2% growth reported for first quarter

The Barbados economy seems to be on the rebound, but Government continues to fall short of its fiscal targets.

With this in mind, Acting Governor of the Central Bank of Barbados Cleviston Haynes today warned that more belt-tightening measures were needed to stabilize the stuttering economy.

Acting Governor Cleviston Haynes

Delivering his first quarterly report since taking over as effective head of the monetary authority back in February, Haynes also warned of the need for diversified areas of growth, and for a further dampening of domestic demand for foreign exchange, as the country seeks to improve its overall economic performance.

Haynes said while gains were made in addressing some of the macroeconomic imbalances faced in recent years, there was still need for “concerted attention to fiscal adjustment and the acceleration of project implementation”.

For the January to March period under review, the economy recorded growth of two per cent, led by vital tourism. This is slightly down from the 2.3 per cent growth recorded for the same period in 2016, when the foreign reserves –  which have been a major topic of  public discussion for several months now –  plunged to $681.1 million. However, the acting Governor reported that the reserves have since risen slightly since then to $705.4 million at the end of March this year, which is still below the 12 weeks benchmark.

Following is the full text of the Governor’s press statement:

“The Barbados economy registered moderate growth during the first three months of 2017. The expansion was primarily driven by activity in the tourism sector, but a more robust recovery was hampered by ongoing delays to the start of anticipated investment projects. The delays also impacted the growth of international reserves during the quarter but higher tourism earnings contributed to a modest increase in reserves and a slight improvement in the import reserve cover at the end of the review period.

The Government maintained its focus on its programme of fiscal consolidation, resulting in a further narrowing of the deficit for FY2016/17. Improved tax collections, resulting from the suite of measures introduced in recent years together with the containment of non-interest expenditure enabled the deficit-to-GDP ratio to fall to its lowest level since FY2011/12. Despite these gains, the deficit was estimated to be marginally short of the target of 5.8%1 , largely due to the delayed execution of planned divestment of state assets.

The financial system remained well capitalized and stable during the first quarter. Weak private sector credit demand continued to contribute to a banking system marked by high levels of excess liquidity and historically low interest rates as both deposit and lending rates declined below those of a year ago.

Real Sector

Gross Domestic Product

Growth is estimated at 2% for the first quarter, above the average first-quarter performance of the past five years. Real tourism value-added rose by 3.0%, following a strong performance during the corresponding quarter the previous year. Longstay arrivals were up 4.4%, on the strength of increased demand and the on-going expansion of airlift from the USA and Canadian markets. UK arrivals were down 1.6%, in the aftermath of the Brexit referendum. On average, visitors’ length of stay is estimated to have decreased relative to the same period last year. However, cruise passenger arrivals rose by approximately 9% during the quarter.

The other traded sectors made a modest contribution to growth during the first three months of 2017, with the manufacturing and 2 agricultural sectors estimated to have trended upwards. Output of sugar is no longer a significant contributor to GDP, but an early start of the harvest led to increased production during the period.

Construction activity is estimated to have expanded by almost 2% during the first three months of 2017. This outturn was influenced by the construction of various commercial projects, including Sandals Royal, the luxury arm of Sandals Resorts International, which is scheduled to open towards year-end. Other non-traded sector activity, principally in wholesale and retail and other business and general services, registered modest growth, the result of the performance of the tourism and construction sectors.

Prices and Employment

The unemployment rate has been trending downwards since 2014 and the average unemployment rate for the four quarters ending September 2016 was reported at 9.9% compared to 11.3% at the end of 2015.

The economy also continued to benefit from relatively low inflation, but there are signs of a modest upturn in the general price level. At the end of December 2016, the 12-month moving average rate of inflation stood at 1.3%, in contrast to the 1.1% decline recorded at the end of December 2015, primarily due to increases in the prices of food and non-alcoholic beverages.

External Sector

As at March 31, 2017, the international reserves stood at $705.4 million, following an increase of $24.3 million in the first quarter. This improvement compares with an average first quarter increase of $19 million over the past five years. However, the import reserve cover of 10.7 weeks at the end of March 2017, remained below the 12-week benchmark, in part a reflection of the larger than usual net public sector capital outflows in FY2016/17.

For the first quarter of 2017, the external current account registered a surplus of $45.4 million, $13.0 million below that recorded for the corresponding period of 2016. Tourism earnings grew moderately on the basis of improved activity, but these gains were largely eroded by higher retained imports, which were up 6.6%, in contrast to declines for the comparable periods since 2013. There was modest growth of consumer and capital goods, but intermediate goods increased by 12.3%, predominantly driven by rising fuel import prices.

Domestic exports grew by 2.9%, a slowdown from the 7.2% increase experienced in the same period of the previous year. Provisional data show that exports of electrical components and chemicals recorded the largest increases but exports of rum, the single largest commodity in the export sector, was stable.

Over the review period, the financial account’s deficit of $35.7 million was slightly lower than that observed for the corresponding period of 2016. Net long-term private sector outflows of $52.6 million were recorded, in contrast to inflows of $66.1 million registered for the first quarter of 2016, when there were substantial inflows from the sale of shares in Banks Holdings Ltd. On the public sector side, net long-term outflows totalled $3.0 million, marginally less than the comparable period of the previous year.

Monetary and Financial Sector

Excess liquidity in the banking system, as measured by excess cash reserves as a percentage of domestic deposits, reached 17%, up from 10.6% a year ago. This increase partly reflects the decision by some banks to substitute some of their holdings of Government securities for cash at the Central Bank. Total domestic deposits grew by only 2%, but credit extended to the non-financial private sector remained subdued, rising by approximately 1%. Given the build-up in liquidity, deposit interest rates have fallen sharply since the abolition of minimum deposit rate in April 2015. Preliminary data indicate that the weighted average deposit rate fell to 0.25% in the first quarter of 2017, while the weighted average loan rate edged down to 6.7%. In addition, there was a decline in the average three-month rate on Treasury bills which moved to 3.1% at the end of March 2017.

Public Sector

Revenue and Expenditure

Fiscal consolidation remained the central challenge of economic policy during the review period. The fiscal deficit for the period is estimated at $67 million, compared to the deficit of $59.3 million recorded in the corresponding period of 2016. Despite the small increase in the fiscal deficit during the first three months of the calendar year, the overall balance contracted to an estimated 6% of GDP for FY2016/17.

The improved fiscal outturn reflects the combined impact of higher tax collections and the containment of non-interest expenditure. The revenue-to-GDP ratio rose to 30%, largely attributable to the collection of higher indirect taxes which rose by 9.9%. The budgetary measures, including the National Social Responsibility Levy, have buoyed VAT receipts which contributed 64% of the improved indirect tax collection. Direct tax revenue expanded by 7.5%, on the basis of improved personal income taxes and corporate taxes.

Non-interest expenditure fell by 2% during FY2016/17, partly due to a reduction in capital spending. This resulted in an estimated primary surplus of 1.9%, compared to an average deficit of 1.6% since the 2009 recession. However, given the size of the Government’s overall indebtedness, interest costs increased by 8.4% resulting in an interest to revenue ratio of 26.3%.

In line with the trend observed over the past five years, funding of the deficit for FY2016/17 was mainly provided by domestic sources as foreign amortization payments were almost four times the size of public capital inflows. The National Insurance Scheme and private non-bank institutions increased their holdings of Government debt but these gains were more than offset by commercial banks’ reduction in their holdings of Government paper. For most of the year, the Central Bank actively accommodated Government’s residual financing needs but, during the quarter, the Bank sought to minimize new credit creation. However, its exposure to Government increased principally because it had to acquire Government paper in providing short term liquidity support to one of its banks.

Government’s overall indebtedness remained high. As at March 2017, the gross public sector debt2 ratio declined to 98.5% of GDP, partly reflecting the increased share of debt purchased by the Central Bank and the NIS in 2016.

Outlook

The Barbados economy has made gains in addressing some of the macroeconomic imbalances faced in recent years. However, challenges remain and stabiliszation now requires concerted attention to fiscal adjustment and the acceleration of project implementation.

Under the current policy framework, Government’s forecast for the fiscal deficit for FY2017/18 is 4.4% of GDP. However, given the financing constraints Government now faces, together with the decline in international reserves over the past three years, there is need for further fiscal consolidation. The immediate challenge is to bring the current fiscal balance in line with available financing resources so that delays in payments for the provision of services to Government can be eliminated. In this regard, the finalization of planned asset sales is crucial. However, structural measures are needed over the medium-term to ensure the ongoing sustainability of the fiscal effort, including measures that embrace improved tax administration and expenditure containment both within central Government and state owned enterprises.

Economic growth is projected to range between 1.5% to 2.0% in 2017, mainly on the strength of tourism and new construction activity. The tourism sector remains competitive but further enhancements in product quality are needed to sustain growth over the medium-term. The scope for fiscal stimulus through a public sector investment programme remains limited and planned private sector investment projects are therefore critical to reversing the slide in capital formation that has contributed to subdued economic activity in recent years. However, there are significant downside risks to the growth forecast, partly related to on-going delays to the start of major tourism-related projects earmarked for 2017.

The international reserves are expected to stabilize during 2017, on the basis of the proceeds from the sale of Government assets, higher public sector project related inflows and the continued strengthening of the tourism sector. However, the weakness in the British pound represents a downside risk that needs to be carefully monitored as it could adversely affect tourism spending or real estate related inflows.

The prospects for the economy will be enhanced by continued diversification. The International Business and Financial Services Sector remains an important cog in fostering an improved outlook for international reserves. In addition, the continued growth of the alternative energy sector has the potential to cushion the impact of higher energy prices on the balance of payments, as Barbados continues to make progress in increasing the capacity of the renewable energy sector. (End of text)

37 Responses to 2% growth reported for first quarter

  1. Jay Manny
    Jay Manny May 9, 2017 at 3:19 pm

    Wa kinda growth this? Coz we ain’t feeling it. Things will only recover when frumpy and company is history. DEM got to go.

    Reply
    • Jennifer May 9, 2017 at 7:47 pm

      ONLY THING GROWING IS LIES. AND SOME PEOPLE POCKETS.

      Reply
  2. Anne Ince
    Anne Ince May 9, 2017 at 3:21 pm

    True or fake???

    Reply
  3. Milli Watt May 9, 2017 at 3:27 pm

    the monetary system to which this island is tied is based on debt as the means for driving growth. If the growth is in areas that don’t positively impact income in the area of manufacturing then the growth driven by debt will put pressure on the reserves resulting in pressure on the ability to repay that debt with dollars which are being depleted. Governor I am pleased to report the former governor trained you well……count down to this train wreck has been shortened lololol.

    Reply
  4. Mhizzeyejoyful Reece
    Mhizzeyejoyful Reece May 9, 2017 at 3:27 pm

    Facts or alternative facts?

    Reply
  5. Patrick Newton
    Patrick Newton May 9, 2017 at 3:30 pm

    I am sick of hearing the same foolishness .please all of us are not the same fool as you think we are brighter fool now so go and come again

    Reply
  6. Haydee Bailey
    Haydee Bailey May 9, 2017 at 3:40 pm

    Where can you show me please

    Reply
  7. Dennis Connell
    Dennis Connell May 9, 2017 at 3:46 pm

    Say anything else and out you GO!!

    Reply
  8. harry turnover May 9, 2017 at 3:54 pm

    If there is 2% growth why we got to brace fa more AUSTERITY MEASURES ?…you and SINCKLER tink we is fools ?
    Every body knows ELECTIONS next year and wunna gine come wid a lot of PRETTY talk now
    Wunna want to tell me that wunna get DOWNGRADE WID a 2 % GROWTH ?
    Tell dat to wunna YARD FOWLS and PALING COCKS…NO BODY else en gine believe DAT.

    Reply
  9. Tamiya Wasnice Best
    Tamiya Wasnice Best May 9, 2017 at 3:54 pm

    Growth my backside……. stupessssssss

    Reply
  10. Stanton Peace
    Stanton Peace May 9, 2017 at 3:56 pm

    nice tie but you should have gone to the barber and get a haircut before the press conference started.

    Reply
  11. David H May 9, 2017 at 3:58 pm

    1 time asset sale? Wheres the income coming from after they sell the farm? and the cow? and the house? and the shirt off their back?

    Big projects need to come to Bajans employing Bajans and buying supplies from Bajans, not foreign companies who take their money overseas.

    One thing is correct – diversify. Risky to hang all hopes on tourism alone.

    Reply
  12. Eureen Gill May 9, 2017 at 4:02 pm

    Hear this people. No disrespect to anyone..but this new acting governor in say nothing new. All that happened is that a press conference was called to make the government look as though they doing something

    Reply
  13. Sandra Madea
    Sandra Madea May 9, 2017 at 4:54 pm

    The growth is on ur head that’s the only growth I see so go and come again.

    Reply
  14. Alex Alleyne May 9, 2017 at 5:07 pm

    @Stanton, he like most of us “Can’t afford one”, things brown.
    lol,lol,lol.

    Reply
  15. Lilian Lloyd
    Lilian Lloyd May 9, 2017 at 5:19 pm

    EVEN SCOBY HAVING A GOOD LAUGH 2% ?

    Reply
  16. Lilian Lloyd
    Lilian Lloyd May 9, 2017 at 5:24 pm

    THE GOV. DID NOT WANT TO FACE THE COURT SO HE HAD TO SAY GGRROOWWTTHH!!!!

    Reply
  17. Michael King
    Michael King May 9, 2017 at 5:33 pm

    I guess he will be the new liar for the MOF

    Reply
  18. Nickk Moore
    Nickk Moore May 9, 2017 at 5:45 pm

    Lisa Moore for some reason everybody think the blp has the solution to turn around this economy

    Reply
  19. Lisa Moore
    Lisa Moore May 9, 2017 at 5:48 pm

    You seem smart, you know well and good that before things become great again that there will be challenges first. Unless the blp is God I can’t see that happening.

    Reply
  20. Andria Eversley
    Andria Eversley May 9, 2017 at 5:59 pm

    Another dlp clown

    Reply
  21. Beverley Headley
    Beverley Headley May 9, 2017 at 6:15 pm

    The economy was growing and “turning the corner” for the past 8 years, but it seems it (The economy) ain’t getting no water to accelerate this “growth and it cannot find the corner to mek the turn. As they say, “tell some fools something new”, for crying out loud. Stuppsee.

    Reply
  22. Angela Griffith
    Angela Griffith May 9, 2017 at 6:37 pm

    Lisa you talking like a fool

    Reply
  23. Monica Headley
    Monica Headley May 9, 2017 at 6:43 pm

    Yeah right!

    Reply
  24. Kristal Hctabrebmuc
    Kristal Hctabrebmuc May 9, 2017 at 6:43 pm

    Ha! growth now its close to elections? … ok sure… moving on

    Reply
  25. Elvis Williams
    Elvis Williams May 9, 2017 at 6:46 pm

    As soon as election coming up these people does got real jokes only a joker would believe

    Reply
  26. Sandor Barker
    Sandor Barker May 9, 2017 at 6:56 pm

    Don’t believe de hype.

    Reply

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