Pandemic cripples economy, but Gov’t still on track to meet IMF targets

The Barbados economy experienced a major decline in economic activity over the past three months, and experts are maintaining that a double-digit decline is imminent this year.

However, Governor of the Central Bank of Barbados Cleviston Haynes is confident that the Mia Mottley administration will still meet its targets under the US$290 million four-year extended International Monetary Fund (IMF) programme, which began in October 2018.

Haynes was delivering his half year review on the island’s economic performance.

“The virtual cessation of activity in the tourism sector, combined with curfews and temporary business closures, deepened the initial contraction that was realised during the first three months of the year,” said Haynes.

“Preliminary data now suggests that economic output fell by 27 per cent in the second quarter, resulting in an overall decline of almost 15 per cent over the first six months of 2020,” he reported.

The governor said output from the island’s main foreign exchange earning sector – tourism – sank by more than 50 per cent, with long-stay visitor arrivals declining by an estimated 54 per cent and cruise passenger by 34 per cent.

From the end of March to the end of June, unemployment claims surged to well over 33,000, with 31 per cent coming from the hotel and restaurant industry. The distribution sector accounted for 17 per cent of the unemployment claims; manufacturing eight per cent, construction six per cent, real estate, transport, storage and communication, three per cent; domestics four per cent and “other” accounted for 28 per cent of the claims.

So far, unemployment payments have exceeded $70 million, and Haynes said, “Further expenditure is anticipated in light of the expected protracted nature of job losses this year.”

For the six months under review, Government’s revenue was adversely affected, falling by ten per cent, to reach $657.7 million. Meanwhile, current expenditure rose almost eight per cent, to $570.7 million.

Government had renegotiated the primary surplus target for the financial year 2020/2021 from six per cent to one per cent of GDP.

Haynes said while the primary balance fell by just over $100 million, it “outperformed the target agreed with the IMF”.

During the review period, the international reserves grew significantly, by $536 million, to reach over $2 billion or 27 weeks of import cover, largely attributed to borrowings from the Inter-American Development Bank (IDB) and the IMF.

Haynes said: “Tax revenue that was sourced in foreign exchange and continued net purchase from the banking system also contributed to the reserve accumulation.”

He added: “Public sector external debt service payments rose slightly as Government began to pay interest on its restructured debt, but these outflows remained substantially below pre-debt restructuring levels and placed no pressure on reserves.”

He also pointed out that the combined impact of borrowing and the contraction of economic activity during the period, raised the Government’s debt ratio to 124.7 per cent of gross domestic product.

Pointing out that two of the main targets under the IMF programme were the fiscal performance and the international reserves, Haynes said “We have done a lot better than we might have anticipated when this problem (COVID-19 pandemic) arose.

“We have an opportunity now to take advantage of that improved performance as we go through the rest of the fiscal year. We believe that achieving our targets remain attainable. Obviously, with all of the uncertainty, one still has to continue to manage carefully because we still have to monitor how our revenue comes in over the rest of the year,” said Haynes.

“The expectation is that as the economy re-opens you will get a gradual improvement in tax collections, but not to the point where Government was collecting in 2019/2020. Therefore, we have to monitor very carefully what happens in terms of revenues, but we believe that we should be able to attain the targets we have set for ourselves over the medium-term, which is the one per cent of GDP,” he said.

The governor noted that while he did not anticipate any job loss in the public sector, there was need for improved efficiency and continued reform, including greater use of technology.

“As far as I am aware the Government is doing everything in its power not to have job losses in the public sector . . . We need to make sure that the economy is more competitive as we go forward and that is the focus of the public sector. I don’t think the issue of job losses is where we are focused. The object is how can we get our public sector to enhance its productivity and efficiency such that that will feed into private sector activity,” explained Haynes.

In his outlook, the economist maintained that it was difficult to say exactly what the decline in economic activity would be at the end of this year given the changing situation associated with the COVID-19 pandemic.

However, he said it could range anywhere between -12 to -15 per cent, once economic activity is resumed and capital works projects get going.

“A lot will depend on how quickly we will be able to see increased airlift and increased airlift should mean that there are people who are ready and willing and able to come,” he said. marlonmadden@barbadostoday.bb