The Barbados economy has registered its fifth consecutive quarter of growth and is expected to further expand by as much as ten per cent this year, with visitor arrivals and economic activity getting a boost from the return of the Crop Over Festival.
However, as he noted that the Central Bank of Barbados had slightly lowered the growth forecast for the rest of the year, Governor Cleviston Haynes warned that several significant global risks and continued hikes in commodity prices present a challenge to short-term growth prospects.
Delivering his economic review for the January to June period and the outlook for the remainder of the year on Wednesday, Haynes said the economy registered its fifth consecutive quarter of growth between April and June, which contributed to the economy expanding by 10.5 per cent for the first six months of this year, again propelled by the tourism industry.
“The recovery is mainly reflective of the rebound in tourism activity and there were also modest gains in manufacturing exports and domestic spending,” he said.
During the six-month period, Barbados welcomed a total of 207 835 stay-over visitors, which was supported by the relaxation of COVID-19 protocols in key source markets and pent-up travel demand.
“Airlift capacity for the April to June period more than doubled compared to 2021, but airfares were substantially above pre-COVID levels,” reported Haynes, adding that the impact on the economy from the Crop Over Festival – which returned after a two-year hiatus due to COVID-19 and will climax on August 1 – would depend on the number of visitors coming to the island this summer.
“Even independent of an influx of individuals, Crop Over itself generates significant economic activity. I think the activities we have been having over the last few weeks demonstrate that there is a positive economic impact of the Crop Over festivities, and, therefore, I would anticipate that this will add to the overall growth momentum within the economy for the rest of the year,” said Haynes.
He said the continued strength of Barbados’ recovery remained dependent on a sustained revival of the tourism sector and the accelerated implementation of investment projects.
“Forward tourism bookings for the remainder of the year are encouraging, as travellers reschedule their COVID-19-postponed trips. The anticipated opening of the Wyndham Sam Lords property is expected to boost demand towards year-end. However, significant downside risks remain,” Haynes said.
The Central Bank Governor identified global price pressures, the impact of monetary policy changes in advanced economies, lower travel demand, changes in exchange rates in Barbados’ key source markets, and climate change vulnerability as some of the areas that could impact the island’s growth prospects.
“In the circumstances, with new investment projects coming on stream at a slower pace than anticipated and with construction costs rising, the Central Bank has lowered its growth forecast slightly, within the range of nine to ten per cent, with the possibility of a stronger outturn if tourism is more favourable than currently forecast,” he said, noting that “we will lean on the higher side” of the growth forecast.
Haynes added in his outlook that “the domestic macroeconomic environment will continue to be affected by the global instability, as the surge in global prices has intensified short-term growth challenges associated with the pandemic”.
“The policy response of raised interest rates in industrialised economies has created fears of a new recession and the International Monetary Fund has tempered its global growth forecast in light of this uncertainty,” he added.
Haynes said that given the island’s import dependency, high energy and food costs are expected to continue to impact local prices.
“Rising costs may also have a significant impact on firms. For example, construction projects can be delayed, particularly if the conditions for access to, or the cost of, funding change materially. Price sensitive sectors like tourism and manufacturing, if faced with higher costs of inputs and lower demand for their products for prolonged periods, may attempt to reduce operating costs through staff layoff,” he said.
In the first half of the year, the unemployment rate fell to nine per cent for the first quarter of this year, compared to 17.2 per cent a year earlier.
Haynes reported that gains in private sector employment were broad-based, led by tourism, wholesale and retail, transport and communication, and general services.
International reserves were registered at $3 billion for the period, representing some 33.7 weeks of imports.
Government’s revenue increased by some $128.2 million to reach $$771.8 million, while current expenditure increased by $49.6 million to reach $607.6 million when compared to the same period last year. Gross public sector debt was 129 per cent of gross domestic product (GDP) or $13.6 billion.
“The spiral in domestic prices together with the revival of tourism activity boosted Government’s revenue during the first quarter of the fiscal year and contributed to a significant improvement in the primary surplus,” said Haynes.
“The fiscal performance reflects Government’s continued commitment to strengthening public finance and places the debt-to-GDP ratio on a sustainable downward trajectory.”
Haynes said he did not anticipate that the recent measures announced by Prime Minister Mia Mottley to ease the pressure on consumers to have any significant impact on Government’s fiscal position, although the administration would be foregoing an estimated $18 million in revenue as a result.
The measures included a reduction of the Value Added Tax (VAT) on electricity for the first 250 kw/h from 17.5 to 7.5 per cent, price reductions on 45 essential items, and an expansion of the basket of essential food items that do not attract VAT.
“While the basket is a very targeted one to ensure those in the society who are most in need are able to benefit from relief, I think there is a general increase in prices that will help to compensate in part,” Haynes explained.
At the same time, he said Government will need to “look at its own expenditure plans to ensure that it maintains a sound fiscal programme as we go forward”.
Total agriculture output for the review period increased by 3.7 per cent to register a contribution of $52.7 million to the economy during the first six months. Non-sugar agriculture expanded, due in part to higher chicken production, food crops, other meats, eggs, and fish catches increases.
Manufacturing output increased by 3.3 per cent, contributing $247.3 million to the economy during the review period. Meanwhile, preliminary estimates indicated that the services sector grew by 2.7 per cent in the first half of the year.
