Barbados - Requirements for sustained development

Ii \; PeotN.94-A Babao Ceounry Departmen-BAR Latin Am\nerica and the Caribbean Region! FOR OFFICIAL USE ONLY ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.4, .l _ 'Cl. - ' ~~~~~~~~~~~~~~~~~k.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ,. C,(/ 1' j Doumn of the Wo. Bak_ o~~~~~~~~~~ '"-"  CURRENCY EQUIVALENTS Currency Unit Barbados dollar (BDS$) Since independence in 1966. the Barbados dollar was fozmally linked to the pound sterling (E) at a rate of 4.80 to 1.00. On July 1, 1975, the BDS dolle was aligned with the US dollar at a rate of 2.00 to 1.00. US$1.00 = BDS$2.00 BDS$1.00 = us$0.50 GOVERNMENT OF BARBADOS FISCAL YEAR April 1 - March 31  FOR OMCIAL USE ONLY 9LOSSAMY OF ASURZEVIATIONS ACV Africa CarLbbean and PacLfic Group ATCO AgrLcultural Tradlng Company BADC Barbados Agricultural Development Corporation sEC Barbados mployers ConfeGeration BDPC Barbados Zxport Promotion Corporation BIDC Barbados Industrial Dovelops nt Corporation BLPC Barbados LLght and Power Company DxC Barbados MarketLng Corporation DBu Barbados National Bank DOD Biological Oxygen Demand BSIL Barbados Sugar Industry Ltd. B8TU Barbados Secondary Teachers Union BWU Barbados Workers Union CARIBCAN Canada's Preferential Trade SchAe for the Comaonwealth Caribbean CARICON Caribbean Community CARIFTA Caribbean Free Trade AssocLatLon CATCO Carlbbean Agricultural Tradlng Company CBS Central Bank of Barbados CBI Caribbean Basin Initiative CCPU Coastal Conservation Project Unit CD3 Caribbean Development Bank CST Comon External Tariff COCED Caribbean Group for Cooperation in Economic Development CIDA Canadian International Development Agency -PI Consumer Price Index CTO Caribbean Tourim Organization DSR Debt Servlce Ratio ZCLAC Economic Commission for Latin Amerlca and Caribbean EDI Economic Development Inutitute EEC European Economic Community EmD Environmental Englneering Division ELRCD Employment. Labour Relations and Community Development GATT General Agrement on Tariffs and Trade WBC InternatLonal BusLness Companies IC? IndustrLal Credit Fund IDS Inter-AmerLcan Development Bank IMP InternatLonal Monetary Fund MAPF Mlnistry of Agriculture, Food and Fisheries MTN Multilateral Trade Negotiation NPZs Non-financial Publlc Sector Enterprises NTBs Non-trade Barriers NMPW National Union of Public Workers OZCD OrganizatLon for Economic Cooperation and Development OBCS Organization of Bastern Caribbean States PAH3 Pan-American Health OrganLzation SZx Single European Market SPP Sugar Producers Federation BSA Sanitation Services Authority UNDP United Nations Development Programme USAID Unlted States Agency for International Development UWl Unlversity of the West Indies This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ANIADOS - COUNY DATA SHEET Area: 481 eq km Populations .255 million (1969) Density: 591 per sq lo Rate of growths 0.4 X (1969) Population characteristls Health Crude birth rate (per 1601):t 16.e Infant mortality (per 1,061 Iliv births): i. Crude death rate (pee 1.06f): 6.1 Population per physician: 1123 Population per nurses 223 Incoe dlstribution (1965-70) Transport end Comunication X of national incom, highest iuintil.z 44 Population per passenger cart 8 lowest quintiltl 7 Populatlon per telo;Sons: 8 Access to saf, water Fuel and power X of population - urbant 1I6 Energy consumption per capita: 1762 - rural: 100 Education Nutrition Adult illiteracy rate (X) s 0.7 Calorie Intake as X of requiremnts: 1ff Primary school enrollment Per capita protein intake (g/day): 10 (X) of relevant age group: 16 Secondary school enroll ment: 98 OMP per capita (uJS 1989) aJ/ : 68at GROSS NATIONAL PRODUCT, 1969 SNARE IN GROSS NATIONAL PRODUCT USS Mn X 1976-80 1961-85 1986-88 1988 OW at Market Price 1761.9 186.9 100.0 166. .0 166.6 Gross Domestic Investment 826.2 18.7 28.6 29.4 16.6 17.0 Gross Natio.al Saving 864.9 20.2 16.4 17.8 17.4 17.0 Current Account Balance -2.6 -0.1 -7.6 -8.8 -1.6 0.1 Export of Goods, NFS 676.6 49.7 67.8 68.2 49.6 49.7 Import of Goods, NFS 924.1 62.7 68.1 67.9 52.4 62.7 JTPUT, EWPLOYMNT AND PRODUCTIVITY IN 1969 Value Added Labor Force V.A. per Worker USS Mn x Thouc. X USe Agriculture 70.6 5.8 6.6 6.6 11769.2 Induitry 269.S 16.6 28.8 28.7 11328.5 Services 1102.4 76.1 70.8 69.9 16681.4 Total / Average 1448.4 190.0 106.6 166.9 12924.7 GOVERNMENT FINANCE Consolidated Public Sector Central Goverment BOSS Mn Percent of CDP BDS8 Mn Percent of GOP FY89 FY66 FY89 FY69 FY86 FY69 Current Receipt. 1326.1 8C.0 86.9 967.6 25.8 26.9 Current Expenditure 1169.6 84.1 84.2 652.7 28.7 25.8 Current Surplus 166.8 1.9 4.6 184.9 1.6 8.9 Cxp:tal Expenditure 222.9 6.1 6.5 209.5 7.4 6.1 aJ World Bank Atlas methodology.  BARBADOS - COUNTRY DATA SNEET Page 2 of 2 MONEY, CREDIT A PRICES 1986 1936 1987 198 1989 (Mn B05S outstanding at end of period) Broad loney Supply 666.1 197.7 1027.0 1119.6 1916.4 fank Credit to Public Sector 227.9 234.4 262.4 291.2 263.5 Bank Credit to Private, Sector 908.7 941. 1626.8 1127.6 1280.0 (percentage or Index numbers) Broad Money as I of GDP at.t aa,9 36.2 38.1 35.6 General Price Index (FY69 a 100) 161.1 151.4 150.6 164.2 174.6 Annual Percentage Changso In: Coneral Price Index 4.9 0.2 1.6 4.7 6.8 Sank Credit to Public Sector -16.4 2.9 20.6 3.1 -9.S lank Credtt to Private Sector 4.0 3.6 9.1 9.9 13.5 BALANCE oF PAYMENTS MERCHAMWIS VW TS (AVERACE 1986-89) -a. -- --~-- --------- lose 1987 1988 1989 W S Mn X (USS million) Primary Products 72.8 18.3 Export of Goods, NFS 731.2 667.8 783.6 670.8 6 o/ Sugar 58.9 13.6 Imports of Goode, NFS 761.4 694.4 823.2 924.1 Manufactured Products 208.1 52.6 --- - -- --- ----^ o/W Clothing 29.6 7.6 Resource Cap (defictt a -) -29.2 -36.6 -59.6 -53.3 Re-Exports 116.3 29.1 o/w Petroleum Producta 67.9 17.2 Not Factor Payments -7.6 -24.9 46 44. --- -- Net Current Transfers 11.8 8.9 16.9 5.9 Total 895.7 100.0 Balance on Current Account -18.6 -62.6 2.8 -2.6 Direct Pvt. For. Investment 6.0 4.6 16.6 5.5 EXTERNAL DEBT, DECEMBER 81, 1969 bJ Net ULT Borrowing 8660 -11.6 76.2 -29.6 Disbursowents 114.1 28.5 109.0 16.6 Amortization 26.1 40.1 38.6 46.1 WS8 Mn Subtotal (Dlr.Inv.+Net MLT) 93. -7.0 68.7 -24.1 Public Debt, Inl. Quaranteed 566.9 Non-Guaranted Private Debt Other Capital (not) Total Outstanding A Disbursed 605.9 and Cspttal n.e.-. -66.8 64.6 -47.6 82.8 Increase In Reserves C-) 6.2 -25.6 -41.4 -8.1 NET DEBT SERVICE RATIO FOR 1989 ca Gross Reserves a/(end-year 164.6 148.0 138 154 Public Debt, lncl. Guaranteed 16.8 Non- Guoranteed Private Debt Total Outstanding A Disbursed 16.3 RATE OF EXCHANGE Annual Average BRO/IDA LENDING (Dec. 31,1989) (end of period) __ -___ - 1966 1987 1986 1989 S8RO IDA WS 1.00 * BOSS 2.90 2.00 2.9 2.9 CUS Mn) BOSS 1.00 * US 0.60 0.60 0.560 0.560 Outstanding&4 Disbursed 86.2 0.9 Undisbursed 15.9 0.0 Outstanding Incl.Undlsbursed 61.1 0.6 I Includes gold holdings. bij Long-term debt. ej Debt servies, net of Interest oarned on foreign exchange resrvoe, as a percentago of Exports of Goode and NFS.  ManmJD2MMU L5E2UUU2MWM PREFACE A large number of persons have contributed to this special economic report. The core team which visited Barbados and is responsible for preparing the report comptiseds Sidney Chernick, Team Leader Carmen Scoseria, Macroeconomist (Tourism. Public Finance, Competitiveness) Alaudair Sinclair, Macroeconomist - Consultant (Industry, Exchange Rate, Trade Policy and Regional Integration) Coby Frimpong, Economist - Consultant (Sources of Growth, Pro4ections. Statistical Appendix) Frank Earwaker, Senior Economist (Access to External Finance). Prince Taylor-Lewis, Senior Country Officer for Barbados contributed a background note on World Bank/Barbados Relations. Ramon Lopez, (Consultant) assisted by Claudia Sepulveda developed the analytical framework for the tourism sector and advised on other sections of the report; Doreen Crompton provided a background paper underlying the discussion of the environment; W. B. Johnson provided a briefing paper on Agriculture; and Desmond McCarthy and Ashok Dhareshwar contributed the section on external shocks and adjustment. The team benefitted from +-he work of a concurrent World Bank mission comprising Joon Bo Shim (Mission Leader), John Nash, Mark Dorfman and Vipul Tandon. Ginger Reich edit %d the macro-projections. Apart from World Bank staff, a valuable overv@- paper was contributed by Keith Worrell and Joan Gibron of the Caribbean .,evelopment Bank (CDB), and Edward Agostini of the Inter-American Development bank (IDB) provided valuable material on the natural resource environment of Barbados. Finally, a special acknowledgement is due to Jose B. Soko;. who took a special interest in the preparation of this report and contributed much more than is required by his normal duties as Lead Economist for the Caribbean Divi ton. Barbados has attracted a great deal of attention from economic analysts both within the country and outside it. Apart from the regular evaluations of economic developments in Barbados prepared by the international agencies - the CDB, IMF, IDB, ECLAC, UNDP and the World Bank - there is considerable output from government ministries, the University of the West Indies (UWI at Cave Hill) and the Central Bank of Barbados. Indeed, the latter institution has established an outstanding economic research group that has published a large volume of papers analyzing the structure and functioning of the Barbadian economy. Much of this applied economic research was made possible by a comprehensive and credible set of economic and social statistics with the Barbados Statistical Service the leading source. The preparation of this Report has benefitted greatly from this large body of analytical work and quantitative information. The Report has also drawn on the assistance of many public officials, private sector entrepreneurs, trade unionists, aid agencies' personnel and other individuals in Barbados who readily agreed to meet with one or more mission members to convey their views and information on Barbadian economic issues.  TABLE OP CONTENT8 coUuTaY DATA sU.MAY OF FINDINGS AND lcT on . . . . . . . . . . . . .i I. INIROIDUCT 0N . . . . . . a . L A. Origins of the R*-pcort - Graduatlon Policy . . . . . . . L B. World Bank - Barbados RelatLons . . . . 9 . . . . 2 C. Structure of the Report . . . . . . . . .. .3 PART A - - PAST UXI * RES. PATTERNS AND SOURCES OF GROWT OP OUrPPm SINC 1966 Introduction * . . . . . . . . . . . . . . . . . . . . . A. Some CharacteristiLs of Barbados Growth, 1966-1989 . . . 5 B. Sources of Growth . . . . ......-.*. 15 C. Welfare Implications of Economic Growth . . . . . . . 18 D. The "Cost" of Economic Growth . . . . . . . . . . . . 20 B. Conclusions . . . . 22 III. .ACROBCONWIMC ZaNs&lr . . . . . . 23 A. Exchange Rate Policy . . . . ...23 Introduction . . . . . . . . . * 23 Exchange Rate Policy in Barbados . . . . . . . . . 24 Nominal Exchange Rate Adjustments in Other CARICOM Countries . . . . . . . . . . 25 Real Effectlve Exchange Rate Trends in Barbasdos . .................................... 28 The Short-Term Balance of Payments PositLon . . . . 29 Conclusions . . . . . . . . . . . . . . . . . . 30  -2- Table oa Contents (Continued) Pag2 No. B. Fiscal and Monetary Policy ... . . . . . . . . . . . 31 Introduction . . . . . . . . . . . . . . . . . . . 31 Flscnl Deficits and Their Financing . . . . . . . . 31 Monetary Policy . ......... . . . . . . . . 34 Conclusions . . . . . . . . . . . . . . . . * * 35 C. Revenue/ExpendLture and Incentive Policies . . . . . . 36 Introductlon . . . . . . . . * . . . . . . .. * . . 36 ExpenditurePolicy .. ................. . 36 Expenditure by Function . . . . . . ... . .* .. . 39 Transfers and Public Enterprise Policy . . . . . . 41 Revenue and Incentive Policy . . . . . . . . . . . 42 Conclusions . . . . . . . . . . . ........ . 46 D. Investment and Its Financing . . . . . . . . . . . . . 47 S. The Labor Market . . . . . . . . . . . . . . . . . . 49 Introduction . . . . . . . . . . . . . .. . . 49 Labor Supply . . . . . . . . . . . . . . . . 50 Labor Demand ... ... . . . . . . 52 Labor Market Institutions . . . . .. . 55 Wage Determination Process . . . . . . . . . . . 57 Outcomes Industrial Harmony and Wages . . . . . . . 60 Conclusions . . . . . . . . . . . . . . . . 62 P. Trade Policy and Reglonal Integration . . . . . . . . 63 Introduction . . . . . . . . . . . . . . . . * . 63 The Caribbean Common Market . . . . . . . . . . . . 63 Concluslons . . . . . . . . . . . . 65 IV. BhMA W..EDBN&.= .. . . . .* . ... . 66 A. Agriculture . . . . . . . . . . . . . . . . . . . . 66 Introduction o. . . . . . . . . .*. . . . . . * 66 The Role of Agriculture. . . . . . . . . . . . . . 67 Sector Policie ................. 70 Prospects . . . . . . . . 73 B. Industry . . . . . . . . . 73 Introduction . . . . . . . . . . . . . . . . . . 73 Nain Trends . . . . . . . . . . . . . . . . . . 73 Trade and Incentlve Policies . . . . . . . . . . . 79 Institutions and Incentives . . . . . . . . . . . . 81 Prospects . . . . . . . . . . . . . . . . . 82  -3- Tble of Contents (Continued C. Tourism . . . * . . . . . . . . . . . . . . . . . 83 Introduction . . . . . . . . . . . . . . . . . . .CI Growth Experience... .. .. . .. 84 Cruise Ship Activity . . . . ... . .. . . .. . 87 Main Problems . . . . . , . . . . . . . . . . . . . 89 External vs. Domestic Factors . . . . . . . . . . . 93 Prospects . . . 9 9 9 9 .9 99 9 9 9 9 96 D. International Business and Financial servicea . . . . 97 PART B -- TRE FUTURE V. ZERGING PROBLEMS. OPPORTUNITIES AND UNCERTAINTZIS . . . 100 Introduction . . . . . . . . . .. . 100 A. Liquidity Problem . . . .99.99 99. 101 B. Environmental Degradation . . . . . . . . . . . 103 C. Changes in the International Trading Environment . . . 112 VI. POISCIES VOR SUSTAINED DEVEIOPMEWT . . . . . . . . . . 115 Intro.uction . . . . . . . . . . . . . . 115 A. Macroeconomic Policies for Adjustment . . . . . . . . 115 B. Policies to Maintain Competitiveness . . . . . . . . . 116 Exchange Rate Policy . . . . . . . . . . . . . . . 118 Fiscal Policy . . . . . . . . . . . . . . . . 119 wage Policy . . . . . . . . . . . . . . . . . . . . 121 Trade Policy . . .. .. . . .0..... .9.9*122 C. Sectoral Policies for Sustained Growth . . . . . . . . 123 AInriculture . . 1 . 2 . . . . . . . . . . . 126 Tndustry . . . . . . . . . . . . . . . . . . . . . 126 Tourismonal B a Fn Si . 127 International Business and FlnancilalServl;es'. 128  -4- Table of Contjnts (conti.ued) D. Policies to Protect the P':ysLcal Environment . . . . . 129 3. Access to External Finance . . . . . . . . . . . . . . '30 External Borrowing strategy . . . . . . . . . . . . 132 Recent Developmeats and the Current Predicament . . 134 Prospectf for Financing . . . . . . .*. . . . . 135 Recommended Borrowing Strategy . . . . . . . . . . 140 F. Future Scenarios - With and Wi-thout Policy Actions . . 141 External Environment . . . . . . . . . . . . . . 142 The High Growth Scenario . . . . . . . . . . . . . 142 Financing Requirements . . v . . . . . . . . . 144 The Low Growth Scenario . . . . . . . . . . . . . . 146 ABUZZ: Tourism (Technical Annex) ......9. 9. . 148 STATISTICAL APPUSIX . . . . . . . . . . . . . . . . . . . . . . 154 MAP$ IBRD 20365  MARBkOSS a REOURENHN! tOR SUSTAINED PEVLOMENT This special economic report forms part of the graduat. %n strategy for Barbados initiated in 1984. The report reviews current and pnompective economic developmenta, evaluates the economic performar.ce of the Barbadian economy since gaining independence in 1966 and outlines the policy requirements for sustaining development through the 1990s. Barbados is a sm-all island economy, with a history of political and social stability, and a reputation for sound economic managemontt it has had a comparatively successful economic and social development experience over a quarter century of independence. Output growth at 3.2% a year and a slowly growing population at 0.5% per capita have pushed the per capita income level to US$6,370 in 1989 - the highest among the World Bank's active borrowers. At the same time, Barbadian living standards have risen Rteadily and today are among the highest in Latin America and the Caribbean. For a long time, the production and export of sugar was the mainstay of the Barbadian economy and is still the main agricultural crop, which in 1989 accounted for 13.5% of exports. But with the decline of Barbados' ce mparative advantage in this activity and the establishment of an economic environment favoring private initiative and risk taking, the sugar industry gave way to tourism (together with linked service industries) and light manufacturirg as the dynamic growth sectors during most of the period since independence. In the 1980s, however, Barbados' external competitiveness has been severely weakened because fiscal incentives granted and industrial promotion policies have proved insufficient to overcome the effects of macroeconomic policies which appreciated the real exchange rate and a trade regime which produced a pervasive anti-export bias. Investment in both the private and public sectors declined, manufacturing output tapered off and exports declined, while agriculture, essentially sugar, continued its secular decline. Moreover, employment growth was unable to absorb the new labor force entrants and the displaced agricultural labor, so that unemployment, which was already at the double digit level at independence in 1966. rose to a level approaching 20% of the labor force. Only tourism managed to show positive growth in output. But even here, underlying weaknesses in the industry -- sustained high levels of domestic costs (labor, utilities and highly lOrotected intermediate inputs) and reduced quality of accommodation -- have resulted in reduced industry profits, and even more telling, a reduced share in Caribbean tourism. The slow, but steady erosion of Barbados' competitiveness during the 19809 was exacerbated by the emergence in FY90/91 of serious internal and external imbalances. By early 1991, some of the key performance indicators - the fiscal deficit, foreign exchange availability and Central Bank lending to the public sector, for example - had reached crisis proportions. The new  budget presented on Aprll 2, 1991 introduced revenue measures to reduce zhe fLical deflilt. The Government has indLcated that co:plementary expenditure reduction measures wlll be implemented to restore a sustainable balance in the flsoal and external payments accounts and to improve Barbados, competitLveness. Apart from the urgent macroeconomic concerns that Barbados must address, its future growth prospects will also depend on tackling a number of longer-term structural deficLencLes. One is the growlng environmental degradation that threatens the natural resource base and the economic llfellne of Barbados. Another is the elimlnatlon of long-standing microsconomlc dlitortlons; thLs means providLng a more market-determined and transparent lncentlve system for private Lnvestment and for output and employment growth. In turn thi. wlll entall liberalizlng the trade regime, removlng impediments to labor mobllty and implementLng a formal lncomes pollcy all aimed at restoring international competltlveness. Thls is an enormously challenging reform agenda. Assurlng its successful implementation will require a vigorous and sustained effort on the part of the Barbadian authorities, the Barbadlan private sector, as well as the provLsion of flnanclal and technical assistance by multllateral and bilateral donors.  lUIfhUT OF FINDINGS AND 3CIINAIN Barbados is in the process of "graduating" as a borrower from the World Bank. This economic report forms part of the graduatior process. The purpose of this report is to evaluate the economic performance of the Barbadian economy since independence in 1966 -- especially the role of national and sectoral economic management - and outline the priority policy requirements for sustaining development through the 1990s. The structure of this report is as follows. Following an introductory chapter, Part A is given over to an historical review and evaluation of Barbadian economic development since the mid-1960e. The key question addressed there concerns the sources of Barbadoo'comparatively good performance. Part B provides a bridging section between the past and the future. it identifies emerging problems -- some associated with changes in the internal environment and some associated with changes in the external environment. Part C outlines the requirements for svstaining social and economic progress - the actions that must be taken to maintain, if not enhance the high living standards already attained by Barbadians. QoImLI Whoever first coined the phrase "small is beautiful" must have had Barbados in mind. It is the natural beauty of this small Caribbean island combined with a highly educated population that have been the main factors in Barbados' comparatively successful development experience over a quarter century of independence. Despite its small size - a population of 255,000 and an area of 431 square km.- and a relatively narrow resource base. Barbados recorded a trend rate of real output growth of 3.2% since 19665 and with the population growing at an average of only 0.5% a year, per capita output has advanced at the comparatively rapid rate of about 2.7% a year. By 1989. per capita GNP reached US$6,370, the highest among the World Bank's active borrowers. Associated with this income growth was a steady improvement in the distribution of income and social welfare - in educational attainment. housing, and health and nutrition standards. In terms of living standards, Barbados ranks among the highest countries of Latin America and the Caribbean. During this period, Barbados in common with many other non-oil exporting developing countries, had to contend with two steep increases in the price of petroleum which, in turn, resulted in sharp deteriorations in its terms of trade. The last oil price "shock" in 1979/80 provoked a long and deep global recession that resulted in negative output growth rates in Barbados in 1981 and 1982, accompanied by abnormally high rates of inflation. From 1983 to 1986 there was a strong recovery led by tourism. Thus, the severe economic shocks experienced by Barbados during the first 20 years of independence were managed with considerable acumen; the macroeconomic policy responses were sound and timely, and the ecno'my displayed considerable resilience.  - Li - This comparatively successful development experience can be traced, in broad terms, to such ingredients as: * strong leadership of a consensus society committed to orderly and equltable social change; * the creatlon of an enabling environment which fostered private initiative and rlsk i;akingt * a commltment to flscal prudence around which there emerged a large degree of political consensus; * provision of a supportive publlc soclal and economic lnfrastructure and a competent and dedicated civll service to implement policies; * harmony between economic growth and human resource development as reflected in a long period of investment in high educational standards; and * the provision of financial and technical asslstance ln support of Barbados' development programs. Since the early 1980s, however, the Barbadlan economy has begun to show signs of "weariness" and the dynamlsm that characterized the economy in earlier perlods has not been in evidence. Investment in both the prlvate and public sector declined, manufacturLng output tapered off, while agriculture. essentially sugar, continued its secular decline and dralned an increasing volume of financial resources from the rest of the economy. Only tourism, mainly aided by a favorable movement in the US$/f exchange rate, continued to prosper. But even here. long-stemming underlylng weaknesses in the Lndustry began to emerge, weaknesses whlch were reflected in a loss of market share to competitors in the Caribbean region. Serious internal and external imbalances in the economy became evident in 1990 and by early 1991, some of the key performance indicators had reached crisis proportions. The new budget presented on April 2. 1991 lntroduced revenue measures to reduce the flscal deficlt, and expenditure reduction measures are also expected to be implemented. Restoration of sustainable internal and external balances and improvement of Barbados, competitiveness wlll require correctlve pollcles along the lines outlined below. Pattern of Outrnt-Growth The pattern of Barbados' economic growth slnce independence ln 1966 can be summarLzed as follows: * tourLsm, growing at a rate more than twice that of total output, was the major dynamie sector in the economy; * the Barbadian economy has undergone a structural transformation in whlch services (including government, tourlsm and tourLim-linked actlvltles) have become the domlnant component of total output;  - LLL - * contrary to expectatlons from a shlft ln output to servlces (labor-uslng) that employmnt would grow quLckly, lt actually grew modestly at only 1% a year over the 1966-89 period and at a slower rate than the labor force, therefore resulting ln a hlgher rate of unemployment at the end of the perlod compared wlth the beginnLng; * the analysiL of the sources of growth ln Barbados shows that although labor's share in output is roughly three times that of capltal, the latter's contributlon to growth over the 1966-89 period has been almost twice that of labor; thli impllee that despite the shLft in the structure of productlon to servLces over the period, the production mode has been more capltal uslng than labor usLng; and * output growth in Barbados has been accompanied by widespread Lncreases in soclal welfare and reflected ln the steady advance of all the social lndlcators. Sectoral Performance and aPliLces agrLculture Three major trends have dominated the agricultural sector over the last 25 years; the first is the decline of the sector's contribution to the output and employment of the economy; the second is the decline ln profitabillty, or, more accurately, the Lncrease ln losses of the sugar sub- sector; and the thlrd is the failure. despLte much effort, to diversify the sector and establish viable alternatives to sugar. The declinlng fortunes of agriculture can be attrlbuted to the lnability to compete wlth other activity sectors for labor, and to the rapld lncrease in the value of land for non- agricultural uses; the decline ln sugar was also due to declining yields in both the field and factory. What is more, within the Caribbean CommunLty (CARICOM), Barbados has been hard put to compete with other countries such as Guyana and Belize, which are better suited for agricultural pursuits. By April 1991, about three-fifths of the way through the 1988-93 Plan period, tsiere is little or no evidence that the Government's new recovery program with diversification as the major thrust -is being effectively implemented. There are two fundamental Lmpediments to the effective implementatien of the new recovery program. First, about 80% of the arable land li owned or controlled by sugar industry interests. Second, the industry is subsidized at a level which yields private benefits in excess of those attainable from other agricultural activities. Unti thie subsidy is eliminated, the diverelfication of agriculture in Barbados will remain hostage to the sugar industry interest.. With the aging of the farm population and the failure of the sector to attract entrepreneurs from the younger generation, agriculture appears to be heading for a continuing decline. Reversing this trend would entail enormous cost in terms of major lnvestments, additional subsidies and protection. The cost would be difficult to justify. What seems a more realietic strategy is to aim for a smaller, leaner and more efficient sector,  - iv - one which produces specLalized tropical products for export and a range of items that effectively compete with imports for the tourist industry and one ln which all land use deciLions would incorporate theLr ecological impact as one of the dimensions in the evaluation. It would also require a revitalizatLon of the public institutions engaged in promoting agricultural development. For M&qgX& this would mean gearing down to a production target level of approximately 80.000 tons for the next few years, until the future structure of the international sugar market and preferential arrangements become clearer. Even at this target level, and after cutting out the ecologically least suitable areas so as to reduce costs at the margin, it will be necessary to vigorously lmplement those elements of the Government's recovery program aimed at reducing sugar production costs and improving efficiency. Towards this end, the Government. after a year of pilot testing, will undertake a major revamping of the current inefficient cane pricing policy based on price differentials by ecological zone to one based on sucrose content. At the farm and factory level, increasing yields and reducing costs will also require: e improving the use of herbicides and fertilizers, cane stands, soil drainage and soil compaction, and controlling cane diseases and pests. This, in turn, will require intensive training by extension agents arid others, directed at both the farm managers and labor to ensure proper soil and crop management techniques;