Rising debt, falling revenue and an overall decline in the economy were the highlights of the last quarter delivered today in an economic check-up by the Governor of the Central Bank of Barbados.
Governor Cleviston Haynes said economic activity during July to September, the period under review, was not enough to stave off a third consecutive double-digit decline in the Barbados economy this year.
For the review period, the economy declined by a whopping 18 per cent to record an overall decline of 16.3 per cent for the first nine months of this year, when compared to 2019.
In addition, there was a slight increase in Barbados’ debt to gross domestic product (GDP) ratio, an increase in Government’s spending and a decline in revenues.
However, Haynes remained optimistic about Barbados’ economic prospects in the coming months, saying he expected “gradual rebound in 2021” and that growth could even reach a double digit.
Earlier this month, the International Monetary Fund (IMF) estimated that the Barbados economy could decline by about 11 per cent this year, before rebounding with a 7.4 per cent growth next year.
Delivering his economic report for the January to September period, Haynes said the IMF’s growth estimate for next year was not unreasonable, adding that it could be higher and in the “worst case scenario” it could actually be lower.
“So a seven to ten per cent is a range that we could work with. But to be honest, it is difficult to give an exact forecast when there are so many variables over which we have absolutely no control at this point,” said Haynes.
Some factors, he said, included the speed at which a COVID-19 vaccine was developed and how tourist source markets managed the pandemic.
He explained that the island’s recovery also depended on the effectiveness of government’s policy measures and the resumption or start of several public and private sector projects.
“I think we are all optimistic there will be some recovery in tourism in 2021. The question is really how large that recovery will be,” he said.
“As crucial as Government’s role is in stabilising this difficult situation, quickening the pace of recovery also requires innovation and dynamism from the private sector. Implementation of large private sector investments can serve to accelerate growth and create jobs, regenerate confidence so badly damaged by the crisis and enhance the island’s competitive position,” said Haynes.
He also expressed dissatisfaction at the recent decision by the European Union to keep Barbados on its list of non-cooperative jurisdictions for tax purposes, saying the move was “untimely and undeserved”, and could also impact the island’s rate of recovery.
Looking back at the review period, Haynes reported that although economic activity was stronger between July to September than in the previous three months, several persisting factors contributed to the major decline.
“Unfavourable health and economic conditions in source markets and the prevailing uncertainty associated with travel protocols led to only a mild restart of tourism activity,” he said.
“As a result, economic activity for the quarter remained well below 2019 levels, falling by an estimated 18 per cent, and preliminary data now suggests that economic output declined by over 16 per cent during the first nine months of 2020.”
The Governor reported that while some individuals have returned to work, unemployment in the key tourism and hospitality sector remained high and some workers were placed on shorter work hours during the last three months.
The economic downturn also continued to impact Government finances over the review period, resulting in weaker revenues. On the other hand, expenditure rose, partly due to higher capital spending and the need to account for COVID-19 related costs.
Revenue reached $1.252 billion from March to September, while current expenditure was $1.196 billion. This compared to the $1.454 billion in revenue and $1.119 billion in expenditure, the same period last year.
While the primary surplus was lower (1.7 per cent of gross domestic product) when compared to the four per cent in 2019, it remained above the target agreed to with the IMF under the current restructuring programme, following a decision to relax the current fiscal targets.
Tax revenues for the first half of the fiscal year declined by $170 million, when compared to the same period last year.
Haynes reported that while other major taxes fell, corporate taxes rose by some $216 million during the review period, reflecting the combined impact of higher tax rates on companies that derived revenue solely from foreign exchange activities, and from higher profitability in the past year.
Value Added Tax (VAT), excises and import duties together declined by $203 million or 1.7 per cent of GDP, with VAT accounting for more than 70 per cent of the fall, said Haynes.
The Central Bank head also reported that Government’s continued borrowing into the second quarter of the financial year resulted in a heavy boosting of the country’s international reserves despite higher public sector debt service payments.
During July to September, the reserves were up by $18 million to reach a whopping $2.04 billion or approximately 28.1 weeks of import cover.
Government received about $375 million during the review period, 91 per cent of which represented policy-based loans to supplement the revenue shortfall induced by the COVID-19 pandemic, while the remainder was for project funds specifically earmarked for on-going capital works, reported Haynes.
At the end of September, Barbados’ debt to GDP ratio rose to 131 per cent.
It is estimated that the tourism sector recorded a major decline of 66 per cent over the January to September period and most hotels remained closed during July to September, reflecting a diminished demand, said Haynes.
He also reported that non-sugar agriculture grew by 2.9 per cent for the first nine months of the year. While there was increased production in food crops and fish catches, the closure of restaurants and hotels resulted in reduced demand for poultry and other select meat products.
Preliminary estimates for the review period suggest that the wholesale and retail sector made a partial recovery from the sharp decline one quarter earlier.
Haynes said he was encouraging financial institutions to continue to “work with” clients and offer moratoria where possible or “selective” debt restructuring to help them manage potential risks of default.