Growth spurt

Governor of the Central Bank of Barbados Cleviston Haynes is predicting an ambitious growth rate of between 1.25 per cent and 1.75 per cent for the economy this year, at least 0.7 per cent higher than projected by the International Monetary Fund (IMF). Furthermore, he is confident that Government will achieve its target of six per cent primary balance by the end of March.

He gave this optimistic assessment on Wednesday as he presented his economic review of the economy for the January to December 2019 period.

With just two months to go before the end of the current fiscal year, Haynes said Government’s primary balance was currently around 4.8 per cent.

He attributed the improvement of the primary balance over the first nine months of the current fiscal year to the strengthening of public finances, which he said represented Government’s commitment to achieving its fiscal targets.

“Based on what I have seen so far in January I think we have made further progress and we anticipate that coming towards the end of the fiscal year that we will be able to achieve the six per cent target . . . the [International Monetary Fund (IMF)] programme is predicated on our ability to achieve six per cent so we have to do what is necessary,” said Haynes, adding: “I believe we are on track.”

In his outlook, Haynes said fiscal consolidation efforts would continue to be the “bedrock of macroeconomic stability”, adding that achieving the targeted primary balance at the end of fiscal year 2019/2020 remained “critical” to building on the progress made in 2019.

“Such efforts will reduce public sector indebtedness, restore investor confidence and facilitate further sovereign credit rating upgrades,” Haynes said.

During the first nine months of the fiscal year Government’s expenditure is estimated to have declined by about nine per cent.

“Grants to public institutions, the source of rising expenditure in recent years, contracted by $122 million due to the domestic debt restructuring and budgetary reforms of some state-owned entities,” said Haynes.

He explained that the major impact related to reduced transfers to the Queen Elizabeth Hospital (QEH), the removal of Government funding to the Sanitation Services Authority and the Barbados Tourism Management Inc., which are now being funded directly by the Health Services Levy, the Garbage and Sewage Contribution fee and the Airline Travel and Tourism Development Fee respectively.

The overall reforms introduced over the past 18 months increased revenue collection.

“A 34 per cent increase in property taxes, on the strength of higher land tax rates, drove the gains in tax revenues,” said Haynes.

He also reported a marginal increase in the gross collection of personal income taxes despite the mid-year reduction in tax rates.

He said higher collection of the Value Added Tax, import duties, the new fuel tax, room rate levy and the direct tourism product levy, all boosted indirect taxes.

“However, excises were relatively flat during the period. Additionally, higher non-tax revenues contributed to the revenue intake as the foreign exchange fee benefited from the increased availability of foreign exchange,” he added.

In relation to economic growth prospects, Haynes said the forecast, which was a lot higher than the IMF’s meagre projection of 0.6 per cent growth, was based on an expected recovery in private investment and continued growth in tourism.

“I think the fundamental issue comes back to the investment. I am optimistic that we will get some of these investments started,” he said.

“If I could say to you that a number of projects were going to start tomorrow for example, I might be willing to raise my forecast above what we already have. So timing is going to be very critical in our ability to generate the growth,” said Haynes, adding that the start date of the highly anticipated construction projects will depend heavily on improvements in the doing business climate.

Though building on the gains of 2018, the economy is estimated to have declined by 0.1 per cent during last year.

The international reserves increased by some $481 million to reach $1.13 billion at the end of December, or approximately 18 weeks of import cover.

The tourism sector recorded moderate growth of close to three per cent, the fifth consecutive year of growth.

On the flip side, construction was estimated to have contracted by 4.7 per cent during the year under review, which officials have linked to the continued delay in a number of tourism-related projects.

“Activity related to smaller projects and other medium-scale commercial ventures lessened the decline,” said Haynes.

Meanwhile, conditions in the financial services sector remained stable and the manufacturing and non-sugar agriculture sectors recorded declines.

The Governor said critical to the overall performance of the economy this year will be increased productivity, expansion of the alternative energy sector, improvement in the doing business environment, structural reforms to improve competitiveness indicators, and increased diversification.

“(The year) 2020 provides us with an opportunity for this economy to take off. The last 18 months have focused on stabilization and during that period we have rebuilt the international reserve buffers, we have strengthened the public finances, we have implemented major tax and expenditure reforms, we have reduced the debt burden.

“Now we need the economy to grow. This requires ongoing fiscal discipline, complemented by new investment that builds out our economic capacity for the future,” added Haynes.
marlonmadden@barbadostoday.bb