With just a few days to go before the start of the next financial year, Government has already revised its fiscal primary surplus targets downwards, bracing for significant loss in revenue and more spending due to the anticipated destructive effect of the coronavirus (COVID-19).
Addressing Parliament, Prime Minister Mia Mottley pointed out that foreign reserves of just over $1.563 billion or about 5.5 months’ import cover, are to boosted by $360 million, or an extra month of import cover to help cushion the economic shocks and give the Government more flexibility.
“That reserve cover for the rainy day allows us to be able to plan out the phase one package… to help save the Barbadian people as we go into this woeful crisis,” said Mottley.
These additional funds will constitute the $160 million approved by the Inter-American Development Bank (IDB) last week and a reinforcement of $200 million from the International Monetary Fund under the Enhanced Structural Adjustment Facility, which is currently about $440 million.
“They have given us the flexibility of treating it first as reserves cover but use it also for budgetary support should we need to do so later,” she said.
The Prime Minister said while she remained committed to reducing the island’s debt to 60 per cent of gross domestic product by 2033, from its current 118.5 per cent, it could not say the same about meeting the fiscal target.
“Today as I speak to you, with just 11 days to go to the end of this fiscal year we are recording a primary surplus of 5.7 per cent or $597.5 million,” Mottley reported.
However, she quickly pointed out that “there is no glory in hitting targets and people are suffering”
Adding that she expected about 60 per cent of the island to “carry the weight” in the medium term as the island continues to feel the economic impact of COVID-19, and with the hurricane season around the corner, Mottley said she already informed the International Monetary Fund (IMF) the country “can no longer run a six per cent primary surplus”.
“Not with the level of suffering that is going to ensue or the implosion on our revenues that we are likely to see,” said Mottley.
She said the IMF and Government had an “initial understanding” that it would move from a six per cent primary surplus target to a three per cent of GDP based on a scenario of the island witnessing a 50 per cent reduction in tourism.
She said should it be a severe scenario of an 80 per cent reduction in tourism, which “it is looking more and more like”, then the target would move down to 2 per cent of GDP.
“But it is too early for us to talk about that. We are going to work in the next three to six months on the basis of the moderate scenario until the data comes in,” she said.
This will give Government additional fiscal space, she said, “so even if we lose $240 million in tax revenue we are hoping to be able still to spend about $150 million over the course of the next six to nine months or longer, to be able to stabilize and create opportunities for our people,” said Mottley, indicating that most of the spending from the reserves would go toward capital projects.
The Finance Minister said while Government was expecting at least a 1.5 per cent economic growth, the COVID-19 pandemic and global economic downturn had changed that outlook
“We have gone back to the start line,” she said.
She continued: “This COVID-19 pandemic is expected to impact our economy through its impact on global travel. I have already seen it.
“We therefore believe that the effects of reduced tourism arrivals will in turn lead to a decline generally in economic activity.”
She quipped that Government is “planning for the worse while hoping for the best”.
She is forecasting a huge decline of 4.2 per cent in real growth under the moderate scenario of a 50 per cent reduction in tourism and 8.3 per cent under the second scenario of 80 per cent decline in tourism, the island’s main industry.
“I begin to wonder even if that may not be the full story,” said Mottley, who said the weakening in tourism and related sector would also result in decline in total imports of between one and two per cent of gross domestic product, or $125 million to $200 million.
She said the combine effect of lower travel credits and lower imports was expected to impact on the reserves accumulation.
“The reserves will decline by at least $206 million but more likely to be just over $400 million with the scenarios that we have,” she pointed out.
As for Government’s revenue in the next financial year, Mottley said it was “likely to be significant”.
“We believe that we can see anywhere between $157 million to $240 million less in tax revenues in this country in the next year,” she said.
With the travel industry to almost grind to a halt, Motley said Government was now expecting to see dramatic decline in the airport departure tax, which was used to help the Barbados Tourism Marketing Inc. operations.
“When we take into account the impact on the other levies and fees the situation is likely to be exacerbated in a major way,” she said.
There will also be reductions in the room rate and shared accommodation and product levy; the Garbage and Sewage contribution (GSC) and health fee due to unemployment.
The premier declared: “The job of this government is to help people keep their head above water. Nobody is expecting breaststroke, back stroke, freestyle and not even a good dog paddle. We are expecting people just to thread and keep their head above water.
“As a result of all of this, Government will adopt counter-cyclical fiscal policies just as we did in 2001. At the same time the Government is losing revenue we are going to need to spend some money to create activity in this country to make sure that the whole bottom does not fall through.”
In addition to range of capital projects, Government is to join with the private sector to provide a stimulus package for Barbadians who are directly affected by the progressive decline in the tourism industry and wider impact of the COVID-19 pandemic, she told the House of Assembly.