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DE RUEHWN #1128/01 1811618
ZNR UUUUU ZZH
P 301618Z JUN 06
FM AMEMBASSY BRIDGETOWN
TO RUEHC/SECSTATE WASHDC PRIORITY 2824
INFO RUCNCOM/EC CARICOM COLLECTIVE PRIORITY
RUMIAAA/HQ USSOUTHCOM J2 MIAMI FL PRIORITY
RUMIAAA/HQ USSOUTHCOM J5 MIAMI FL PRIORITY

UNCLAS SECTION 01 OF 02 BRIDGETOWN 001128 
 
SIPDIS 
 
SIPDIS 
 
SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON EAGR EIND EINV ELAB ETRD PINR BB XL
SUBJECT: BARBADOS 2005 ECONOMIC REVIEW 
 
REF: A. BRIDGETOWN 386 
     ¶B. BRIDGETOWN 178 
     ¶C. 05 BRIDGETOWN 1217 
 
¶1.  Summary:  The Barbados economy performed well in 2005. 
GDP growth, inflation, and unemployment registered 4.1, 5.1, 
and 8.5 percent, respectively.  Construction drove growth, 
making up for a drop in tourism.  The fiscal deficit (2.9 
percent of GDP) and the national debt (88 percent of GDP) 
have both been increasing due to government spending on 
Cricket World Cup 2007 preparations.  High world energy 
prices helped push up inflation, while the buzzing economy 
drove unemployment to record lows.  Barbados struggles with a 
structural trade deficit but has kept the outflow of foreign 
exchange at a reasonable level.  Prime Minister (and Finance 
Minister) Owen Arthur's economic policies of encouraging 
private investment and promoting regional economic 
integration appear to be working well.  Most commentators 
expect economic growth of around 4.0 percent for 2006.  End 
Summary. 
 
-------- 
Overview 
-------- 
 
¶2.  Barbados is the fourth wealthiest independent country per 
capita in the Western Hemisphere (behind the U.S., Canada, 
and the Bahamas).  Barbados' per capita annual income is 
around US$12,000.  The country benefits from a strong 
education system, stable currency, healthy democracy, and 
solid rule of law.  For centuries a sugar monoculture, the 
Barbadian economy now relies on tourism and financial 
services.  The global slowdown in tourism after the September 
11 attacks hurt the island's economy, but it quickly 
recovered and has grown at a moderate pace for the past three 
years.  GDP growth, inflation, and unemployment registered 
4.1, 5.1, and 8.5 percent, respectively, in 2005.  High world 
energy prices helped push up inflation, while the buzzing 
economy drove unemployment to record lows.  The government 
oversaw an increasing fiscal deficit (2.9 percent of GDP) and 
a high level of debt (81.3 percent of GDP).  Preparations to 
host several games and the final of the Cricket World Cup in 
2007 have given the economy a boost. 
 
----------------------- 
Construction-led Growth 
----------------------- 
 
¶3.  Construction drove growth in 2005.  Preparations for the 
2007 Cricket World Cup, as well as a healthy expansion in 
high-end residential and tourism development, caused 
construction activity to rise by a whopping 17.6 percent. 
The rapid increase in demand for construction workers 
outstripped the locally available supply, leading companies 
to import labor.  In one well-publicized case, the company 
renovating the cricket stadium brought in workers from India 
and was paying them well below the prevailing wage (Ref A). 
After a public outcry, the government ended up deporting the 
Indians but letting back in a different group of their 
countrymen.  According to Chris DeCaires, Chairman of World 
Cup Barbados, the construction company was able to bring in 
new workers after promising the government that the Indian 
workers would be paid better wages. 
 
------------------ 
Decline in Tourism 
------------------ 
 
¶4.  After two years of exceptional growth (averaging 8.1 
percent) the number of tourists visiting Barbados declined in 
¶2005.  The number of tourists staying overnight in Barbados 
dropped by 1.1 percent, while the number of cruise ship 
tourists plummeted by 22.7 percent.  Rising fuel prices 
forced many cruise lines to compress ship itineraries to save 
money on fuel, leaving farflung Barbados off the schedule. 
The newly renovated Hilton Hotel (opened in May 2005) enjoyed 
immediate success and hosted many high profile events, 
including the CARICOM-Cuba Summit in December 2005.  The 
tourism-friendly west and south coasts of the island are 
thickly built up, leaving the country with little available 
land for coastal tourism development.  Future growth in this 
sector may depend on extracting more money per tourist rather 
than increasing the number of tourists. 
 
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Possible Pitfalls 
----------------- 
 
¶5.  The IMF and Standard and Poor's have both warned Barbados 
 
BRIDGETOWN 00001128  002 OF 002 
 
 
to keep a close eye on its trade deficit, fiscal deficit, and 
debt load, all of which have been increasing.  These factors 
have led to a decline in foreign exchange reserves that 
could, if unchecked, threaten the stability of the economy 
and the viability of the longstanding currency peg of two 
Barbados dollars to one U.S. dollar.  The country has thus 
far been able to balance these possibly destabilizing 
influences.  The Central Bank steadily raised interest rates 
throughout the year and the Ministry of Finance put an 
additional tax on imports in September 2005.  These measures 
have helped dampen imports and reduce the foreign exchange 
outflow.  The government will likely increase its fiscal 
deficit through 2006 and 2007 to pay for hosting Cricket 
World Cup.  The country has invested extensively, both in the 
public and private sectors to prepare for this sporting 
event, and the government is gambling that these investments 
will continue to bear fruit long after the games are over. 
 
 
------- 
Comment 
------- 
 
¶6.  Overall, Barbados is a stable, growing economy in a 
vibrant, free democracy.  The country is trying to make the 
leap from a high-income developing nation to the ranks of the 
developed world, but tourism alone will not likely get them 
there.  Near-shore call centers and business services coupled 
with niche exports such as crafts and food products, along 
with a small but surviving assembly sector, could help the 
country earn more foreign exchange and promote a healthier 
balance of payments.  Successive generations of political 
leaders have kept the country free from excessive debt, high 
inflation, currency instability, and runaway unemployment. 
Prime Minister (and Finance Minister) Arthur appears to be 
following the same wise path by promoting private investment 
and encouraging regional economic integration.  In the years 
to come Barbados should enjoy similar economic growth to that 
of 2005. 
KRAMER