Concerns about inflation persist despite strong economic growth

Two leading experts have sounded the alarm that “stubbornly high” inflation could further erode the purchasing power of Barbadians.

Despite an “unprecedented” run of economic growth in the first quarter reported by the Central Bank of Barbados, renowned UWI economist Professor Justin Robinson and President of the Barbados Private Sector Association (BPSA) Trisha Tannis drew attention to the issue when they reviewed the bank’s report. of 4.1 percent growth – the 12th consecutive quarter of expansion – thanks to an “extraordinary performance” of 14.8 percent increase in visitor numbers in January to March this year.

Professor Robinson, Pro-Vice-Chancellor and Director of the Five Islands Campus, also expressed concern that “public finances are being negatively affected by rising debt service”.

While impressed with the government’s management of public finances, he says he is concerned about its fragility and the implications of current inflationary pressures on citizens.

“The economy continues to be buffeted by declining but persistently high inflation, which could erode the purchasing power of a broad cross-section of society, and rising external debt service costs, which are having a negative impact on public finances,” he said. Barbados TODAY.

“The inflation rate was reported at 4.8 percent, down from 5.9 percent in March 2023, which is significantly higher than the 2.1 percent reported for March 2022 and the -0.1 percent reported for March 2021. The inflation rate of 4.8 percent is also well above the average of 3.5 percent over the past ten years.”

The well-known economist claimed that the public forms its judgment about the economy mainly on the basis of personal experiences, unemployment rates, salaries and benefits and prices in stores.

“The persistently high inflation rate may go some way to explaining the apparent discrepancy between the strong macroeconomic performance being reported and the apparent sour mood among parts of the public,” Professor Robinson said. “Stubbornly high inflation, static salaries and the potential creation of lower-income jobs may go some way to explaining the apparent gap.”

For Tannis, inflation, even though it has fallen slightly, remains too high for too long.

“We don’t see this falling much faster, although the expectation is that it will fall somewhat. I don’t know if that will happen in the next quarter, but the government seems confident that it will mobilize over time,” she said. Barbados TODAY.

The private sector chairman emphasized that as long as geopolitical disruptions and hostilities continue, such as the war between Ukraine and Russia, these issues will have a domino effect on the costs of supplying goods and services and the value chain.

“So we expect it to remain high. Of course we also have the local consequences…. We had some disruption in our weather patterns, which caused some of the inflationary pressure on our land supplies and vegetables in the agricultural sector. So it came and went,” Tannis said.

Robinson also highlighted concerns about the rising cost of debt servicing, with interest payments representing a fifth of government revenues in January and March, up from 18.1 percent in 2023 and 16.1 percent in 2022. However, he praised the management of public finances by government. , showing “remarkable discipline and skill” in consistently achieving objectives.

The debt ratio has improved from 131.3 percent in 2022 to 119.6 percent in March 2023 and 114.3 percent in March 2024.

“The biggest challenge to public finances is the rising level of debt service, with interest payments reported to represent 20 percent of government revenues in the period January to March 2024, compared to 18.1 percent for the period 2023 and 16.1 percent for the period of 2024. the period of 2022 and 9.3 percent for… 2021,” the finance professor added.

UTI
economist professor Justin Robinson.
(FP)

He followed trends in growth in the first quarter of the past two years, between 5.0 percent and 13.2 percent, in analyzing the significance of this year’s 4.1 percent.

“The reported growth of 4.1 percent is therefore a solid rather than spectacular performance and suggests that growth in the first quarter is returning to historical levels following the extreme COVID-19 shock, with real GDP growth in the first quarter was negative at 18.9 percent. Professor Robinson said. “I believe that the current government deserves the highest credit for its public finance management and has shown remarkable discipline and skill in consistently achieving its public finance objectives.”

While he was pleased with the economy’s overall performance and expected more growth for the rest of this year, Tannis had some other concerns.

She said the business community “remains clearly concerned that we are still very reliant on one sector, and that the pace of diversification is not yet at the level that everyone would like when it comes to increasing our resilience to external shocks” .

“We’re actually very grateful where we are right now with the economy. It continues to provide impetus for strong growth,” said the manager.

However, Tannis said the private sector is pushing for a year-round tourism product despite the good prospects for the rest of the year.

“We need to do this annually, where we have a consistent tourism product all year round, for 12 months, not six or eight months,” she argued.

Tannis also expressed support for Central Bank Governor Dr Kevin Greenidge’s call for billions in private sector investment in the economy to help boost growth: “We know that the government has put in place a lot of incentives for various industries; and the atmosphere and circumstances are, we think, ripe for us to become very interested again in investing in the economy.”

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