Economy performing worse than expected
Government’s hopes of a near two per cent expansion in the Barbados economy this year are now all but dashed, based on the latest report issued today by Central Bank Governor Dr DeLisle Worrell.
At the start of the year, Dr Worrell had set the bar at 1.8 per cent growth in Gross Domestic Product (GDP), while putting much of his faith in vital tourism, based on the sector’s record level of performance in 2015.
However, so far this year, the sector’s showing has been less than stellar, with the Governor reporting today that overall tourism expansion for the first nine months of the year was only in the order of three per cent.
And though construction activity rose by five per cent during the same period under review, in monetary terms it only accounted for $47. 9 million, which could not possibly satisfy the Governor’s May projection of 1.6 per cent growth.
This has forced Government’s lead economist to make a further economic revision downwards to 1.4 per cent growth for 2016.
However, this still compares favourably to the 0.9 per cent forecast which the Caribbean Development Bank has been maintaining for Barbados this year, possibly explaining why Dr Worrell continues to see light at the end of the proverbial economic tunnel.
In fact, he is currently anticipating growth in order of two per cent for the next five years – up from the 1.7 per cent projection he had issued back in January.
“Growth for the next five years is expected to be in the region of two per cent, driven by our competitive, diversified, and highly regarded tourism sector,” Dr Worrell said in issuing the latest forecast dated September 2016, but released today.
“An 11 per cent increase in airline capacity is expected from the US and Canada for the coming tourist season. A pickup in construction activity is also anticipated, much of it tourism-related,” the Governor said.
Nonetheless, his latest report contains a number of worrying indicators.
For instance, this island’s gross national debt continues to hover at 108 per cent of GDP, while the net public sector debt ratio was 57 per cent.
And while Government was able to make a small saving of $5 million in terms of its grants to state owned enterprises and a further $8 million for wages and salaries, these were more than offset by a $34 million increase in interest payments because of rising debt levels, the Governor acknowledged.
At the same time, Government continues to rely heavily on borrowing.
Between April and September this year, a total of $326 million was borrowed from domestic sources, including $91 million from the National Insurance Scheme and $4 million from insurance companies and other non-bank investors.
In addition, there was an $84 million switch from foreign to domestic financing because of amortization of loans, as well as the printing of $114 million by the Central Bank itself.
The country’s deficit also remains a cause for concern, even though the Governor expects it to fall to just above four per cent of GDP by the end of the current fiscal year.
However, this is dependent on the sale of the Barbados National Oil Terminal Limited and the performance of fiscal measures announced by Minister of Finance Chris Sinckler in his August 16 Financial Statement and Budgetary Proposals, Dr Worrell said.
There is also pressure building on the Barbados dollar with the Central Bank Governor warning that “maintaining the value of our currency hinges on crafting fiscal policies that aid in dampening the demand for foreign currency”.
Furthermore, fiscal policy has had to be tightened to ensure that the foreign reserves can be maintained at $900 million or 14 weeks of import cover.
The news is also not very good for the country’s international business and financial sector.
“Data up to July indicates that the number of licences granted to International Business Companies (IBCs) declined by 7.5 per cent.
“In addition, a total of $67 billion in assets were held by international banks in June 2016, representing a 16 per cent decrease over a 12-month period,” Dr Worrell said in the latest report.