Central Bank Governor Dr Delisle Worrell this afternoon issued a report on Barbados’ economic performance for 2014, indicating that economic activity improved by 0.3 per cent. He also projected two per cent growth for 2015.
Following is an edited version of his 12-page report.
The fiscal consolidation measures of the past 18 months have stabilised the foreign reserves, and the foreign reserve movements in 2014 reverted to the normal pattern observed in 2010, 2011 and 2012. The stock of reserves was $1.052 billioper centover. Of total foreign payments of $5.8 billion
in 2014, only $92 million, or 1.6 per cent, was financed by drawing down reserves.
Tourism value-added is estimated to have increased by one per cent, reversing the downward trend witnessed over the last three years. Long- stay arrivals rose by one per cent, and visitors stayed slightly longer than in 2013. Increased airlift out of the UK contributed to growth in arrivals of 10 per cent, but arrivals were down from the US and Canada, by three per cent and four per cent respectively. Arrivals from Trinidad and other Caricom markets contracted by 12 per cent and nine per cent, respectively.
In 2013, the most recent year for which we are able to make the calculation, Barbados’ tourism prices were 19 per cent more competitive than in 2008, compared with other Caribbean destinations, while prices of international business and financial services (IBFS) were nine per cent more competitive. Initiatives were undertaken in 2014 to further leverage Barbados’ advantage in the international business sector.
Overall economic activity is estimated to have improved by 0.3 per cent in 2014. Construction activity expanded by an estimated one per cent, largely on account of about $152 million in investment in tourism related projects. Construction and increased export demand for quarrying products, contributed to the 21 per cent growth in mining and quarrying. Solar generation capacity grew by three mega-watt hours to seven mega-watt hours. There was an eight per cent increase in chicken production.
At the end of October 2014, the 12-month moving average rate of inflation slowed to 1.7 per cent, a reflection of declining average prices for food, housing and fuel.
The average annual unemployment rate at the end of September rose to 12.5 per cent, from 11.2 per cent a year earlier, largely because of job losses from the fiscal consolidation programme.
Retained imports fell by around 0.4 per cent, with a contraction in food and beverage imports of two per cent, and a three per cent decline in intermediate goods imports. Fuel prices declined by 14 per cent after July, and the volume of fuel imports also fell, by an estimated five per cent. Domestic exports of goods rose by fou per cent, with electrical components up 27 per cent and chemicals up nine per cent. Rum exports declined by 13 per cent overall, on account of reduced exports for both bottled and bulk rum, by 11 per cent and nine per cent, respectively.
Higher net long-term private inflows totaling $473 million were recorded mainly for real estate purchases and property development by non- residents. Net long-term public sector inflows were $83 million, after netting out public amortisation payments of $135 million for 2014.
Between April and December 2014, the estimated deficit of $537 million, represented a $149 million improvement on the previous fiscal year.
The revised fiscal target deficit of 7.2 per cent of GDP for Fiscal Year 2014/15 can be achieved, so long as total supplementaries do not raise expenditure by more than $65 million, as announced in the Minister of Finance’s statement in December 2014.
An estimated $181 million (2.1 per cent of GDP) in savings has been realised from the consolidation efforts to date. Receipts from the Consolidation Tax, the Municipal Solid Waste Tax and the Asset Tax were equivalent to $20 million, $39 million and $14 million, respectively. Notable declines were registered in expenditure on wages and salaries ($53 million) and grants to public institutions ($55 million).
For the first three quarters of the fiscal year, total revenue was higher by approximately $95 million, with increases in corporate taxes ($15 million), VAT ($6 million), excises ($7 million) and import duties ($7 million). Personal taxes also increased by $26 million, but this reflected the delayed payment of refunds.
Government’s interest payments to revenue ratio is projected to end the fiscal year at 27 per cent. The ratio of external debt service to current account credits remained virtually unchanged at 6.6 per cent. The fiscal deficit net of interest payments –– that is, the primary deficit –– improved to $7 million at end-December, compared to $203 million a year earlier.
Up to December, the fiscal deficit was financed by a drawdown of Government deposits with the banking system ($238 million) and at the Central Bank ($174 million). Additionally, the Bank provided $158 million in financing and the NIS $95 million. Commercial banks and private non bank investors reduced their financing to Government by about $104 million and $30 million, respectively.
At the end of 2014, net public sector debt to GDP was estimated at 73 per cent compared to 67 per cent a year earlier. Barbados’ debt level is not out of line with many industrialised countries, such as Italy, Ireland, the United States and Singapore, which are more highly rated by credit rating agencies.
The economy is poised to achieve growth of about two per cent in 2015, because of tourism and construction activity, and the spin-off effects to wholesale, retail and business services sectors. The tourism industry is expected to benefit from increases of nine per cent and 20 per cent in airlift from America and Canada, respectively during the winter season.
An estimated $300 million of construction activity is currently slated to be underway in 2015, mostly in the private sector.
Over the medium-term, assuming that new revenue measures are implemented in fiscal year 2015/16 and current revenue measures extended, the deficit is projected to decline to about five per cent of GDP. The Medium Term Growth and Adjustment Strategy is being brought back on track, with a view to achieving a nominal economic growth rate which exceeds the fiscal deficit by Fiscal Year 2016/17, after which the ratio of debt to GDP will decline.
Barbados continued to strengthen the framework of international cooperation for its International Business and Financial Services (IBFS), in the face of challenges to the sector during 2014. In November 2014, Barbados signed anAgreement between the Government of the United States of America and the Government of Barbados to Improve International Tax Compliance and to Implement the Foreign Account Tax Compliant Act (FATCA). In addition, the Double Taxation Agreements (DTAs) between the Government of Barbados and the Governments of Singapore and Malta, as well Tax Information Exchange Agreements with Denmark, Greenland and Faroe Islands all came into force in 2014. Furthermore, a new DTA between the Government of Barbados and the Republic of Rwanda was signed in December, 2014, which opens the opportunity to forge greater trade, investment and diplomatic ties with other African states.
Also noteworthy is Barbados’ commitment, given at the recent meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum), to be an “early adopter”, agreeing to sign onto the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, by 2017. This Convention implements the new standard on Automatic Exchange of Information (AEOI).
With respect to its regulatory framework, the recent enactment of theInternational Business (Miscellaneous Provisions) Act, 2014has created a greater degree of operational certainty to the investment regime. In essence, this Act makes provision for a revised fee structure and for International Business Companies (IBCs) and Societies with Restricted Liability (SRLs) to be granted indefinite licences. As a result, all currently valid and issued licences granted to these entities are now deemed indefinite licences and remain valid unless cancelled by the Minister of International Business. This is an important step and is extremely timely given that the year 2015 marks the 50th anniversary of the initial enactment of the IBC Act.