Barbados has started to claw its way out of recession, evident by a 5.5 per cent growth in economic activity during the April to June quarter of this year.
And while Governor of the Central Bank of Barbados Cleviston Haynes is maintaining his prediction of a modest growth rate of between 1 and 3 per cent for this year, he said the second quarter growth rate was weaker than expected.
At the same time, Haynes, who is hinging a lot of the island’s recovery on the return to a vibrant tourism sector, said vaccination of the population would be a major factor in that process.
“As a country, it seems to me it is in the national interest for as many persons as possible to be vaccinated – clearly in terms of taking care of ourselves, but beyond that, I think that if the economy is to rebound quickly we also have to be able to provide some comfort to those who may want to visit here who are vaccinated,” he said.
Acknowledging that a lot more people in developed countries were vaccinated and had a pent up demand for travel, the Central Bank Governor reasoned that most of them were seeking to go to countries where they believed the risks related to COVID-19 were lesser.
“It doesn’t eliminate the risk, but you want to make sure there is a low level of risk in the country you are going to. So, from a national perspective, it would seem to me that it is in everyone’s interest that we are able to increase the level of vaccination,” he added.
Delivering his economic review for the second quarter of 2021 on Wednesday, Haynes said the performance of the economy continued to be restrained by the protracted global presence of the COVID-19 pandemic, which resulted in a dramatic falloff in tourism and a national lockdown in February.
He also pointed out that private sector spending remained “well below pre-COVID levels”, and that the recent ashfall from the eruption of the La Soufrière volcano in April and the passage of Hurricane Elsa at the beginning of July had further resulted in unplanned costs to Government.
He warned that even though the administration had relaxed its fiscal policy stance to cushion the adverse economic effects of the pandemic, by providing support, it will need to adapt its programmes to cope with these challenges.
“However, following the sharp decline during the preceding 12 months, preliminary data suggests that the economic recovery has started,” declared Haynes.
He said activity in the non-traded sectors acted as the primary source of the modest growth during the review period.
“The non-traded sector registered a partial recovery during the second quarter, reflecting an upturn in the retail and general business services sector that were hard-hit by the lockdown in 2020,” said Haynes.
“The ‘national pause’ in the first quarter slowed construction activity, but the continuation of projects related to the upgrade of the hotel infrastructure, roadworks, the Grantley Adams International Airport runway repaving project, the Sagicor Retirement Village and other small-scale projects boosted the sector between April and June.”
Pointing out that the growth was “a little weaker than we had anticipated”, Haynes said the reason for that was the feebler than expected performance of the tourism sector.
“Having said that, we do believe based on the demand we are seeing that there could be a significant improvement in tourism during the second half of the year . . . . Obviously, there is still a lot of uncertainty around the numbers.
“We do know the hotels are seeing increased bookings, we know there is increased airlift being planned – quite substantial increase in airlift being planned – but how that translates now into the numbers we will have to wait and see. So that really is going to be critical. I think we will know that the recovery is well rooted when we begin to see that substantial improvement,” he explained.
The overall weak economic activity continued to put pressure on employment levels. However, Haynes pointed out that some people have returned to the labour force and there has been an increase in part-time work.
He indicated that new National Insurance Scheme (NIS) unemployment claims for 2021 spiked in February 2021, but for the first six months of the year there were more than 10 000 fewer claims than for the same period in 2020.
The international reserves remained high, with an increase of $88 million during the April to June review period, to reach $2.7 billion or just over 10 months of import cover.
In relation to Government’s fiscal performance, Haynes said the pandemic continued to adversely impact public finances, reducing revenues and raising public sector spending.
However, Government is maintaining a target of a zero per cent of gross domestic product (GDP) primary balance for the current fiscal year which will end March 2022.
The Central Bank Governor reported that while there were some broad-based increases in revenues, total revenues declined by two per cent or $122 million, to reach 7.6 per cent of GDP; while expenditure increased by some $27 million, to reach 6.9 per cent of GDP at the end of June.
With Government debt continuing to rise between April and June, reaching 150.3 per cent of GDP or $13 billion, a new timeline of financial year 2035/2036 has been set to achieve debt sustainability of around 60 per cent. The initial target was financial year 2033/2034.
Stating that he was confident about the future prospects for the economy and at the same time urging Barbadians to follow the COVID-19 protocols, Haynes said there were still some challenges ahead and several measures needed to be implemented by Government and the business community.
“COVID has slowed the pace of planned investment which is critical for building capacity, enhancing competitiveness and creating opportunities to ease labour market pressures. Repairs to housing stock damaged by recent climatic events should boost construction activity in the short-term, but implementing a programme of private sector investments including for renewable energy, embracing technology, innovation and process improvements will influence how quickly the recovery accelerates over the medium-term,” the Central Bank Governor said.