Governor warns of more austerity measures in upcoming Budget
The pace of economic growth slowed and Barbados’ international reserves registered a decline during the second quarter of 2016 as Government continued to struggle to reduce spending and increase revenue.
Reviewing the country’s economic performance from April to June, Governor of the Central Bank of Barbados Dr DeLisle Worrell also reported a widening of the fiscal deficit which was mostly financed with resources from the Central Bank.
He also revealed that “measures” were expected to be announced in the Government’s forthcoming National Budget presentation to help tighten foreign exchange outflows, thus easing pressure off the foreign reserves.
“Between April and June, the fiscal deficit widened by $28 million to $204 million and the primary surplus fell by $14 million, compared with the same period in 2015,” Worrell reported.
“Revenue of $563 million was down $25 million, with VAT [Value Added Tax] and personal income taxes lower by $13 million and $17 million respectively.
“Current expenditure was marginally higher at $732 million. Grants to public entities fell by $21 million but domestic interest payments increased by $16 million. Government’s requirement for domestic financing was $273 million for April to June.”
He went on: “The National Insurance Scheme and the non-commercial bank private sector provided $92 million, leaving a $180 million shortfall.
“However, commercial banks reduced their lending to Government by $120 million, which meant that Government required an additional $301 million from the Central Bank of Barbados.”
Worrell said fiscal consolidation remained a priority of the Freundel Stuart Government, having implemented a series of adjustment measures under a medium-term programme, which had served to reduce the deficit to 5.4 per cent of Gross Domestic Product (GDP) in financial year 2015-2016, down from 11 per cent in financial year 2013-2014.
He said it was the aim of Government to reduce the deficit by a further two percentage points in the current financial year 2016-2017.
The Central Bank chief reported that private foreign inflows “for known investment projects” for the remainder of this year would total about $55 million, while net foreign financing for the public sector was expected to be about $99 million.
“Foreign exchange outflows will be tightened by measures to be announced in the forthcoming budget. Together, these factors should result in foreign reserves of $938 million at year end, an increase of about $54 million over the course of 2016,” said Worrell.
He reported while the Barbados economy grew by 1.3 per cent for the first six months of this year, compared to 0.5 per cent or “virtually no growth” for the same period last year, second quarter growth was slightly lower than the 1.7 per cent recorded between January and March his year.
He explained the slower growth rate was due mainly to “unexpected delays” in major tourism investment projects. “In addition, while total tourist arrivals exceeded last year’s high, the five per cent expansion recorded was marginally lower than for the first quarter,” Worrell said.
He went on: “These factors, together with external debt service requirements, resulted in the stock of international reserves falling by $43 million to $884 million, equivalent to 13.6 weeks of imports of goods and services. This compares with the $84 million decline for the same period last year.”
Worrell said the economy was now expected to expand by 1.5 per cent this year, 0.1 per cent less than previously projected. This, he explained, was mainly because most major investment projects were behind schedule.
Additionally, he said the main impact of the recent fall in the value of the pound sterling following the Brexit referendum “may well be on the sales of villas and second homes to U.K. residents”.
“The [economic] growth rate could be higher if investment in tourism and alternative energy can be speeded up,” Worrell pointed out, noting that private investment in hotels and tourism-related activity was expected to be over US$600 million over the course of the next four years.
Public sector investment for the 2016-2017 fiscal year was expected to be $210 million, with $165 million being externally funded.
Worrell said total Government debt
owned to private financial institutions, individuals, businesses and the Central Bank was equivalent to 108 per cent of GDP at the end of June.
“When liquid asset holdings of the Central Bank and NIS are taken into account, and all other public entities are included, the net public sector debt ratio is 62 per cent,” he said.