Central Bank reports larger than expected deficit
Despite a number of fiscal adjustment measures, economic activity has fallen by 0.4 per cent for the first quarter of 2014. However, the economy is expected to record future growth.
The Central Bank of Barbados, in its latest report on the island’s economic performance, is forecasting a gradual sustainable recovery in 2015 and 2016, driven by the main foreign exchange earning sectors.
“A major growth factor is expected to be investment in tourism and infrastructure and other financial inflows totalling $4.5 billion over the next three years,” said the bank in its statement today in which it forecast growth of less than 0.5 per cent this year, two per cent next year and 2.5 per cent in 2016.
However, it said the deficit in the fiscal year just ended was “larger than expected at 11.3 per cent”, mainly because of a $245 million shortfall in revenue.
Since the August 2013 Budget and up to the end of the fiscal year ending March 31, 2014, Government has collected about $25.4 million through fiscal consolidation measures.
This includes $13.4 million from the new consolidation tax, $7 million from the adjustment to the excise tax rates and $5 million from the reintroduction of a tax on commercial bank assets.
In the current fiscal year, the consolidation tax is expected to generate a further $24 million, the excise tax rate change $16 million, and the tax on financial assets $26 million.
The recently approved municipal solid waste tax is projected to generate $49 million while a reduction in waivers on import duties and excise taxes should yield about $15 million.
In all, the tax measures were expected to contribute to $200 million of extra revenue or about 2.3 per cent of GDP.
The remaining 3.0 per cent of fiscal consolidation required to achieve a slightly modified deficit target of six per cent is to be achieved mainly by expenditure cuts, the bank said.
But noting that the layoffs in the public sector have cumulatively reached a total of about 2,800 to date and were continuing, the Central Bank said the immediate savings would not be large due to separation benefits. It said, however, savings would be realized in the medium term.
“The deficit in the fiscal year just ended was larger than expected at 11.3 per cent, mainly because of a $245 million fall in revenue. Corporation tax was down by $80 million, VAT $65 million and personal taxes $15 million. The main item of expenditure increase was interest costs, which were up $47 million. Transfers to public institutions were at the same level as in the previous fiscal year,” the Central Bank reported.
Rum exports registered a substantial decline during the first two months of this year, as bulk and bottled rum fell by seven per cent and 31 per cent, respectively.
On a more positive note, the use of solar power has picked up, with generating capacity having doubled between 2012 and the end of 2013, to four megawatts.
The bank said the inflation rate for the 12 months ending February was 1.7 per cent, well below the 6.3 per cent averaged in the corresponding periods since 2008.
“International reserves remained on par with year-end 2013 levels, standing at $1.1 billion at April 30, equivalent to 16 weeks of import cover.”
For the bread and butter tourism sector, long-stay arrivals were estimated to have decreased by one per cent in the first quarter. However, there was an eight per cent increase in the number of British visitors and a 14 per cent rise in arrivals from other European countries.
“However, with the cancellation of American Airlines direct flights from New York, as well as the reduction in demand and seating capacity by Air Canada at the beginning of the year, visitors from the United States and Canadian markets fell by eight per cent and ten per cent, respectively. There was a one per cent reduction in cruise passenger arrivals,” the Central Bank said.
In relation to international business and financial services there was a marginal increase in the number of renewals of new licences last year, compared to previous years.