Predicting a severe shock to the Barbados economy from the COVID-19 pandemic, the Inter-American Development Bank (IDB) warned today that the country should expect tourism to grind to a halt, wholesale and retail goods demand to shrink and investments to tumble.
The grim scenario was painted in the IDB’s Caribbean quarterly bulletin, Caribbean Economies in the Time of the Coronavirus.
Noting that the crisis was unprecedented, the report said its economic impact was likely to be severe for the Bahamas, Barbados, Guyana, Jamaica, Suriname and Trinidad & Tobago – IDB member-countries covered in the publication.
Regarding Barbados, the report noted that as a highly tourism-dependent country, the economy would be harmed by the halt on tourism services, which directly accounts for a large share of economic output and employment.
“Other key sectors for growth, such as wholesale and retail, will also be adversely impacted by lower demand resulting from reduced tourism sector activity and the curfew,” it added.
Tourism accounted for 17.5 per cent of the island’s gross domestic product in 2019 and directly employed over 12 per cent of the labour force.
Local officials have estimated that in the hospitality industry alone, about 80 per cent – or in excess of 5,000 workers – are currently out of a job.
The wholesale and retail sectors account for close to ten per cent of GDP last year.
Co-author of the publication Laura Giles Alvarez said investment levels and international oil prices would also have effects on the economy “in the next few months”.
“Investment levels could fall if countries like the United Kingdom, the United States or Canada face strong downturns in their economies,” said Alvarez, who pointed out that foreign direct investment had fallen to 3.5 per cent of gross domestic product in 2019 from 4.4 per cent the year before.
She said: “Lower tourism receipts and foreign direct investment will also have a negative effect on the level of international reserves, which stood at 19 weeks of the import cover in March 2020. Although low international oil prices will provide relief to the level of international reserves, the positive economic impact will be marginal given the overall reduction in economic activity.”
With a slump predicted for this year, the IDB pointed out that this posed “a serious risk to continued achievement of the structural benchmarks” under Barbados’ external fund facility (EFF) with the International Monetary Fund.
Government is in negotiation with the International Monetary Fund and has already requested an extension of US$100 million under the EFF.
Additional financing from other international financial institutions will also be required to support growing financing needs, the IDB said.
Barbados has also sought a $160 million (US$80 million) policy-based loan from the IDB.
The report recommended that governments in the region take immediate action to contain the virus and its economic impacts through “prudent use of the full spectrum of policy measures available to them”.
According to the report, measures to flatten the curve were essential to “keep the human capital stock healthy, for when the crisis is over”.
The study also stated that given limited fiscal space and the importance of safeguarding long-term debt sustainability, policy measures should be “targeted and temporary”.
General Manager for the IDB’s Country Department Caribbean (CCB) Therese Tuner-Jones said the special edition of the quarterly bulletin was another way the IDB was supporting the region in this crisis.
She said: “This pandemic has generated an unprecedented wave of economic shocks for the Caribbean. Our role as the leading multilateral partner is to provide as much support as possible.
“We are working with governments in the region to respond quickly and deploy all available resources. Our team is also responding with comprehensive analysis of the effect on our economies.
“In this latest edition of our Caribbean Quarterly Bulletin we use existing data to explore different shock scenarios for the region as well as specific implications for all of our member countries.”
marlonmadden@barbadostoday.bb
