The Central Bank of Barbados presented the country with a mixed bag of improvements in key economic areas while at the same time warning that growth remained a challenge. This, as ongoing structural adjustments are expected to dampen economic activity for the rest of the year.
In his pre-press conference review of the economy for the first nine months of this year, Governor Cleviston Haynes reported a 0.5 per cent contraction of the economy during this period.
And Haynes had no better news for the rest of the year.
“The bank now expects negative growth of 0.25 per cent to 0.75 per cent for 2018,” he said.
The Central Bank Governor blamed the lack of economic growth during the January to September period on reduced activity in the construction sector and the impact of tighter fiscal policy on local consumption which he said offset modest gains in the tourism industry.
He explained that while long-stay arrivals in this country’s bread-and-butter tourism sector were 2.9 per cent higher than for the corresponding period of 2017, the continued decline in average length of stay kept the increase to 1.4 per cent in activity.
The Central Bank boss said that the United States and Canadian markets registered growth of 8.7 per cent and three per cent, but the United Kingdom improved more modestly as weaker economic growth and a relatively weak pound hampered an expansion of this market.
Haynes reported that cruise arrivals also declined by 2.9 per cent as the number of ships visiting the island fell by almost ten per cent.
The news coming from the bank spokesman was no better for the construction sector.
“Output in the construction sector is estimated to have declined significantly as there were no new large-scale private sector projects to replace a major hotel project [Sandals new hotel] that was completed in 2017,” he said.
He reported that new projects in the public sector were also non-existent.
“Public sector infrastructural development also declined in the context of Government’s financing constraints and the consequent reduction in capital expenditure,” Haynes added.
The Governor Haynes also told the country that while the effect of the elimination of the controversial National Social Responsibility Levy (NSRL) on July 1 this year was not yet reflected in the data, the decision to increase it last year can partly be blamed for the moving average rate of inflation remaining above long-term trends by reaching 5.6 per cent at the end of July, 2018.
Now for the good news.
The Central Bank leader stopped short of saying a shift in policy by the Mia Mottley administration, through its successful debt exchange offer and its US$290 million loan agreement with the International Monetary Fund (IMF), has resulted in the improvement of some key macroeconomic indicators.
“Of note, the slide in the country’s international reserves has abated. Heavy debt service payments prevented any build-up of reserves for much of the first three months of the year,” Haynes said.
“However, gross reserves increased by $104.0 million between late March and the end of September, almost 80 per cent of which occurred from June onward,” he added.
He said the recovery in reserves was principally driven by the suspension of external debt service which alleviated pressure on foreign exchange outflows.
Haynes informed Barbadians that a modest growth in travel credits and stronger capital inflows resulting from increased foreign borrowing by the private sector, contributed to the overall improvement in the external accounts.
He noted that these developments allowed commercial banks to have enough foreign exchange to meet customer demand without recourse to the Central Bank’s stock of reserves.
“As a result, the gross international reserves (GIR) which had been in almost continuous decline since 2012, recovered, enabling the import reserve cover to reach 7.4 weeks of imports. Subsequent to quarter-end, the drawdown of the first tranche from the IMF raised the import cover to approximately 8.6 weeks,” he revealed.
The good news was also reported in the performance of Government’s finances.
“The public finances also improved during the first half of the fiscal year on the basis of improved collections, the impact of reduced debt service payments and expenditure restraint,” the Central Bank top executive disclosed.
“As a result, preliminary estimates are that the overall deficit declined to $34 million while there was a primary surplus of $235 million,” he declared, adding that this surplus represented just over two per cent of Government’s target of 3.3 per cent for the current fiscal year.
Haynes said the enhanced revenue performance reflected the impact of a boost to the corporation tax intake of $48.9 million as several new firms in the international business sector paid taxes for the first time due to new external requirements.
“Output in 2019 is forecast to be in the range of 0.5 per cent and 1.0 per cent, but the actual outcome will be influenced by the speed with which new investments, particularly in the private sector occur. These have the potential to absorb some of the labour that Government is shedding,” he stated.
He is also banking on significant economic spinoffs from the coming English Cricket Tour of the Caribbean next year, a major portion of which includes Barbados, along with the opening of Ross University sometime in January.
But the Central Bank Governor issued a strong warning to the Government and all other stakeholders that the positive outlook required commitment and discipline to ensure the reforms achieve their intended goals and the targets set by the IMF are reached at every point.