IDB: Growth depends on tourism revival

Improvements in tourism supported by the Barbados Employment and Sustainable Transformation (BEST) programme, along with progress in vaccination in key tourism source markets should result in between one and three per cent economic growth for Barbados this year.

This is according to the latest Inter-American Development Bank (IDB) quarterly bulletin, The Fragile Path to Recovery. Its growth prediction is in line with that of the Central Bank of Barbados.

Released on Thursday, the report which analyses economic challenges facing IDB-member countries in the Caribbean, namely The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago, said the overarching remaining risk to regional economies on a fragile path to recovery, was a prolonged global health crisis.

The document stated that the key to reducing the risk of derailing any progress was vaccination.

This latest report analyses risks to the financial sector and forecasts key macroeconomic indicators that suggest countries in the region are unlikely to recover pre-crisis levels until at least 2022.

“The economy is projected to grow in the range of one to three per cent in 2021, despite the economic uncertainty caused by the ongoing COVID -19 crises,” the report said of the Barbados economy.

“The growth forecast is a result of improvements in the hotel sector supported by the Barbados Employment and Sustainable Transformation (BEST) programme and progress with vaccinations in key source markets, namely the United States, United Kingdom, and Canada, as well as in Barbados.”

It pointed out that from January 1 to July 11, 2021, the island welcomed 21 074 visitors, down by about 86.9 per cent compared with the same period in 2020.

“The COVID -19 response by the Government of Barbados led to BDS$166 million in expenses in financial year 2020/2021 in the following areas: health sector (BDS$83.6 million); welfare support ($44.7 million); economic support (BDS$26.1 million); education (BDS$11.4 million) and other expenses (BDS$0.2 million),” it said.

In relation to fiscal balances projection, the IDB said for Barbados, Grenada, Guyana, Suriname, and Trinidad and Tobago, this was to remain “worse than prior to COVID-19 through 2026”.

Pointing to the increase in the island’s debt to gross domestic product (GDP) from 124.8 per cent for financial year 2019/2020 to 150.3 per cent at the end of June this year, the IDB report said the increase in debt was driven by a contraction in GDP.

“The pandemic conditions have resulted in the Government meeting rising financing needs with a combination of external borrowing from international financial institutions and the issuance of a 2021 domestic bond, known as the Barbados Optional Savings Scheme (BOSS) scheme,” it said.

“As previously mentioned, the primary balance target for financial year 2020/2021 of minus one per cent was achieved, compared to a surplus of six per cent at the beginning of the fiscal year. The weaker fiscal stance, together with higher debt service payments, increased government borrowing requirements in financial year 2020/2021.”

The report pointed out that economic activity in Bridgetown weakened this year due to the impact of the La Soufrière volcanic eruption in neighbouring St Vincent and the Grenadines in April and Hurricane Elsa in early July.

“The financial year 2021/2022 budget estimates a primary deficit of 0.3 per cent of GDP. With the diminished level of economic activity and an expected fall in corporate taxes, revenue increases will not be sufficient to recover to financial year 2019/2020 levels,” it noted.

The IDB report pointed out, however, that the successful overhaul of the international business tax regime to comply with international taxation standards has yielded a corporate income tax revenue windfall that has helped partially offset lost revenues.

It pointed out that Barbados had made good progress in the fight against the COVID-19 pandemic and that testing remained a priority for the island.

Stating that Barbados had witnessed a “gradual flattening of the epidemiological curve” while experiencing some spikes in COVID-19 cases, the IDB said the seven-day moving average of daily confirmed cases was among the lowest in Latin America and the Caribbean.

“The Government of Barbados has been proactive and consistent in updating the country’s border and monitoring measures,” it said.

Notwithstanding the less-than-favourable economic performance, the IDB said since the start of the financial crisis in 2007, the country’s banking system has been “stronger and better prepared to face adverse economic conditions”. “Despite high levels of liquidity and stability, however, timely surveillance is important to prevent a crisis in the event that the negative effects of the pandemic continue stretching over time,” it warned.
(MM)