Thompson told legislators on Tuesday that implementing a fiscal stimulus could also have a “very negative impact on your external position”.

BRIDGETOWN, Barbados, CMC – The Barbados government says it will not implement a stimulus package to help improve the local economy, warning to do so would result in “dangerous side effects” for the country.

 

“We have had to do a balancing act between waiting-and-seeing the economic recession (and) being proactive," Prime Minister David Thompson told parliament, adding that a “a fiscal stimulus programme would be unwise".

 

“Fiscal stimulus programmes in the context of the Barbados economy can have a dangerous side effect, because it has been determined that, I believe between 76 cents of every dollar of stimulus will be spent on imports based on our last five years of trends,” Thompson said.

 

He told legislators that implementing a fiscal stimulus could also have a “very negative impact on your external position”.

 

“....so we essentially have to wait, put our measures in place, look to see how tourism is recovering, and until tourism is on a secure recovery path we need to conserve our foreign exchange reserves,” Thompson said, adding that the Ministry of Economic Affairs is involved in a project to develop an early warning system to monitor certain indicators in the local economy.

 

Last week, the United States-based Standard & Poor’s ratings agency downgraded Barbados’ economic outlook from stable to negative and warned of a “possible second downgrade this year”.

 

The agency blamed “a worse-than-anticipated recession” in Barbados for the situation, adding it believed that the timeliness and magnitude of the island’s fiscal consolidation “is uncertain because of a worse-than-anticipated (global) economic recession”.

 

“We’re revising the outlook on Barbados to negative from stable,” it said, adding that it is also “affirming the ‘BBB’ long-term and ‘A-3′ short-term foreign currency sovereign credit ratings.”

 

“The negative outlook reflects the possibility of a downgrade if the authorities fail to consolidate the general government deficit, estimated at 7.1 per cent of GDP (Gross Domestic Product) in 2009 and to curb the rising debt,” Standard & Poor’s said.

 

But Thompson told legislators that the local economy would be monitored constantly and “timely policy adjustments will be made to protect foreign reserves and other targets”.

 

He said that if the economy recovers next year, his administration was certain that employment will rebound.

 

But the Prime Minister said that if the economies of the United States and the United Kingdom fail to recover sufficiently “or if they fall into what some economists call the double dip economy in which you have a small recovery and then another dip in economic recovery” then the island would still be facing a problem.

 

“We don't want to find ourselves in a situation where our reserves are depleted as a result of any fiscal expansion, and then we're still facing job losses in tourism. So this is the reason why major fiscal stimulus is unwise right now," Thompson added.


Standard & Poor’s had also forecast net government debt at 52 per cent of Gross Domestic Product (GDP) this year, up from 42 per cent three years ago.

 

But Thompson said that while much debate had circulated regarding the calculation of gross domestic product (GDP), recalculating Barbados' debt to GDP ratio would make little difference to the real situation and might only encourage Government to borrow more.

 

He said he would not recalculate the GDP for the sake of passing certain tests.

 

CMC/pr/09