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Fiscal slump

by Shawn Cumberbatch

drdelisleworrell1st2013reviewGovernment’s much touted and defended Medium Term Fiscal Strategy is off track and needs to be changed.

That’s the recommendation of the Central Bank of Barbados, which today urged the Freundel Stuart Administration to come up with a new plan in the wake of the economy declining by 0.4 per cent between January and last month.

The financial institution went public with the advice this afternoon when it release its 2013 first quarter economic review, with Governor Dr. DeLisle Worrell saying economic recovery this year was unlikely.

Worrell reported that between January and the end of last month – a quarter which is traditionally one of growth based on the fact it is in the heart of the main winter tourist season – “contracted” primarily because of a slump in tourism arrivals (nine per cent) and spending (five per cent).

“The growth in tourism output that was experienced in the first quarter of 2012 has not been sustained this year, and as a result Barbados’ overall GDP is estimated to have contracted by 0.4 per cent in the first quarter,” the economist said.

As far as the rest of this year was concerned, more of the same was predicted, with the implication that Barbados would have to look to 2014 for any sign of real recovery.

With the difference between Government’s spending and its revenue reaching 7.3 per cent of GDP at the end of last month, compared with 4.6 per cent and 9.1 per cent in the previous two fiscal years, the Central Bank boss also said there was a need for the current administration to change its current fiscal programme.

This, on the top of a projection that the main foreign exchange earning sectors tourism and international business were unlikely to lead a 2013 economy recovery, called for new action, he advised.

“The fiscal consolidation strategy must be brought back on track, and a new medium term adjustment strategy must be implemented, using the current deficit as a point of departure. The Estimates of Expenditure recently approved by Parliament, which includes the provision for capital spending of an estimated $164 million and a deficit equivalent to 5.3 per cent of GDP for the fiscal year 2013/14, is a first step in that direction,” Worrell said.

“On current trends, there may be no real increase in the contribution to GDP from the tourism or international business sectors in 2013. The forecasts for the rest of the economy are no better, with overall GDP expected to be virtually flat.

“In order to sustain foreign reserves at end- 2012 levels, net capital inflows of about $523 million will be needed, for both the private sector and Government. This compares with the net inflow of $682 million achieved in 2012,” he added.

The official noted that Government’s ability to pay its bills and allocate funds for other purposes was challenged by a seven per cent drop in earnings from Value Added Tax, something attributed “largely” to “the slowdown in economic activity and spending on imports”.

“The personal income tax yielded 18 per cent less than in the previous fiscal year. Increases were recorded in import duties (four per cent) and property tax receipts (two per cent), but these made only a modest contribution to revenue,” he stated.

“Government expenditure on wages and salaries and purchases of goods and services was relatively flat. However, subventions to the UWI, QEH, Barbados Water Authority, Transport Board and other state-funded entities rose by six per cent.

“Non-contributory pensions and other grants to individuals also increased, by six per cent, and interest expenses were up by seven per cent. Capital project outlays have declined for seven years in a row, and capital spending was only three per cent of Government’s total spending. For the fiscal year, foreign-financed capital spending was $30 million.”

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