The Barbados economy appears to be getting worse before it gets better, with the Central Bank of Barbados today predicting that it is on track to record a 0.5 per cent decline this year.
This is worse than the already modest 0.5 per cent to one per cent growth which Governor Cleviston Haynes had projected at the end of last year, or the jaundiced 0.5 per cent growth which the International Monetary Fund (IMF) had forecasted in early February, when it had warned that the economy would worsen.
During a news conference today at the bank’s Church Village, Bridgetown complex, Haynes revealed that the economy contracted by 0.6 per cent in the first six months of the year, meaning there was negligible movement in the second quarter when compared to the first three months, when the country recorded a 0.7 per cent decline in economic activity.
The numbers are not good news for the Mia Mottley administration, which is looking to enter into an arrangement with the IMF in an attempt to pull the country back from the brink.
Haynes’ warning that the economy remains vulnerable to outside shocks such as possible rises in oil prices will not be comforting either.
However, the administration’s top economic advisor provided some reason for optimism, by looking forward to the start of some projects to breathe some oxygen into the economy.
“Implementation of some of the private and public sector projects in the pipeline is expected to raise confidence and contribute to an improved outlook for growth,” Haynes said, an apparent reference to construction of the Hyatt Centric hotel, which has been stalled due to a court challenge by social activist David Comissiong; the Sandals Beaches resort in St Peter; the Wyndham hotel at Sam Lord’s Castle, which never really got off the ground, and the sale of the Hilton Barbados Resort and the Barbados National Terminal Company Limited, which was all but ruled out recently by Minister of Tourism and International Transport Kerrie Symmonds who said privatization of the two state assets would be a “last resort” for the Mottley Government.
The Central Bank governor also revealed that Government revenue for the first half of the year increased by $69 million, with the National Social Responsibility Levy (NSRL), the two per cent tax on foreign exchange transactions introduced in July 2017, and the increase in excise taxes on petroleum imposed in June last year, as the primary contributors.
Mottley has since scrapped the NSRL, in keeping with a general election campaign promise by the Barbados Labour Party, while holding on to the Value Added Tax (VAT) which registered no growth.
“Revenues are estimated to have risen by $69 million, with the NSRL, the foreign exchange fee and excises being the main sources of revenue growth, contributing $29 million, $19 million and $10 million [respectively]. However, the value added tax collections were flat after rising sharply the previous year,” the Central Bank boss said, adding that a 3.4 per cent rise in tourism arrivals was not enough to offset the declines in other sectors, particularly since visitors are shortening their stay.
One of the main areas of concern has been the international foreign exchange reserves which fell steeply in recent years, slumping to a dangerously low 6.6 weeks of import cover, well below the recommended 12 weeks, as at the end of December last year.
However, for the first time in ten years, the reserves grew during the first half of this year when compared to the corresponding period the previous year.
“The international reserves rose by $33 million to reach $443 million during the first six months of the year. This is the first increase for the comparable period since 2008,” Haynes revealed, explaining that while the Central Bank received an increase in net purchases of foreign exchange from commercial banks, the rise in reserves was helped by Government’s decision to suspend external debt payments.
Despite the increase, Haynes said the current level of foreign reserves remained unacceptable, and still a long way below the recommended cover.
“The pool of reserves, at 7.2 weeks of import cover, remained below the minimum operational target of 12 weeks,” he stated.
The Central Bank governor also said there was a narrowing of the deficit and an estimated three per cent decline in imports, some of which was due to action taken by the last administration.
“The performance for the first quarter of the 2018/2019 fiscal year resulted in a small deficit of $10 million. This reflected the improved primary surplus balance resulting from the fiscal consolidation efforts of the two preceding years and the suspension of external interest payments,” the chief economic advisor said.
When he delivered his report on the economy for the first quarter of this year, Haynes had said the 0.7 per cent fall was due mainly to a slowdown in construction, a decline in tourism activities and the late start of this year’s sugar harvest.
He said then the reserves had increased by $14 million to reach $423 million, and he had revised the outlook downwards to 0.25 per cent growth at best and 10.25 per cent at the lower end.
The IMF, on the other hand, had said in early February that the flagging economy was in need of a stronger macroeconomic framework and bolder structural reforms if it were to achieve fiscal and debt sustainability, address the large financing needs, build adequate international reserves, and boost growth.
The Washington based lending agency had also said low growth was as a result of ongoing fiscal adjustment and “policy uncertainty” related to the election.