III. Economic Trends and Outlook Trends: The Barbadian economy experienced its first improvement in output in three years in 1993, when it registered a 0.8 percent real rate of growth, after three consecutive years of decline. Real GDP declined 5.8 percent in 1992, 4.0 percent in 1991, and 3.2 percent in 1990. In current dollars, gross domestic product -- the value of goods and services produced domestically -- posted at $1.64 billion. Most of the growth in the economy was in the domestic sector: with the exception of tourism, the export sector registered declines. Inflation remained low in 1993 -- at about 1.1 percent -- in line with the moderate inflation rate on many import goods. The exchange rate vis- -vis the U.S. dollar has remained unchanged (at Bds $2.00 = U.S. $1.00) since the end of 1975. The Barbadian government credits the turnaround in real GDP to improvement in the tourism sector. Tourism expenditure rose in 1993 for the first time in three years -- up 14.1 percent to over $527.9 million. This improved performance is attributed by the government to economic recovery in North America (especially in the United States), as well as to its own marketing and promotional campaigns. Stay-over visitor arrivals rose 2.7 percent in 1993 over 1992, compared to a 2.2 percent decline in the previous year. The United States continued to be Barbados' most important market, contributing 28.5 percent of long stay visitors in 1993. The United Kingdom's share is 25.7 percent of the market, followed by Canada (12.5 percent), CARICOM (13.3 percent), and Continental Europe -- especially Germany (15.4 percent). The Government of Barbados' budget deficit in 1993 was the lowest in four years, and resulted from stronger revenue growth (because of the pick up in economic activity) and a moderation in spending. The country experienced a surplus in its balance of payments during 1993. The exchange rate vis- -vis the United States has remained unchanged, but the level of Central Bank reserves has been a continuing concern of the Barbadian Government. It appears that imports of consumer goods (as opposed to investment goods) have remained strong, while capital has not been flowing in from outside of Barbados at a rate that would support strong growth in the economy. Because of the foreign exchange crisis that prompted Barbados to seek credit from the International Monetary Fund in October 1991, the Barbadian Government implemented a tight monetary policy to dampen aggregate demand and reduce the level of imports. By early 1993, reserves had recovered due to higher levels of consumer saving and weak demand for private sector credit, and there was excess liquidity in the banking system. In order to try to stimulate demand and reverse the three-year decline in real output, the Government of Barbados decided to ease monetary policy early in 1993. In May, the Central Bank lowered the discount rate from 12 to 8 percent, and lowered the reserve ratio at the same time, to stimulate loan demand. Simultaneously, the Central Bank removed the requirement that consumers make down payments on purchases of consumer durables and eliminated restrictions on loans to the distributive sector. These measures worked so well that in December 1993, the Central Bank reimposed the down payment requirement on installment loans for the purchase of durables and raised the minimum rate on savings deposits in order to stimulate saving. Barbados' level of foreign debt has been declining, as the Barbadian Government has made a concerted effort to increase amortizations. The national debt stood at $1.13 billion at the end of 1993, an 18 percent increase over the previous year's debt level. Foreign debt declined again in 1993, for the third year in a row, reflecting the fact that a greater share of public expenditure is being financed locally -- primarily through purchases by the National Insurance Scheme (akin to the Social Security System) of government debt. The recent passage of the North American Free Trade Agreement (NAFTA) has provoked much debate within Barbados and in the rest of the Eastern Caribbean about the possibility and desirability of entering into the NAFTA -- either independently or as a part of the Caribbean Community (better known as CARICOM) -- or pressing the United States Government for market access equivalent to Mexico's under the NAFTA. In late May 1994, the Clinton Administration presented a proposal to the Congress that would allow Caribbean Basin Initiative countries market access in much of the textile and apparel sectors equivalent to Mexico's NAFTA access if, among other things, countries committed themselves to negotiate with the United States and to implement bilateral investment and intellectual property rights agreements based on U.S. models. Barbados still is evaluating this Interim Trade Program for the Caribbean Basin.Outlook: The outlook for the Barbadian economy depends on the forecast for tourism -- Will the economic recovery in key visitor markets continue? How will the competitive situation evolve? -- and on whether the Government and the private sector can compete in the changing global economy to bring jobs and growth to the country. So far, Barbadians appear to remain wary of trade liberalization and are formally committed to maintaining preferential treatment. During 1993, real growth in key sectors was as follows: Sugar............................................ -10.0 percent Non-sugar agriculture, including fishing......... - 5.0 percent Tourism............................................ 3.2 percent Manufacturing.................................... - 0.3 percent Electricity, Gas and Water......................... 0.3 percent Construction....................................... 2.1 percent Wholesale and Retail Trade......................... 2.4 percent Mining and Quarrying............................... 4.2 percent Transport, Storage and Communications.............. 1.2 percent Business and General Services...................... 0.9 percent Government Services................................ 0.0 percent Government's Role in the Economy Government spending accounted for about 18.4 percent of the Barbadian economy, a figure that has remained relatively constant for the past few years. Government-owned (parastatal) enterprises include the only commercial dairy, the Barbados Hilton, sugar refineries and lands, and an oil exploration concern. Successive Barbadian governments have used indicative planning, in keeping with the existence of (and desire for) a mixed economy. Indicative planning is designed to enable governments to plan and implement developmental activity in partnership and collaboration with the private sector. In August 1993, representatives of Government, workers, and employers signed a protocol stipulating that basic wages would remain unchanged for two years, unless there were demonstrated productivity gains. This tripartite compact among the so-called "social partners" is illustrative of the links between Government and the private sector. The Government (the Democratic Labour Party) has tried in recent years to restrain the growth of spending on public sector employment, mainly as a part of a structural adjustment program to reduce the size of the fiscal deficit. As with many governments, wages and salaries comprised the largest part of government spending. That policy was roundly condemned by the primary Opposition party (the Barbados Labour Party) in the 1994/95 budget debates, because of the high rate of unemployment in Barbados. In short, the Government has, and likely will continue to have a large role in Barbados' economy. Business Infrastructure: Port: Bridgetown: 6 berths Channel width 40 feet, draft 42 feet. Shed storage area: 120,000 square feet. Full container facilities, including ro-ro service. Finger pier: L 535 feet x W 54 feet. Draft 35 feet on north side, 32 feet on south side. Berth length: 600 feet. Container park storage capacity: 480 TEU bottom spaces, plus 20 TEU reefer containers. Covered shed storage area: 3,200 feet. Airport: Grantley Adams International. Runway: L 6,200 feet x W 150 feet. Accommodates international, regional, and local traffic; passenger and freight service. Major Infrastructure Projects Underway: For information on current major projects in Barbados please fax an inquiry to the Commercial Section of the Embassy in Barbadoes (Fax: 809-429-5246.