Rising global oil prices will continue to send consumer prices up while sapping foreign exchange reserves in Barbados and the rest of the region, CIBC said in its third quarter Caribbean Market Review released late yesterday.
In Barbados’ case, economic activity was also affected by economic uncertainty and a steady decline in the length of stay and spending levels, the review said.
But with Government entering into an International Monetary Fund (IMF) programme, CIBC is predicting improvement in a number of areas.
Ecconomic growth in North America is accelerating year-to-date, and with the IMF projecting that global Gross Domestic Product (GDP) growth will remain robust and broadly-based for the rest of 2018 and into 2019, economic activity is likely also to expand across most markets in the Caribbean in 2019, said the RBC forecast.
Additionally, those economies most affected by hurricanes would likely experience some recovery in output in 2019 as tourism and agriculture value-added rebound, along with construction activity that continues to support rebuilding and rehabilitation work, the report said.
“Other markets most dependent on US and Canadian tourists will likely benefit from greater arrivals, while a sustained improvement in global energy prices, though more modest than over the last year, bodes well for economic growth and the balance of payments for the region’s commodity exporters,” it said.
“Consumer prices, supported by higher taxes in some markets, will thus probably continue on their upward trajectory. Finally, as Barbados likely embarks on an IMF-financed fiscal consolidation programme, economic growth in that economy is expected to remain subdued, but external buffers should recover with each successful, periodic IMF review,” it pointed out.
The commercial financial institution added that public debt levels should fall sharply once domestic and external debt restructurings were completed, but the nature of those restructurings and the successful implementation of revenue measures, spending cuts, and structural reforms would determine the speed at which the Government regains access to international capital markets.
With an IMF programme and access to other multilateral funding, the foreign exchange reserves are likely to boosted in the short-term, while the achievement of a planned six per cent GDP surplus and successful completion of debt restructuring should likely produce a fiscal surplus from 2019/20.
“Developments in economic activity in the Caribbean generally responded to global economic trends and external shocks for the year-to-date 2018.
Most markets experienced some expansion in real GDP, but those countries affected by Hurricanes Irma and Maria in September 2017, and those that depend heavily on the UK or Venezuela for tourist arrivals, experienced either modest or negative economic growth over the period,” the document said.
“Ongoing fiscal contraction, economic uncertainty and a steady decline in the length of stay and average tourist expenditures further reduced the economic activity in UK tourist- dependent Barbados during [first half of] 2018,” it added.
The report pointed out that despite most markets experiencing some expansion in arrivals thus far in 2018, aggregate stay-over arrivals declined 3.7 per cent year-on-year during the first four months of 2018 compared to a more modest 1.4 per cent year on year decline a year ago.
“In contrast, commodity producers generally benefited from more favourable energy prices and increased production of some commodities as well as witnessed other positive signs of economic growth during the period. Finally, surges in capital expenditure in some hurricane-affected markets likely partially offset the fall-out from fewer tourist arrivals, but private sector construction activity likely led growth in overall construction thus far in 2018,” said the CIBC forecast.
But higher taxes and a suspension of external interest payments, filled the government’s coffers in Bridgetown, the bank noted.
“The suspension of interest payments to external creditors and greater revenues from new and higher taxes substantially reduced the Government’s fiscal deficit by 92.4 per cent year-on-year, to US$5.2 million during the April – June 2018 period,” it said, while noting that gross public sector debt had reached 155 per cent of gross domestic product by the second quarter of this year.