The performance of the Barbados economy, which was forecast by Government to grow by one per cent this year, has not lived up to expectations.
As a result of this underperformance, the Central Bank today announced it had revised downwards the 2015 Gross Domestic Product (GDP) growth projections to 0.5 per cent.
At the end of June, the Central Bank said it was expecting growth of about one per cent this year, rising to a range of two to 2.5 per cent over the next three years.
The projected one per cent growth rate would have been the best performance in several years.
In his latest economic review and outlook, Central Bank Governor Dr DeLisle Worrell said the lower-than-expected performance was mainly due to the delayed implementation of more than US$500 million in private and Government-funded investment projects.
He explained that the island’s economic prospects depended heavily on the success of the Government’s medium-term programme for growth and fiscal adjustment.
“This strategy could reverse the slide in the country’s international credit rating, once it features fiscal deficits that fall below the growth rate of GDP, to reduce debt levels and the burden of interest costs,” said Worrell.
“Assuming that these projects will now be underway next year, growth rises to about one per cent in 2016 and two per cent thereafter. It is possible to improve significantly on these forecasts,” added Worrell.
“Factors that can make for much better performance include the improvement of administrative efficiency in the public service, initiatives to increase labour productivity and worker engagement, an aggressive policy of fiscal consolidation, more effective incentives and support for green energy and new and more appropriate financing of the development of the cultural and heritage sectors,” he said.
Total investment in hotels currently scheduled to be under construction in 2016 amounts to over US$500 million, to be spread over two to three years.
In addition, the private sector is awaiting approval of other commercial investment projects estimated at about US$50 million and there are potentially more economically significant investments in alternative energy, said Dr Worrell.
“Because these projects may save on fuel imports, they have the potential to multiply their impact on growth in much the same way that tourism does,” he went on.
There was a $144 million reduction in the fuel import bill for the first nine months of the year, representing about 20 per cent of annual imports. This was mainly responsible for the small decline in foreign payments for the first nine months of this year, when compared to the same period in 2014.
“The volume of fuels imported was eight per cent higher, but the average price was 41 per cent lower. Foreign income from services, including international business and financial services, has held steady since last year,” said Dr Worrell.
The Government’s principal economic adviser said over the years a widening gap had opened up between labour costs and productivity. He warned that a medium-term strategy for closing the gap “has to be placed high on the agenda for action by the Social Partnership”.
On the bright side, Dr Worrell said Barbados’ economy remained competitive by international standards and the quality of life remained high, making the country an attractive place to visit, retire and do business.
He also reported an “encouraging” 2015 performance from tourism, the island’s main foreign exchange earning sector, with arrivals increasing by 14.5 per cent up to the end of September, relative to the same period last year.
He said while growth in long-stay arrivals was “expected to moderate” following the significant restoration of airlift capacity from North Atlantic markets last winter season, the cruise tourism business was expected to get a major boost from an expansion in home-porting services at the Bridgetown Port.
“However, construction activity fell short of expectations, and the spillover effects to the retail and domestic services sectors were muted, resulting in growth of 0.3 per cent for the year so far. Average unemployment over the first half of the year was 12 per cent, and inflation, which is mainly imported, fell to 0.8 per cent in the 12 months ending July,” said Dr Worrell.
He said the foreign reserves had reverted to normal since the end of 2013, adding that, “all through 2014, and so far in 2015, foreign reserves have remained around the one billion dollar mark”.
At the end of September, the international reserves stood at $976 million, providing cover equivalent to about 14 weeks of imports of goods and services, he said.