Full COVID recovery

Economy records ninth consecutive quarter of growth By Marlon Madden As the Barbados economy fully recovers from a period of recession, Governor of the Central Bank of Barbados Dr Kevin Greenidge says private sector investment will play a critical role in maintaining the growth going forward. He gave that indication on Friday as he reported that the economy expanded by 3.9 per cent for the first six months – an indication of a full recovery from the downturn in the COVID-19 period – and was projected to end the year at up to 5 per cent growth. “This growth resulted in fiscal surpluses, improved employment, reduced debt-to-GDP ratio, a narrowing gap between the value of exports and imports, and record foreign reserve levels. The increased economic activity also fed into the financial services sector, improving credit quality, as well as boosting assets and profits,” Greenidge reported as he delivered the economic report for the first half of the year at the Central Bank. The ninth consecutive quarter of growth, he said, meant the economy had fully recovered from the nearly 20 per cent cumulative decline experienced in the first six months of both 2020 and 2021. “2020, we were 11.1 per cent down [and] 2021, 7.4 per cent down. Collectively, that is 18.5 per cent we collapsed over the COVID period. Now we have grown in the first half of last year at 15.7 and now 3.9 per cent. So we have recovered all the space lost during COVID as strong growth continues throughout the economy,” reported Greenidge. Economic growth continued to be led by the tourism sector as well as increases in non-traded economic activities. The Central Bank Governor said Barbados experienced a vibrant winter tourist season, resulting in a 12 per cent increase in visitor arrivals by the end of June this year over the same period last year. The estimated 311 379 long-stay visitors meant that the island reached about 83.5 per cent of 2019 figures, the last best year prior to the devastating pandemic, and 86.9 per cent of the 2017-2019 average. “The industry continues to benefit from pent-up demand for travel following the cessation of pandemic restrictions, improved airlift from the UK, and air-to-sea arrangements with cruise lines. Arrivals from the UK exceeded 2019’s high levels, supported by continued high seating capacity over the course of the first six months of 2023,” Greenidge said. He reported that while the United States, Canadian, and Caribbean markets also exhibited strong growth, arrivals from those markets remained below pre-pandemic levels because of insufficient airline seats and high airfare. Greenidge said in addition to continued strong tourism performance, the economy needed to see a speeding up of significant private sector investment of about $2 billion per year, in order to sustain the medium-term economic growth. He said he was hoping that investment could come from the $13.65 billion currently in the banking system which he said remained “healthy” and well capitalised with excess liquidity. “The system is quite healthy in terms of capacity to absorb shocks . . . We want to get some of this liquidity into active investment projects,” he said. The last time the country experienced real GDP growth of 3.8 per cent was in 2006 when private and public sector investment totalled just over 20 per cent of GDP. “At that time, investment overall was 21 per cent of GDP. The public sector was investing roughly 4.5 per cent of GDP and the foreign private sector was investing roughly 7.1 per cent and the domestic private sector around 10 per cent. Over time, that investment ratio had fallen,” he noted. “Now, to get the growth we need . . . we need government investment to move up to 5 per cent (approximately $500 million), and that is on the way . . . . What we need now to get is the private sector, both foreign and domestic investment, to step up and increase from the roughly 8 per cent of GDP to 15 per cent of GDP. “In other words, from $975 million to roughly $2 billion. If we can get that, we can get the strong growth needed to move Barbados into a different level where we are having 5 per cent growth on average over the medium term, and you will feel it and see it. So that is what is needed,” explained Greenidge. The Central Bank Governor expects inflation, which slowed during the first six months of this year, reaching 5.9 per cent at the end of June, to continue to moderate towards the end of the year before reaching as low as an estimated 3 per cent early next year. Government debt is again trending downwards, reaching approximately 117.5 per cent of GDP at the end of June. For the six months under review, the Government raked in $756.3 million in revenue, led by the collection of Value Added Tax (VAT). Meanwhile, expenditure for the review period was recorded at $707.7 million. The unemployment rate was estimated to have reached 8.9 per cent at the end of June, compared to 9.3 per cent at the end of June last year. marlonmadden@barbadostoday.bb]]>