 -- (D10 million)

---- -cemb*r 31 ------1976 1q77 1978 1979 1980 1981 1982 1963 1964 1965 1968 1987 1968 1989

NHt International Ramerves 56.6 38.4 83.0 102.4 142.2 92.7 81.4 96.8 90.0 102.2 155.2 130.4 249.9 196.8

ast. so.8 74.2 120.0 15.6 160.0 208.8 251.4 2S0.4 251.4 280.3 313.3 279 357.8 a07.2 Litbilities a/ 0.0 35.8 87.0 33.2 17.8 114.1 170.0 168.6 164 178.1 158.1 148.6 137.9 108.9

N t Domstic Ass.s 25.8 87.8 38.7 62.4 48.2 117.3 123.1 14S.8 151.0 i.I 101.8 124.3 u5.5 182.4

Net Claim on Public Sectow 3.4 49.5 24.8 55.6 8i2.8 75.8 as.1 74.1 57.8 4.7 -2.6 -21.4 -s9.9 28.5 Not Central Owornment 28.9 68.5 48.0 83.2 87.9 112.8 12.2 120.3 107.3 56.1 11.4 28.5 86.9 106.9 Aets b/ 88.0 79.8 56.1 89.9 91.4 126.8 138.9 129.8 124.1 127.4 117.3 112.5 124.1 186.3 Liabi ities 14.1 11.1 5.1 6.7 3.5 16.5 10.7 9.5 18.8 74.3 106.9 89 87.2 77.4 Net Other Oenral Gevniaent -16.8 -1S.4 -120.4 -24.1 -30.3 -32.0 -38.3 -42.4 -4.0 -40.3 43. 1 -6.8 -133.9 -131.7 Hot OthOr Dcntraliged Alncie. -1.2 -3.0 -1.6 -1.7 -2.8 -2.0 0.0 -2.0 -2.4 -3.3 0 -4.3 -e.9 -2.8 Net Social Security Fu -0.6 -0.6 -1.2 -1.6 -2.0 0.0 -1.. - . -1.5 -1.5 -0.9 -1.8 -4 -2.9 Nonfinancial Statutory SoVes 0.0 0.0 0.0 0.0 0.0 -3.0 0.0 -0.7 -0.6 -3.3 0 0 0 0 Official Capital and Surplus -9.2 -10.2 -11. -12.0 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0 -12 -12 -22 2 Credit to Coerieil Bank 3.0 4.5 0.0 1.2 1.2 7.5 17.9 22.1 17.9 1.9 0.7 2.4 3.7 29.8 Credit to Rest of Financial Syste 20.1 14.1 24.0 14.4 28.8 80.8 47.8 43.4 68.5 82.1 49.9 51.1 45.4 54.5 Siport Credit arntoe 0.0 0.0 0.0 0.0 0.0 -2.0 -2.6 -2.6 -2.8 0 -3.2 -3.6 -1 -0.7 oomnerAry Inter'l Organization -1.2 -2.6 -0.9 -0.7 -2.S -1.7 -1.0 -2.2 -2.0 -1.? -1.6 -1.6 -1.6 -1.9 Net Uclsemified Asets, 9.2 2.5 2.1 3.7 -13.0 -0.6 -10.1 20.7 28.6 7.1 100.8 19.8 6o.9 91.2 _ 0 Countt r UIrewited Foewign

Escling 6.6 6.1 13.4 20.1 29.2 31.0 19.4 21.1 16.2 -2.7 3.4 -48.6 -11.4 17.0

HALTForeign Lisbilitleb 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.4 1s.3 18.8 15.6 14.8 10.8 8.3

LiabIIIties to Coerci;al baoks 28.6 85.0 42.5 64.6 9.6 6a. 75.5 79.9 87.3 97.6 96.1 126.1 52.8 119

L;ibilities to Ret of Blankin

Spte 0.4 1.7 4.6 8.1 8.3 2.8 2.2 0.2 0.8 0.3 0.0 0.8 0.8 0.8

LUibilit;i to Rnst of Financial

System 0 0 0 0 0 0.8 1.3 9.6 2.8 4.6 2.0 4.8 1.5 3.5

Liabilities to Privaet Sector 46.8 58.4 61.2 72.0 98. 1 109.1 10.1 114.1 118.1 128.8 137.4 16.8 171.4 182.6

Curreny In Circulation 48.3 53.4 61.2 72.0 96.1 109.1 106.1 114.1 118.1 12S.5 137.4 18.8 171.4 1SB.6

*/ Includes mediumw-r foreign liabilities of the Central Bank of Barbados. b/ 1980 includes Central Bank subscription to Trinidad and Tobseo dollor loon.

Soures: Central Bank of Barbodoe; DV. Tabl-e .St 9AFeAD0S- SMJARYACCOLDNS OF THE COMRCIAL BANCS,1976-89 ------~~~(BWSai Il ir,n)

1976 1977 1978 1979 1980 1981 1982 198 194 196ss l96 1967 1968 1989

Not Irternatlonal R_erve- -14.2 -4.4 8.6 8.8 4.7 -24.1 -9.4 -11.2 17.0 tJ.0 16.8 41.4 88.0 49.2

AOsstS 20.2 26.6 28.0 44.0 47.7 43.8 48.4 46.8 e0.0 87.8 103.1 222.1 12.5 122.5 LUsblIltle of 84.4 a8.2 22.4 85.2 48.0 67.9 88.8 S7.7 68.0 34.8 8s.3 130.7 97.8 78.8

Nat OvWoes Operations -1.9 -19.7 -0.3 -7.8 -49.4 -44.6 -49.8 -62.8 -t2.80 -8.5 -49. -3.86 11.8 89.4

Assets 6.8 8.6 8.6 4.7 5.1 6.8 6.4 7.1 12.7 13.1 15.2 18.2 00.7 39.4 Liabilities 80.7 29.8 27.1 32.5 44.8 51.4 s8.7 89.9 6s.5 6.6e 62.3 74.8 41.8 27.4 Nonetr7 Reserves A Currency

iHidings 22.2 36.8 44.2 62.9 62.9 67.2 76.0 81.8 98.1 89.5 106.4 129.2 145.8 1.8

Hot Dometic Aeets 81.0 878.8 41.2 813.9 s65.0 709.1 785.8 884.9 66.0 948.8 lo. 26.2 1*73.8 1427.8

Nat Cluis an Public Sector 41.2 48.6 44.4 42.1 80.8 80.4 8s.8 ".4 96.8 106.8 200.7 275.3 848.8 300.6 Not Central Cowornent 96.1 100.6 118.8 120.7 181.7 147.4 174.1 172.6 211.8 220.0 27s.3 818.3 848.4 807.8 AMets 100.7 104.9 13.9 130.5 142.8 161.0 187.9 188.4 233.0 240.5 298.2 S36.5 368.0 827.0 Liabilities 4.6 4.8 7.6 9.8 11.1 13.6 18S. 15.8 21.7 20.5 19.9 21.2 19.5 19.2 Not Other Ceneral Ooverna.nt -11.1 -11.9 -11.7 -9.0 -s.9 -1.6 -7.1 -6.2 -8.0 -8.0 -5.2 -3.9 -2.9 -11.8 Nab Othar Decentralized Agencies -3.1 -8.5 -9.2 -17.8 -20.0 -20.9 -16.4 -25.6 2a.a -26 6 -12.0 -0.7 -8.8 -23.5 Not Soc;l Security Fund -40.7 -38.6 -51.0 -s2.a -74.0 -64.5 .47.1 -74.4 -93.2 -79.1 -87.4 -35.4 9.1 18.1 Official Capital and Surplus -11.2 -1S.7 -8.0 In. -8.0 -8.0 -8.0 -8.0 -8.0 -8.0 -8.0 -8.0 -8. 0 -8.0 Credit to Rest Of Banking System 0.8 0.8 1.7 o0. .e .0 6.8 8.6 8.4 1.1 2.4 8.6 10.9 8.6 Credit to Rest of Finncial System 5.1 7.8 7*/^ 2E W. or 24.2 28.8 86.3 89.5 68.5 42.8 80.9 62.8 70.4 Public Snstitutions 0. S .. a 8 14.8 iS.6 17.9 18.4 23.0 88.2 80.3 27.1 12.7 23.6 31.0 Privete Institutiono .. !. 4.9 10.9 8.0 8.8 10.4 11.3 4.8 1.2 15.2 18.2 38.7 39.4 Credit to Private Sector ! ;A.8 8362.6 448.9 821.4 618.0 64S.0 729.8 741.9 769.4 811.1 a88.6 965.2 1102.8 Not UMclatified Aseet- -4.8 -9.1 -14.8 -8.6 -11.2 -18.1 -19.6 -24.9 -9.3 -26.6 -24.9 -29.9 -57.7 Nat Interbank Float 1l.0 19.3 8.4 26.1 24.2 20.7 17.5 24.4 26.8 25.5 38.8 40.7 27.5 11.1 i4LT Foreign Li bilitiso s/ 6.8 12.5 19.8 17.1 9.8 18.3 19.7 48.1 44.8 76.2 62.8 74.5 41.8 27.4

Liabiitie to Nlantary Authoritie 3.0 4.5 - 1.2 1.2 8.4 16.2 26.1 24.8 15.1 18.5 20.8 22.4 40.4 Liabilities to Rest of Bank ing

Syate (Truat Companies) 4.7 2.8 5.6 7.8 1.9 1.4 6.8 11.0 16.7 S.0 18.5 20.3 22.4 40.4 Liabilitits to Rest of Banking

Systes (Public Inatitutions) 6.8 0.5 4.8 11.2 6.2 14.9 20.0 19.7 22.8 9.8 -7.0 -1.1 84.8 88.8 Liabi I tis to Rest of Financial

Systeo (Private Institutions) 18.6 22.2 24.8 29.0 32.1 42.8 41.8 86.0 67.6 54.5 80.9 80.4 44.1 40.8

Liabilities to Private Sector 299.0 842.7 384.8 494.0 662.0 680.1 668.4 692.8 761.7 86.o0 99s.9 1119.0 1269.2 1309.8

Demand Deposito 88.9 66.8 78.8 120.9 128.9 112.6 111.0 125.1 186.8 166.4 198.6 229.1 289.6 240.5 Time Savings & Foreign Currency Dspoeit 240.7 268.7 800.8 864.5 42e.2 504.8 547.1 62. 6 W607 680.7 770.4 660.2 950.6 1048.7 Private Capitol and Surplus 2.4 5.2 5.2 8.6 11.9 12.7 10.8 5.1 19.2 18.9 29.9 29.7 29 25.6

a/ Loom in foreign currency to the Oovernsnt by the First National Bank of Chicago. stoe branch office in Barbadoe closd in 1978, are treated as foreign borrowing throughout.

Source: Central Ban of Berbados; DI. Table 6.4: bSAADOS- iAILt3W ACCmT OF THE iRUT CCWANIES,1976-89 (MO6million)

-- ~ ------~ ~~~ ~ ~ -_----w_ ------o ~~~

1976 1977 1978 1979 1980 1981 1962 1968 1904 198S 1986 1967 1918 1969

Monetary Re rvy. A Curr

Holdings 0.4 1.7 4.6 8.1 3.5 2.2 2.4 0.0 0.0 -0.5 -8.4 -18.8 -28.4 -87.S

Net Do_etic Asste 25.1 26.9 35.4 34.6 80.9 74.1 96.1 107.1 120.5 121.0 149.9 195.7 249.6 282.1

Net Claim on Public Sector 0.9 0.4 -3. -21.8 -19.1 -SB.8 -30.2 -26.9 -26.8 -30.4 -28.S -29.4 -26.2 -26.2 Net Central Coeornment 0.9 0.4 0.6 0.6 0.5 0.8 0.5 0.1 1.0 1.9 3.S 2.9 6.1 6.1 Net Social Security Fund 0.0 0.0 -4.2 -2.3 -19.6 -24.6 -30.7 -27.0 -27.8 -32.3 -32.3 -32.8 -32.3 -32.3 Credit to Comercial Banks 4.7 2.S 5.8 7.8 1.9 1.4 6.6 11.0 16.7 1S 9.9 6 19.1 i.f Credit to Private Sector 20.3 25.9 34.9 51.4 71.6 105.1 17.8 131.2 141.6 149.3 130.1 231.6 283.3 340.1 Maortge Loans (private) 16.1 20.8 27.8 40.8 87.9 72.2 78.8 79.1 88.8 94.4 118 146.7 183.7 224.8 Mortgage LAne (other) 0.2 1.2 2.6 4.3 4.7 5.5 5.1 4.9 4.8 4 3.3 3.2 2.4 3.6 Mortgage Lerns (industrial and coamrcial) 3.9 4.0 4.9 S.9 8.1 9.9 11.7 18.6 18.2 19.5 32.5 42.3 46.S 51.6 Other Loans 0.1 0.2 0.1 0.4 0.9 17.S 32.2 31.6 32.6 81.4 26.3 39.4 S0.7 60.1 Nat Unclasified Assets -0.8 -1.7 -1.7 -2.8 -3.S -8.6 -8.1 -8.2 -11.0 -12.9 -11.3 -12.5 -26.6 -33.4

IALT Foreign Liabilitie- 0.7 1.1 1.3 0.7 1.8 2.3 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8

Licbilitioe to Cbmercial Banks 0.8 0.8 1.7 0.9 1.6 8.0 6.6 S.6 8.4 1.1 2.4 8.6 10.9 8.6

Liabilities to Private Sector 24.8 26.7 97.0 41.1 61.0 69.0 91.1 100.7 111.8 118.6 138.3 172.5 214.5 235.2

Tim Drponite 29.6 26.0 86.3 39.3 50.3 68.8 06.4 98.7 108.6 115.9 184.3 168.5 210.S 281.2 Private Capital sa Surplus 0.7 0.7 0.7 1.8 0.7 0.7 2.7 2.0 2.7 2.7 4 4 4 4

Source: Central bank of Barbados; DF. Table 6.6: BARBADOS- COMMERCIAL BANKS SELECTED INTEREST RATES, 1968-89 (percent)

Period Prime Ended Savings 3 months 6 months 12 months Lending

1988 4.0 4.0 4.6 4.5 8.0 1969 4.5 6.6 6.6 6.6 8.6 1970 4.6 6.5 6.76 6.75 8.6 1971 4.6 6.26 6.6 6.6 8.6 1972 3.6 5.5 6.6 6.6 8.6 197 a.6-56.0 7.0-10.0 7.0-10.0 7.0-10.6 10.0-11.0 1974 4.5-8.0 7.6-10.0 7.6-16.0 7.6-10.0 10.0-12.0 1976 3.6-7.0 3.S-6.6 4.6-5.6 5.0-7.6 9.0-10.0 1978 2.S-7.0 8.5-4.5 4.0-6.0 4.25-6.0 7.6-8.6 1977 2.6-S.0 8.6-5.6 4.0-5.0 8.75-5.0 7.S-8.8 1978 8.0-5.0 8.5-5.o 4.0-5.0 8.75-6.6 8.e-8.6 1979 3.6-6.0 3.6-4.6 4.0-5.0 3.76-5.5 8.0-8.5 1980 5.0-5.26 6.6-6.6 6.26-6.0 6.5-6.5 9.0-9.5 a- MD 1981 8.0 8.6-9.6 7.6-9.6 7.8-9.3 13.0-14.0 4 1982 6.o 8.6-9.5 8.5-10.0 7.6-10.6 10.0-13.6 1983 5.0-5.5 5.6-7.5 6.0-8.0 6.0-8.0 10.0-11.0 1984 5.6-5.6 6.0-7.0 6.0-7.0 6.6-7.6 10.6-11.6 1986 4.0-4.5 4.0-6.6 4.26-6.6 4.6-6.6 8.75-9.6 1986 3.0 8.0-4.0 3.0-6.6 3.6-6.0 8.26-8.76 1987 8.0 8.t-6.0 8.26-6.0 8.6-7.0 8.26-8.75 1988 4.0 3.25-4.5 3.5-5.6 8.76-6.75 9.0-9.5 1989 6.6 6.0-7.5 6.26-8.0 6.5-8.6 11.0-12.6

Source: East Caribbean Currency Authority; Central Bank of Barbados. Table 7.1: BARBADOS- RETAIL PRICE INDEX, JANUARY1979 - DECESBER 1989

Alcoholic Household Medical Education, Beera es FuelA OperationsClothing/ A Perso- Recretiona All FoodA TobaccoHousing Light & Supplies Footwearn I care Transportation mHscellaneous Its

Weights 43.2 8.4 8.1 6.2 9.6 6.1 6.6 4.6 3.8 100.0

AnnualAverage

1980 103.8 166.6 162.6 13.90168.0 195.7 163.0 103.0 102.0 103.6 1981 119.3 114.9 126.9 107.9 114.4 124.2 116.9 117.1 1lS.2 118.6 1982 128.0 139.4 154.0 110.7 123.2 129.4 134.6 139.6 121.6 138.8 1983 131.4 144.2 168.3 119.1 127.6 132.3 144.8 147.0 129.3 137.7 1984 136.6 163.2 182.6 122.2 126.4 131.4 161.7 164.8 135.8 144.1 1985 146.6 166.6 200.1 119.2 123.0 130.2 163.9 165.8 138.8 181.1 1986 148.8 1865.7 198.9 116.0 116.4 119.2 165.2 166.6 162.6 151.4 1987 153.9 174.1 208.7 114.2 119.3 120.9 169.3 170.2 148.5 156.8 1988 163.9 183.8 214.6 112.1 124.7 125.2 182.1 189.6 147.2 164.2 1989 178.7 191.6 225.0 116.3 126.4 128.6 193.2 186.1 160.8 174.6

End of Period

1979 98.4 96.3 97.9 93.7 98.6 97.? 99.2 94.2 98.3 97.9 1966 110.6 112.9 122.1 107.7 108.2 115.8 106.4 105.4 197.3 111.6 1981 124.5 115.8 148.6 106.4 117.6 130.5 125.8 123.8 122.3 125.3 1982 127.6 136.8 163.6 113.8 126.3 128.5 142.2 144.8 123.9 138.9 1983 136.6 147.8 170.5 122.7 127.9 133.1 146.5 148.6 134.6 141.2 1984 142.0 162.0 194.4 126.0 126,1 132.7 163.6 157.6 186.5 148.4 1985 148.0 166.6 200.1 119.0 124.0 128.9 163.4 170.1 138.5 151.9 1986 149.6 164.7 195.2 110.4 117.0 114.5 164.9 165.9 153.0 181.2 1987 159.4 176.8 213.1 117.1 122.8 121.3 172.9 172.0 144.6 160.7 198B 169.1 189.8 214.4 112.7 125.6 189.0 183.8 184.3 147.8 167.8 1IM 186.9 189.0 227.5 117.8 128.8 128.6 199.0 187.2 163.0 178.8

Source:B8rbao Statistical Service. Table 7.2: Awas - NWWL WAUE WM. 197049 a/ (1960 * 100)

1970 1973 1972 197S 1974 1975 197 i17? 1973 1979 1960 16 1962 196 1964 196 1934 1967 19 19io

AlI sectors 10.6 38.8 39.4 43.1 46.3 53.1 86.2 70.0 77.8 03.2 1D.0 110.5 126.0 180.1 142.0 146.9 155.2 167.0 169.4 170.4

HbIdI 26.9 39.0 59.0 54.0 6.0 56.0 56.0 75.0 6o.0 96.0 100.0 134.0 184.0 140.0 615.8 161.7 160.? 173.3 177.5 3.6 Distrib uti.o 29.0 29.0 42.0 42.0 86.0 86.0 86.0 76.0 76.0 76.0 100.0 Mo.0 130.0 1860 164.1 164.1 164.1 164.1 1100.8 0.S Seqar 26.0 26.0 33.0 S3.0 47.0 68.0 65.0 65.0 70.0 70.0 100.0 10.0 107.2 120.0 235.1 1.31 141.0 148.3 149.7 101.9 Tra.eport 27.0 26.0 39.0 39.0 83.0 63.0 00.0 70.0 00.0 100.0 100.0 133.0 137.0 157.0 136.6 170.4 170.4 18.3 187.3 157.5 Ooveranet, 38.0 45.0 44.0 48.0 46.0 4.0 51.0 04.0 70.9 17.0 100.0 00.0 111..o 113.0 12.6 15.0 144.0 144. 157.2 169.9 Constructio 26.0 81.0 35.0 40.0 41.0 42.0 57.0 6J.0 74.0 74.0 100.0 110.0 110.0 110.0 27.9 143.2 15.2 139.2 172.0 175.4 Telephone 27.0 27.0 29.0 41.0 41.0 40.0 60.0 60.0 74.0 74.0 100.0 100.0 100.0 12.0 126.6 16.2 140.2 180.2 150.2 172.0 Eleckficitw 27.0 29.0 39.0 40.0 41.0 63.0 02.6 79.0 79.0 100.0 100.0 12.9 12. 9 150.0 136.5 171.9 178.3 177.6 193.0 195. i Langsb-s..., 19.0 19.0 26.0 26.0 41.0 42.0 62.0 82.0 77.0 77.0 100.0 100.0 119.0 119.0 13.8 13.8 151.0 161.3 151.3 151.3 Ihefectrina 04.2 34.3 311.1 0.9 44.1 51.4 67.7 74.4 79.0 09.9 100.0 115.6 19.1 140.4 144.6 151.0 10.6 155.1 172.6 170.1 areumta 26.0 26.0 29.0 29.0 42.0 4.0 60.0 64.0 77.0 77.0 100.0 10.0 130.0 UD.0 1-.0 137.0 137.6 137.3 0 150.6155.6 bwer- e 21.0 26.0 41.0 41.0 41.0 60.0 64.0 70.0 o6.0 100.0 100.0 137.7 157.7 163.0 169.4 169.4 1t9.9 l09.9 212.6 229. Fooi 00.0 30.0 50.0 40.0 42.0 61.0 64.0 77.0 60.0 97.0 100.0 157.0 157.0 156.0 156.0 171.1 174.0 106.6 196.6 204.1 om..icalc 01.0 26.0 2.0 00.0 41.0 43.0 51.0 59.0 69.0 70.0 100.0 105.0 19.0 134.0 150.2 153.7 174.5 170.2 190.2 199.4 Electraoica b/ 49.0 49.0 49.0 60.0 60.0 81.0 e6.0 09.0 00.0 101.0 l10.0 110.0 10.0 136.0 141.2 140.5 130.3 182.4 1M5.4 160.4

a/ The iadex foresuch sectw.io boeee ana elep$* average of wageeIn represenatie.e job categories. Sector uei.u1e are besedon ehee is tote eqloymmat,6he wallable, ean abae in ceatwiertica to _P abe. sot. lCIlK onl a negotited through collectIv barlgimiag *eaet for the electroakc, laduetry. b/ beed an a *oray madrectedby the C_.t..l huh of tde five largest eablishmte.

Serce: Minletry of Labor; b eStatistical Serice. Table 6.1: 8ARBADOS- FR.iCTM OF SEU=ED AIOLTUUAL CDOM I'M, 1977-4

units (oo3) 1977 1978 1979 1980 1961 1912 1968 1164 1985 1986 1117 198 196

Export agriculture

Suarc (a) Ml 1045 as 1062 1204 92 766 7wb 818 794 111 804 an on Onions (b) Kg. 674 748 84 472 an 482 76A so 77n 467.7 5i7.s 217.9 839.6 P Wsu* (C) Kg. 87 S1 ...... - 60 i 32 52 250.6 34.5 Cotto (d) Ko. 27 16 17 12 - - - 7 27 127.7 172.9 119.4 95.6

ieetic food crop

Yam Kg. 4995 am28 681S 7817 4064 450 2a00 819 2943 1989 2481.7 1868 2412 swat potatoes Kg. 1074 4990 228 4705 8 a870 200 197 20U 2192.4 8576.4 2478 282.6 Seats Kg. 362 S84 6Sl 856 807 40D a867 30 8 257.6 324.8 184.6 265.6 Puepins Kg. 67 280 1s - 527 498 8 208 a62 885.1 586.1 39s.8 160.8 Carrot Kg- 497 14 2148 289 2145 2416 1960 109 844 964.9 181.1 I60.2 1766.8 String bewn Kg. 179 le8 298 an 510 09 206 884 364 409.2 845.6 576.6 820.8 Tomtoes Kb. 122 72B 702 1636 1065 1206 297 496 872 484 851.6 595.2 876.6 Cucumbers Kg. 890 1785 968 - lw 17 187 107 821 299.8 448.3 401.5 480.7 Cabbag Kg. 260 S1S 1130 1.7 1899 11577 581 1074 767 944 790.6 664.4 418

LivestcI products

Pis () Kg. 484 18 60n 918 942 1SO0 718 785 gm 1198 1296.4 1176.9 1066 Co A ca lves (e) Kg. 160 249 824 414 we6 862 m22 278 245 806.1 897 289.5 682.2 a ^ _aaseep(c) Kg. 34 21 6o B6 so 21 30 21 22 21 25.2 22.7 34.1 Poultry (e) Kg. 8719 4274 a278 a24 S o 6700 S68 O0 6S 7 7480.4 82.8 6999.5 107.4 Egg (c) Ks. 1701 184 160 1040 136O 1047 1o0 16 227 13S2.1 1680.8 1425.8 109.3 M;Hl (a) Kg. 2641 29w 7468 7800 714 7014 7788 gm 961 10670.8 11784.5 11840.8 122.9

.. ot a labla. Note: Cue to a reision of tm domestic food ere bewd on swe extaniv* salpe survays. ths aeris beginning in 1I8 i- net coparabl* to earlier year.

Srce: (a) Minisy of Agriculture; Sugar Producers' aesointion. (b) WMnitry of Asiculture; Barbed= Agricultural Soiety. Cc) Ministry of Agiculture; Central nk sim_ts (ead epigt for er ecl ot pulty). (4) Agricultural Development Corporation. (a) Annul reports, Barbados Dairy Industries Ltd. Table 8.2: SAFMADOS-SUOAR STATISICS, 1977-89

1977 197 1979 1980 1*91 18 196 1964 198 1986 1967 1966 1909

Area of cents reaped ('000 hectares) 18.8 15.8 15.9 16.1 15.8 15.8 14.1 14.8 13.9 13.9 12.6 11.5 11.1

Tone af cants mill Ied ('00O) 895 89 1082 1204 962 766 706 813 792 908 689l 899 560

Tanne yield (lons, cane/hectare, reasped) 86. 6 6.6. 66.2 74.8 60.9 48.5 80.0 56. 57.3 65.9 86.7 66.3 74.9

Rainfall (inch~es) 45.4 54.5 66.8 82.5 68. 47.1 49.0 59.5 54.6 49.6 68. 1 77.2 68.6

Sugar Production ('000 tone-raw value) 124.1 104.1 12.5 1361.6 97.5 89.1 8 5.8 100.4 100.8 U11.0 85.0 80.0 68.0

Sugar yield (tone caneo/tone suar) 7.2 6.6 8.9 8.8 9.9 6.6 61.5 8.1 8.0 6.2 8.8 6.6 6.4

IhAmberof factories in oporation 8.0 9.0 8.0 8.0 7.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0

Exporte ('000 tone-vhite value b/) 99.8 77.8 68.0 115.0 86.6 66.5 67.8 681.6 57.2 60.8 70.0 79.0 52.6

- to B 62.5 59.8 48.0 86.1 44.0 49.8 48.4 ......

- toUS 87.0 16.6 84.6 86.0 14.4 16.0 138......

* to othiers 0.0 1.5 0.4 1.9 0.2 8.2 5.1 ......

of Prelimi nary. b/ Supar white value is about 08 of eufjar raw value.

Source: earbade Sugar Producare' Association; and Annual Oweraee. Trae" Yearbooka. Tabl 8.8: iAROS - PRODUCTIONOF S8.ETE I WNU FFACtEDOODS. 197709M

1977 1978 1979 1960 1961 1912 1968 1964 1IS 1966 1967 191 19

Food Product. & Sevaraep ('co unsit)

Lard (pound) 273 a6 27 3204 4864 32 3151 2684 2233 2066 2681 1910 188D Margarine (Pound.) 4838 8206 4574 4938 6999 5787 769 6120 6S s425 4816 S507 5722 8iewit, (pound) 8475 8m 8m 64 7802 7612 7131 641 689 "97 64 7841 3017 Macaroni (pound*) 2287 2619 8224 8981 42781 899 84S 3601 83S8 3S66 S2S6 3419 8676 AbimI Fedu (pounds) 84s24 76004 67240 S7881 99714 1086S 95404 943 99047 113205 130654 12S5 1172 milk Products (pound.) a/ 2187 21461 21706 21964 20678 18817 8275 19047 206O0 1O90 20973 1980 19723 Rue (as Ilona) 2844 2380 1640 2287 1511 1289 12B6 1244 11i 1744 831 679 1169 Beer (gal Ions) 160l 1990 1 17 202 199 1962 156 1488 16S0 1925 199 21 Malt Sverage. (asIlone) 698 958 841 726 812 798 904 778 729 885 740 755 922 Carbonated Severng. (gallons) 87s 4047 4129 4183 4812 3661 8572 3412 8210 8261 4859 S65268 S182 Cig9atte (pound.) 418 s05 E07 494 873 897 831 82l 438 878 359 328 315

Cheicals, Metal A Electrical Product. (c000)

Oxyge (cubic feet) 8107 a299 3891 4009 4898 4520 4782 4709 4817 4841 4916 S288 5191 Acoylene (cubic feot) 745 76 782 gm6 1028 1147 1157 1111 1077 996 1068 1137 1194 Carbtn Dioxide (pounds) 676 680 758 690 655 513 614 705 710 785 1084 1069 18I0 Paints (gal lon) 272 808 881 415 864 401 872 418 so0 394 375 400 589 Mail (pound.) 2D1 375 263 423 320 382 160 320 671 493 6s5 722 Barbed Wre (pounds) 181 140 138 179 490 418 168 454 9 is 66 4650 Storage Betteries (numer) 11848 13S6 1S678 20861 20602 16756 14121 11515 1s675 14322 20003 19679

Petroleu Product. ('000 gal Ioe) 4899 496 4844 86910 S8066 58784 s640 8896 6248 69729 69344 72503 78566

Caol in 13768 13978 14626 14554 1541 14906 15446 14940 18 67 17743 1888 20870 Die.lI94 1060 11301 13117 1328 1230 12742 12113 10369 11141 10981 12075 12870 one Oil 704 714 642 820 148 104 5 14 1 7 22 9 S Fuel Oil 21739 20682 24183 25488 26191 289 25400 29175 8M46 87742 87561 37915 41505 Kerosene 2W4 2514 2490 2033 1988 1690 1592 1S64 1541 1457 1213 1200 1094 Asphalt 1I25 1108 1302 1420 1078 1lls 127 1082 1238 2525 1842 2451 2e24

Electricity (million kwh) 264 267 S1S 382 349 387 375 864 390 390 426 450 441

Matural SG (mill ion cubic feet) 166 s88 412 469 284 309 387 68e 897 986 784 922 999

Crude Oil ('000barrel-) 124 274 264 Sos 211 258 402 63s 679 559 496 435 389

s/ Freh milk aquivalent.

Source: Serbadoo Statiutical Service. Table 8.4: BARBADOS- MANUFACNtDINO PRODUCMION INDICES, 1991-89 - (1062 a 16I)

1981 1962 1063 104 1965 1996 107 1988 1969

Total Industries 103.7 100.0 194.4 198.2 104.6 110.1 104.7 111.1 115.9

Mining and Quarrying 910.1 166.6 110.6 161.6 174.0 163.2 151.0 141.0 132.9 Electricity and Gas 96.8 166.6 116.1 121.7 189.2 187.1 142.7 164.9 169.8 Manutacturing 104.8 160.6 102.1 108.2 97.2 163.4 97.2 163.9 108.6 Food 116.0 100.6 99.8 99.7 191.J 199.? 116.6 109.3 166.6 Beverage and Tobacco 109.9 100.6 98.2 96.4 96.9 90.5 98.4 191.7 164.6 $ Wearing Apparel 102.9 166.0 166.2 110.7 98.4 7S.1 66.9 96.6 71.4 WoodenFurniture 124.5 160.6 116.6 116.9 191.5 109.5 119.7 149.J 187.7 Chmicals 197.2 106.6 97.2 68.9 74.0 65.1 70.3 89.5 169.0 Petroleum Products 1.0 166.6 97.5 99.5 168.7 116.1 115.4 122.6 129.6 Other Non-me taiIc Mineral Products 184.2 100.6 64.8 77.6 67.2 112.9 129.5 140.1 156.7 Electronic Componert 69.J 19.6 198.2 141.0 188.8 136.1 44.6 46.8 51.2 Other 108.9 166.6 162.6 95.2 87.2 112.9 129.5 140.1 156.7

Source: Ministry of Labor, Barbado StatisticalOffice. Table6.8: BARBADOS- KIlU TOLIRM STATISTICS. 1966-89

196 1967 1965 I96 1970 1971 1972 1973 1974 1975 1976 197 1978 1979 1960 1961 1962 193 1964 19e^ 196 1967 196 196I9

Total tourist S6u 641 606 9 909 1289 144S 1627 2219 2C03 2006 227 2863 3671 S782 3a20 2632 2631 2709 275 2549 297 331 3622 days (000) a/ stayee? 79.1 91.6 13.7 1i34.3 136.4 189.1 210.3 2. 2S0.7 221.5 224.3 269.3 316.9 370.9 369.9 362.6 303. 32S.3 357.7 359.1 3S9.6 41.9 451.4 451.3 Arrivals (1000)

Cruise-ahip 51.6 45.5 76.0 80.9 79.8 7n.2 10. 1 116.5 119.5 90.6 99.4 108.1 I28.0 110.1 18.S5 13U-8 110.6 102.5 99.1 112.2 148.a 224.6 291.0 S46.7 Arrivals ('000)

Averagelength of 8.5 6.8 8.3 6.8 8.3 6.4 8.4 6.8 9.1 8.6 8.8 9.0 8.7 9.6 9.6 9.6 8.3 7.7 7.1 6.8 6.S 6.5 6.7 7.1 Stay (day.) b/

Total bed 3968 479S SS38 a.. 6081 6773 7T88 79S9 43 682S 9462 10243 11131 11843 13360 14147 14141 14314 1414 14016 15981 13l8w I719 13721 Capacity

Bad occupancy 61.6 4t.2 50.7 49.2 45.9 48.0 46.3 52.6 56.6 40.9 44.7 84.1 89.3 76.4 65.3 54.0 4S.5 46.7 46.1 39.5 47.0 55.4 60.0 62.7 Rate. all E-tebllentu (M)

Touriat *mpndilturs/ 44.5 39.9 41.5 41.9 35.3 40.7 41.2 43.8 47.1 50.4 62.0 74.4 95.4 95.6 1OS.6 lD0.1 127.0 127.6 1S.5 145.7 0 Shad'Day(WIs) I Total tourlet ea.. a.a. n.a. n.*. 40.4 81.4 C0.0 68.2 71.3 81.6 S2.7 110.8 1I.6 184.9 23.9 261.9 251.1 2S1.6 260.4 309.1 X23.7 378.8 489.3 527.8 Expenditure Q(Wa)

Ratio of cruie ehip/ 65.2 49.6 65.7 60.2 80.9 41.9 47.6 52.4 51.8 44.5 44.3 38.8 39.8 29.7 42.3 36.5 3S.5 31.2 27.0 31.2 39.3 83.3 64.6 78.2 Stasyoer Visltors (annual peraenta dcange) Total touriat days O.a 13.2 23.6 18.8 4.7 41.9 12.2 12.5 36.4 -9.7 0.1 26.0 14.1 27.3 3.0 -6.9 -25.2 -0.1 3.0 -12.4 7.3 16.4 11.8 9.2

Stayovar vlars n.a 13.6 26.4 16.1 16.5 20.9 11.3 8.6 8.9 -4.0 1.3 20.1 17.7 17.1 -0.3 -4.7 -13.6 8.1 12.0 -2.a 3.0 14.1 7.0 2.2

Crulon-ahip n.a -11.9 67.2 6.5 -1.6 -0.6 26.4 16.4 2.6 -17.6 0.9 3.7 22.2 -12.6 42.1 -13.2 -16.4 -7.4 -3.3 13.2 29.5 54.7 29.6 19.1

(a. percestag. of 0D°) Total tourlat a.. n.a. a.a. a.a. 22.3 24.0 27.4 25.3 22.8 20.3 1i.9 22.3 24.4 27.4 27.4 27.6 26.2 2S.8 24.3 2S.6 24.6 26.0 29.6 30.9 eapeaditur

n.a: Not awailbl. */ Steyovor arrivals multipled by avrae l agta of stay plus cruei-aehippangwra. a*.c" aver ae lIaeht of Stay of tourists in aetabllal wathichare not surveyedIs the as" ao that for aurvayedeatabli sh_nte. b/ Appliest6 touriate stayingin eurveyed *etablalchentaonly. Touriat.*%aylag Ia establiahmnta that art not curveyedreprse nt aboutona third of total *tayov.?arrivail.

Source:6arbade StatiatiealServca; Central 6a of Barbtado. And iacion estimates. Table 8.6: BARBADOS- VISITOR ARRIVALS (STAYOVBR)BY COLTRY OF REsImaCE. 1966-89

Country of Residence 1966 1967 1968 1989 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1985 1987 1988 1989

USA 23827 29813 41287 52689 57111 68487 75525 74779 66237 54894 56041 70389 85473 91354 85971 74472 75511 113989 140201 146093 166250 175093 170773 154289

Cpneds 16372 18293 27879 31617 39609 53690 62918 68639 77246 75517 73005 83749 91192 92746 84934 69897 59619 53198 67307 70573 60285 64349 65626 65564

UIK 8304 9622 11493 10168 12083 13621 14851 17690 23782 24802 25843 25481 35718 49430 56228 72090 51145 47662 46274 38822 47590 79152 101231 11B122

Caricoam 23149 24713 24117 25517 33450 33892 36608 36349 38139 38070 38515 47491 54333 75966 84398 86859 82577 83789 83774 70884 61471 63505 63380 61676

Otherw 7452 9124 10921 14312 14164 19385 21447 24623 25314 28203 30910 42204 50167 61421 58386 49237 35943 29700 30096 30763 34174 39760 50434 6162S

Total 79204 91565 115697 134303 156417 189075 210349 222080 230718 221486 224314 269314 316883 370916 3S9915 352555 303795 328338 367652 359135 369770 421859 451444 461259

(in percent)

U5K 30.1 32.6 35.7 39.2 36.5 36.2 35.9 33.7 28.7 24.8 25.0 26.1 27.0 24.6 23.2 21.1 24 9 34.7 38.1 41.2 45.0 41.5 37.8 33.4

Canada 20.7 20.0 24.1 2S.5 25.3 28.4 29.4 30.9 33.5 34.1 32.5 31.1 28.8 25.0 23.0 19.8 19.6 16.2 le.3 19.7 16 3 15.3 4.5 34.2

UK 10.5 10.5 9.9 7.6 7.7 7.2 7.1 8.0 10.3 11.2 11.5 9.5 11.3 13.3 15.2 20.4 16.8 14.5 12.6 10.8 12 9 18.8 22.4 25.6

Cricom 29.3 27.0 20.8 19.0 21.4 17.9 17.4 16.4 16.5 17.2 17.2 17.6 17.1 20.5 72.8 24.6 26 9 25.5 22.8 19.7 16.6 15.1 14.0 13.4

Other 9.4 10.0 9.4 10.7 9.1 10.3 10.2 11.1 11.0 12.7 13.8 15.7 15 8 16.6 15.8 14.0 11.8 9.0 8.2 8.6 9.2 9.4 11.2 13.4 ~

Totai 100.0 100.0 100.0 100.0 100.0 100.0 100.0 200.0 100.0 10.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 OD.0 100.0 100.0 100.0 100.0 100.0

4 Source: Miinistry of Tourism and the Environment (formerly I in;stry of C,i I Avistior and Touriam). IBRD20365 c 80' 70' North Point ATLANrlC 15r OCEANI 14 ~~ ~~0A00

0 400 CRAIHILl ' 8°MS. 20 F4t.t. 4DOMINICAN MILES PIECORNER '20- HAITI RP PUERTORICO i lJUL, C Y V JAMAICA"IES

Coribbean Seo B~ARB~ADOS

CLiNKETTSt-z % SOUTH AMERICA -

SPEIGHTS- T' -*R-. If 8fiE PLAdINE

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.^]>-t+,g |_tHILtAI BATHSHEBA ° _, th ITWASa.

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HRIDGWTOWNN .

BARBADOS Sor

Aroble land suItable for mechanicalCultIvatiOn * Sugar factories

r Arable lond unsuItable for mechanicolCultIvatIOn Beaches - ~Pastureland with limited irrigation Irrigation boundaries ~- NlMarket gardening with limited irrigation Ma- ljorroads

;-7' Gulliesand steepland suitablefor forest,fruit,_ Parishboundarios ~ ~citrusand bananas, windbreak trees. Main built-up areas A Zonescapable of approximatelyequal sugar - .-.- International boundaries yields (not defined) 0 2 3 4 5 MILES

DECEMBER1986