Government realized an estimated $181 million or 2.1 per cent of GDP in savings from its Fiscal Consolidation Programme between April and December last year.
And Central Bank Governor Dr DeLisle Worrell is projecting further savings of $212.8 million or 2.4 per cent of GDP in the first quarter of this year.
The ongoing fiscal adjustments, he said, coupled with additional revenue measures – namely special dividend and grant funding – would allow Government to earn a further $90.8 million or one per cent of GDP, as well as meet its deficit target of $632.5 million or 7.2 per cent of GDP by the end of April.
“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,” said Worrell, who is also projecting a five per cent decline in the deficit over the medium term.
“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,” he said, in presenting the report on Barbados’ current economic performance.
Worrell also disclosed that Government has been relying on the Central Bank and other domestic sources to finance its shortfall in revenue.
“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 [National Insurance Scheme] $95 million. Commercial banks and private non-bank investors reduced their financing to Government by about $104 million and $30 million, respectively,” he said.
The Governor also pointed out that net public sector debt at the end of last year was estimated at 73 per cent of GDP compared to 67 per cent a year earlier. However, he argued that the island’s debt level was not out of line with many industrialized countries such as Italy, Ireland, the United States and Singapore, which he said were more highly rated by credit rating agencies.
In terms of earnings, the leading economist also revealed that the controversial Municipal Consolidated Tax, which was implemented in June last year, had already yielded $39 million while the official take from the Consolidation Tax and Asset Tax were $20 million and $14 million, respectively.
“Notable declines were registered in expenditure on wages and salaries [in the amount of] $53 million, and grants to public institutions [in the amount of] $55 million,” explained Worrell.
He said for the first three quarters of the fiscal year total revenue was higher by approximately $95 million, with increases of $15 million in corporate taxes, $6 million in VAT, $7 million in excises and another $7 million in import duties. Personal taxes also increased by $26 million, but this reflected the delayed payment of refunds.
“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,” said Worrell.
Overall the economy recorded marginal growth in the order of 0.3 per cent last year. However the Governor is projecting two per cent growth this year led by tourism, and supported by an estimated $300 million injection in construction.
“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 the US and Canada, respectively during the winter season,” said Worrell.
However, unemployment remains a bugbear. The Governor revealed that as at the end of September the average rate rose to 12.5 per cent from 11.2 per cent a year earlier, while the 12-month moving average rate of inflation slowed to 1.7 per cent at the end of October.