The Barbados foreign exchange reserves have fallen from 19 weeks of imports at the start of April 2013, to 15 weeks
of imports at the end of last year. Moreover, Governor of the Central Bank of Barbados Dr DeLisle Worrell, in his analysis of the island’s current economic performance today, said unemployment rose to an average of 11.2 per cent for the first nine months of last year.
“A slump in private foreign investment inflows was the major reason behind the decline in foreign exchange reserves in 2013. Reserves declined by $301 million and net foreign capital inflows were $188 million lower, at about $499 million,” said Worrell. “There was a small contraction in Barbados’ real GDP in 2013, estimated about 0.2 per cent. Value added in tourism fell by one per cent and construction declined by 12 per cent. Non-sugar agricultural output rose 11 per cent, and business and other services increased two per cent,” he said. Meanwhile, the net indebtedness of public sector institutions to private firms and individuals locally and abroad was equivalent to 67 per cent of GDP. The interest payments on Government debt accounted for 24 per cent of Government revenue in fiscal year 2012/2013.
However, the Central Bank said Government had managed its debt exposures so as to limit the proportion of foreign currency earnings that is devoted to foreign debt service. “The ratio of foreign debt service to foreign currency earnings is seven per cent, and it is projected to remain below ten per cent for the next five years and beyond,” said Worrell.
Despite the short fall in the foreign exchange reserves and rise in unemployment, however, the Central Bank is expecting economic growth to accelerate slowly from less than one per cent this year to about 1.6 per cent in 2015 “and between two and three per cent thereafter”.
The Central Bank’s economic growth forecast is based principally on expectations for the tourism sector and on major investment projects planned by the private sector and by Government. “The forecast takes into account the strategies for strengthening the competitiveness of the foreign exchange sectors, and the potential growth of alternative energy production,” said Worrell.
“Conservative estimate of known private sector investments that may be expected to materialized over the next three years is approximately $2.2 billion.
“In addition, public sector investments and guarantees for infrastructure and participation in foreign exchange related projects are likely to be about $740 million over that period.” He said the priorities for Government investment were upgrades of air and seaports and public utilities which would act as catalysts for major tourism projects while leading the way in the use of alternative energy, and continuing to improve facilities for health, education and housing.
“A revised consumer charter for the delivery of public services is being prepared, and it will be monitored in an effort to improve the efficiency of Government bureaucracy. Financing facilities available to entrepreneurs are under on-going review to provide affordable long-term finance for enterprises,” said Worrell.
He also noted that there were strategies for growth of tourism that included improvement in the visitor experience through sports, cultural, and environmental activities. Worrell said the decline in reserves from May onwards signalled the need for fiscal contraction measures, which were outlined in the 18-month fiscal adjustment package introduced in August.
In Government’s first quarterly report on the impact of the fiscal budget on December 13th, it was announced that job cuts equivalent to about 11 percent of the public sector workforce would be necessary to achieve the fiscal target.
The deficit for the current fiscal year is projected at eight per cent of GDP, and for the year ending March 2015 the targeted deficit is 5 percent.
Worrell said Government’s proposed strategy for the international business and financial services sector was “under discussion with stakeholders”. It includes a revised charter for the delivery of Government services, an extension of the double taxation agreement network, skills enhancement, the exploitation of new markets, and intensified use of information and communications technology and green energy.
He said compared to previous economic downturns, the Barbados economy performed “appreciably better during the current economic recession.”