Up the down escalator: Positives amid gloomier forecast

After recording a substantial decline of 17.6 per cent in economic activity in 2020, the Barbados economy is expected to grow by a meagre five per cent this year, according to the latest Central Bank report.

At the same time, Governor of the Central Bank of Barbados Cleviston Haynes said he was very encouraged by the unprecedented $1.2 billion growth in the international reserves, which reached a whopping $2.7 billion or about 40 weeks of import cover at the end of last year, the highest it has ever reached in living memory.

During the year under review, Government debt rose while revenue declined and expenditure increased slightly.

Haynes believes that alternative energy would play a critical role in driving economic change and reducing economic vulnerabilities. He said that adapting technology in everyday life was also critical in addition to the facilitation of growth of business and digital advancements in the private and public sectors.

For the most part, the Central Bank attributed last year’s economic performance to the effects of the COVID-19 pandemic, which contributed to a significant fall off in international travel, delayed investment projects and reduced consumption arising from lower employment income and increased uncertainty.

The situation was further compounded by weaker demands for manufacturing export in Barbados’ main export markets.

“However, the progress made since the start of the four-year economic adjustment programme with the International Monetary Fund (IMF) enabled us to adapt economic policy, quickly mobilize external funding, build unprecedented reserve buffers and close the financing gap that might otherwise derail our recovery efforts,” said Haynes.

The uncertainty related to the pandemic also limited new private sector investment, especially in the tourism sector. As a result, construction activity declined by over three per cent during last year despite the implementation of some private and public sector projects.

On the fiscal side, government recorded a primary surplus of $243 million. The overall fiscal deficit was $36 million or 0.4 per cent of gross domestic product (GDP) for the first nine months of the fiscal year (April to December).

Government debt-to-GDP ratio increased some 20 percentage points last year due to an increase in borrowing of about $968 million in policy-based loans, more than 2.5 times the 2018 policy-based loans and more than six times the figure for 2019.

“The increased borrowing at this time reversed the trend of declining debt and at year-end, the debt-to-GDP ratio was 144 per cent, up from 120 per cent a year earlier,” said Haynes.

Government’s revenue declined by an overall 12 per cent to reach $1.87 billion between April and December, the result of lower collections of transaction-based taxes.

Meanwhile, expenditure rose slightly by five per cent during the nine-month period to reach $1.8 billion.

Haynes said the increase in expenditure was largely owing to the resumption of commercial external debt service and COVID-19 related spending.

“Interest expenses increased by $89 million, absorbing a larger share of revenue than in 2019. Grants to individuals increased by $5 million resulting from continued COVID relief measures with higher transfers to the welfare department and the implementation of the household survival programme,” said the Governor, who added that Government also provided some $25 million in grants to public institutions.

While capital expenditure rose by $22 million, expenditure on goods and services declined by $35 million driven by cost savings on property maintenance and rental of supplies and materials.

While it is predictable that the level of average unemployment almost doubled from the 10 per cent estimated at the end of 2019, Haynes said the Barbados Statistical Service would soon disclose the true figures.

Stating that economic policy will continue to “adapt to the economic circumstances”, Haynes said the accumulation of reserves in 2020 will allow Barbados to continue to meet its external obligations on time.

“The unfavourable impact of weak economic activity on revenues and the likely need for Government to continue to address the health and socioeconomic issues generated by the pandemic will force Government to keep its fiscal targets, including for the primary balance and debt, under constant review,” he added.

The Central Bank head said his biggest worry at this time was the uncertainty brought on by the global health pandemic, which made planning more difficult and the fact that everything was not within Barbados’ control.

However, he was encouraged by the healthy foreign exchange reserves, which he said gave Government the ability to continue to provide support for individuals and businesses that needed it most.

“So I take some comfort from the fact that we have these buffers to enable us to manage the situation. But what is important for us is to manage our health situation and get persons back to work such that the burden is not being placed on Government,” he added.

With continued uncertainty relating to the COVID-19 pandemic, Haynes said he expected unemployment to remain elevated, travellers’ confidence to diminished and other domestic activity to be dampened this year.

He said while the Central Bank did not take the current lockdown measures into consideration, it had “revised downwards its growth forecast from the range of 7 to 10 per cent, to below five per cent”, adding that the bank would continue to review that forecast “as events unfold”.
(marlonmadden@barbadostoday.bb)