Some experts monitoring the oil price shock and related fallout from the war in the Middle East are warning Barbados and other Caribbean economies that they may yet feel worse effects from the crisis, including higher prices and slower growth.
Joshua Grundleger, director of sovereigns at international credit rating agency Fitch, the analyst for Barbados, said the negative effects from the conflict were not at the stage where downgrades were likely, but “you may see some positive outlooks in the region temporarily turned to stable as the governments manage through those effects of the shock”.
He said in an interview that the bigger concern was the extent to which the ongoing geopolitical conflict would affect economies, especially tourismdependent ones like Barbados, higher consumer prices and Government’s fiscal performance.
Meanwhile, Caribbean Development Bank (CDB) economist Dr Oronde Small said the institution expected that for Barbados and the other 18 borrowing member countries inflation would “be higher in both tourism-dependent and commodityexporting economies, with the impact in the former being more pronounced and more prolonged”.
Small, who was speaking in Nassau, The Bahamas, last week during the CDB 56th Annual Meeting Discussion On Shockwaves: How Global Crises Are Hitting The Caribbean also advised that “with regards to tourism-dependent economies, . . . the expectation is that [economic] output would decline in a context where . . . the revenue generation or revenue mobilisation capacity of the countries will reduce, and so revenues are expected to fall at the same time”.
Grundleger added: “Obviously, the longer the conflict goes on, the more it’s going to seep into things like food and [other] everyday expenditures, which will start to then have more pernicious economic implications.
“We’ve seen some policies to help cushion the impact of higher prices on people, of course, that come with a fiscal risk. Obviously, if you start expanding your expenditures, your public sector or government finances are going to weaken and this is to be expected.
“But it is certainly something that we’re keeping an eye on. If fiscal deficits really expand because social spending increases, but also because the economy weakens, you can get in a tight position.”
On the credit rating implications, he said: “As of now, I don’t expect that any of our Caribbean rated countries would have a severe downside risk for downgrades, I think this is a shock that can be managed through.
“But to the extent that, just like with Hurricane Melissa [in Jamaica], if an external shock maybe slows some of the progress that we’ve been expecting, you may see some positive outlooks in the region temporarily turned to stable as the governments manage through those effects of the shock.”
With Barbados among the Caribbean countries reliant on imports from the United States, Grundleger said price increases there were likely to spill over to here.
The New York-based analyst stated: “Inflation is creeping up here. Originally, it’s just showing up in oil prices and then it doesn’t immediately pass through, but the longer it goes and the higher it maintains, you start to see it show up in other things, whether it’s wages and whatnot, and, of course, that gets passed throughout to Barbados or other Caribbean countries pretty quickly.
“So I think it’ll come through, and I think it will be a real issue for sure. Cost of living is high across the region, so more inflation doesn’t help, but I don’t know if there’s much that can be done to cushion that flow.”
Small gave the CDB assessment on the issue on Friday during a session powered by EDGE X, the Barbados-based institution’s new analytical platform.
He said the negative effects from the conflict in Iran were significant, immediate and likely to be transmitted firstly through higher commodity prices, including oil, food, and fertiliser.
Tied to these were other impacts from increased freight and insurance costs, delayed shipping and increased travel costs.
A clear pattern was emerging, he said, which was that “small, open, trade-dependent, tourismdependent economies are most acutely exposed to the risks associated with the current crisis”.
Small was also concerned that if financial market risks materialised, once combined with the other challenges “this could have significantly adverse implications for our [borrowing member countries’] fiscal and debt dynamics”.
“What we find is that with regards to economic growth, the impact is asymmetric, so in tourismdependent economies a shock in oil prices is expected to lead to a reduction in economic output that is transmitted over time,” the economist said.
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