by Shawn Cumberbatch
Barbados’ economy has gone from stable to stagnant, with the island losing a substantial $108 million in foreign reserves and growth now practically at a standstill.
The disappointing news came today from Central Bank of Barbados Governor, Dr. DeLisle Worrell, in his review of the economy up to the end of last month, with the tourism industry’s “lacklustre” performance and related unemployment heading the worry.
And based on the governor’s review and forecast there is not much hope of major improvement heading into 2013.
Worrell’s latest report card showed that real economic growth was virtually non existent between January and September, ending at 0.2 per cent, compared to 0.6 per cent at the end of June, and 1.5 per cent in the first three months of the year.
What’s more, while the non tradable sectors, including construction grew by 1.2 per cent overall, activity in the money earners, namely tourism, international business and financial services, manufacturing and agriculture declined by 3.7 per cent.
“The Barbados economy continues to grapple with the challenges posed by the protracted weakness of the global recovery,” Worrell said in his review.
“Real economic activity is estimated to have been stagnant for the first nine months of the year, mainly because of the lacklustre tourism performance, particularly during the summer months.
“There was modest expansion in construction output and marginal gains in international business and financial services activity, but these were offset by lower estimated output in manufacturing and agriculture,” he added.
One aspect of the Central Bank statement today that is likely to cause major concern is the state of the island’s foreign exchange reserves.
At the end of March this year the financial institution said the island’s holdings of foreign currency was $1.4 billion, but it has now said that has declined to $1.31 billion. The figure was $1.35 billion at the end of June.
“Net capital inflows for the private sector were lower by $125 million than for the same period last year and flows for the public sector were down $8 million, contributing to a loss of foreign exchange reserves of $108 million,” the governor said.
“At the end of September, the foreign reserves stood at $1,312 million, representing around 16 weeks of imports of goods and services. The international minimum standard is 12 weeks.
Disappointedly for Barbados, the performance of the key tourism sector was more negative than positive. There was also fallout for tourism jobs.
“Tourism value-added for the January-September period is estimated to have declined by 3.7 per cent, following a contraction of 1.2 per cent in the comparable period last year,” Worrell stated.
“While the length of stay of tourists has remained steady over the course of the year, the number of long stay tourist arrivals has been declining since the second quarter. Barbados has lost airlift out of the US market and seating capacity from the UK has also fallen.
“With regard to cruise tourism, a 10 per cent reduction in cruise ship calls in the third quarter reversed the gains in cruise passenger arrivals in the first half of the year,” he added.
Barbados’ average employment rate for the first half of 2012 “rose by one percentage point to 12.2 per cent, a reflection largely of job losses in tourism”, the governor reported.
“The average unemployment rate rose by one percentage point to 12.2 per cent as at end June, when compared to the average rate for 2011. Layoffs were mainly recorded in the accommodation and food services industry, and as a result of the closure of REDjet airlines,” he stated.
As far as the rest of this year was concerned, the Central Bank boss said economic prospects were “forecast to rise marginally”, but that this was “provided the winter tourist season does not disappoint”.
“Moderate growth in construction is expected, with the continuance of both private and public building projects. Critical to the realisation of sustainable economic growth in the medium term is investment in the foreign exchange sectors to improve quality and non-price competitiveness,” he said.
In light of the economic difficulties, Worrell’s advice to Government is to keep its spending in check.
“Given the projected sluggish real GDP growth for the remainder of fiscal year 2012/13 and the likely negative impact on tax revenues, expenditure management remains the central focus of Government’s economic strategy going forward,” he urged.
This was partly based on the fact that the gap between Government’s expenditure and its revenue grew from 4.7 per cent to 5.9 per cent of GDP, when compared to a deficit of for the six-month period of the previous fiscal year.
Government took in two per cent less overall in tax revenues, including four per cent less in Value Added Tax compared to the same period in 2011.
“Almost all of the financing for the April to September 2012 fiscal deficit was sourced domestically. Commercial banks and private non-bank entities each provided 32 per cent of the domestic financing, while 26 per cent was sourced from the NIS. At the end of September 2012, the gross government debt-to-GDP ratio stood at 79 per cent, and the net government debt ratio, 60 per cent,” Worrell noted. (SC)