Brighter outlook

Following an upswing in Barbados’ economic prospects for the first nine months of this year, Governor of the Central Bank of Barbados Cleviston Haynes has revised upwards his economic growth projections for next year.

However, he warned that this positive outlook hinges heavily on the island’s bread and butter tourism industry and the pace of investment activity, adding that the economy was not yet out of the woods.

“The adjustment gains through the first nine months of the year portend a favourable outlook for the economy through the remainder of 2019 and into 2020. Moderate growth is anticipated in the context of the improved confidence that the enhanced macroeconomic environment is generating,” said Haynes, as he delivered his report card on the country’s economic performance for the first nine months of 2019 today.

The Central Bank of Barbados. Inset, Governor Cleviston Haynes.

He said based on current data, the bank has a flat growth forecast for 2019 with some improvements in domestic spending expected during the fourth quarter as the impact of lower personal income tax rates and the gradual payment of tax refunds begin to take effect.

During the review period the economy declined by an estimated 0.2 per cent, due mainly to delays in private sector investment projects and the low level of public sector capital spending, which eroded the gains made in the tourism sector.

However, Haynes said: “The bank has raised its forecast for 2020 by a half of a percentage point to the range of 1.25 per cent to 1.75 per cent.”

He explained that the overall green shoots witnessed in the last nine months were reflected in the increased revenue intake, steady holdings of international reserves and a reduced public debt.

At the end of September the country’s overall debt stood at 121 per cent of GDP, inclusive of arrears on the external debt, while revenue rose to $1.45 billion, up from the $1.33 billion netted during the April to September period last year. The fiscal deficit was 2.8 per cent of gross domestic product (GDP).

The international reserves were approximately $1.23 billion or 15.6 weeks of import cover, reflecting the $226.4 million growth for the first nine months this year, due mainly from the drawdown of the second tranche from the International Monetary Fund (IMF).

“We have made an encouraging confident start to what is a difficult challenge. However, we must not become complacent, as unfavourable global economic developments can easily undermine our efforts,” Haynes warned.

“Structural reforms across the public sector remain necessary to enable Government to continue to tackle hindrances to investment and growth and to create a more business-friendly environment,” he added.

Haynes said Government’s fiscal position continues to be impacted by delays in the implementation of some measures, while economic growth continues to be stymied by a delay in major projects and lack of critical infrastructure upgrades.

However, he said, the recent agreement between Government and external creditors on the debt restructuring provided further reduction in the stock of debt. He said it would complement the gains achieved so far to place the debt to GDP on a downward trajectory, towards a 60 per cent debt to GDP ratio by 2033.

Haynes also pointed out that the debt restructuring “should enhance investor confidence” and help unlock investment flows that are needed for sustainable economic growth.

“Now we have reached the point of agreement in principle with the creditors, it means we have greater certainty as to what this means for our foreign exchange and it enables us therefore, to determine better what fiscal space exists to be able to do other things,” said Haynes, adding that defaulting was “not something we want to
contemplate”.

At the same time, the central bank governor said he did not anticipate any new fiscal measures, adding that he expected Government to meet its fiscal targets.

“We have made sufficient progress to suggest that we are moving in the right direction. What I would say more generally is that we always have to remain focused on where we are at, and if we need to make adjustment at any point we need to make those adjustments,” he added.

Government’s healthy revenue intake during the review period was driven by property tax, an initial modest increase in personal income tax before the 40 per cent income tax band was eliminated in July and consumption related taxes, particularly the Value Added Tax (VAT), which improved by $28 million.

Haynes also reported that receipts from the fuel tax, room rate levy, direct tourism product levy and foreign exchange fees aided in bolstering revenue, while non-interest expenditure fell by 0.8 per cent during the first half of the fiscal year.

“Transfers to state-owned enterprises, the main source of expenditure growth in recent years, fell by 25 per cent over the comparable period in financial year 2018/2019,” Haynes further reported.
marlonmadden@barbadostoday.bb