The Governor of the Central Bank of Barbados (CBB), Cleviston Haynes, Wednesday told the Mia Mottley government that during this year it must build on the progress in restoring macroeconomic stability and engendering confidence in Barbados.
“Efficient and timely execution of the reforms identified in the adjustment programme, related to tax policy, revenue administration, state-owned enterprises (SOE) reforms and business facilitation together with the achievement of the International Monetary Fund’s (IMF) performance targets will be crucial in helping the economy to return to a sustainable growth path.”
Haynes, delivering the review of the Barbados economic performance for 2018, said that over the past decade, the average rate of growth was minus 0.7 per cent.
“Revitalising growth is therefore critical but the forecast for 2019 is for growth to be flat. Tourism is expected to perform favourably due to an anticipated expansion of airlift, special events like the English cricket tour and an increase in ships docking at the port,” he told reporters.
He said this activity will be supported by the thrust towards Barbados emerging as a hub for medical education.
Haynes said the need to sustain the fiscal consolidation effort could continue to dampen economic activity.
“However, this trend can be reversed through higher levels of private sector investment. Several projects in the tourism, healthcare and distribution sectors have been identified for start-up in 2019,” he said, adding that the actual commencement date of these projects will influence the degree of expansion in real economic activity.
But the CBB Governor said that significant downside risks remain.
“In particular, the forecast for global growth, including our major source markets, has been revised downwards by the IMF from 3.7 to 3.5 per cent. The US economy is forecasted to grow by 2.6 per cent this year but the uncertainty related to trade tensions lingers.”
Haynes said that the latest Brexit developments can also impact economic activity in the United Kingdom with potential effects on the pound sterling.
Haynes said that geopolitical factors could alter the outlook for international oil prices, influencing economic activity and an otherwise benign inflation environment.
“The revenue measures announced in the latter part of 2018 will have a full year impact in financial year 2019/20 as government strives to achieve its targeted primary surplus of six per cent of gross domestic product (GDP).
“However, government must continue to manage its expenditure to avoid any shortfalls in its targeted goals. The external debt suspension has helped to shore up reserves and the completion of the restructuring remains important to the overall stabilisation effort.”
Haynes said placing the debt on a downward trajectory and creating fiscal space will allow for the gradual reduction in outstanding arrears to the private sector and strengthen the medium term growth potential. These developments should contribute to a further improvement in credit ratings.
“Effective programme implementation will facilitate additional access to funds from the multilateral agencies. These resources should enable the reserve cover to continue to grow in 2019,” Haynes said, adding “the road ahead remains challenging, but the commitment of the government and all Barbadians to continue the critical structural reforms will position the economy to overcome these hurdles and strengthen economic sustainability”.
The Central Bank Governor described last year as “challenging” for the local economy, telling reporters economic activity remained sluggish.
But he said the decision to enter into the US$290 million four-year economic adjustment programme with the IMF, the suspension of commercial external debt payments and the restructuring of government’s domestic debt renewed confidence and contributed to an improvement in the public finances and the stock of international reserves.
Haynes said government unveiled its Barbados’ Economic Recovery and Transformation (BERT) plan, which aims to deepen the fiscal adjustment effort and to undertake structural reforms to stimulate medium-term economic growth.
“The public finances strengthened, as evidenced by the timely payment of current year tax refunds, the curtailing of new Central Government’s arrears and reduced reliance on central bank financing. The completion of the domestic debt restructuring and the enhanced outlook for fiscal and debt sustainability over the medium term contributed to an upgrade in Barbados’ credit ratings for domestic securities.”
Haynes said structural reforms have proceeded apace with new legislation to strengthen oversight of SOEs and to modernise the Town and Country Planning Office now being debated in parliament.
In addition, the Government reformed the corporate tax regime in response to the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting initiative. This resulted in a comprehensive amendment to the tax structure for the international and domestic corporate sectors.
According to the CBB, real economic activity contracted by an estimated 0.6 per cent last year as moderate gains in tourism were outweighed by the fall-off in manufacturing and other services.
It said tourism output slowed to an estimated 0.6 per cent from 2.2 per cent in the previous year.
Long-stay arrivals were 2.8 per cent higher than the previous year, owing to intensive marketing and an increase in airlift. However, the expansion in the sector was contained because the average length of stay declined as a result of the increase in the shorter staying visitors from the United States market.
The CBB said arrivals from Canada and the United Kingdom were both up, with the latter recovering from a mild reduction in the previous year. Cruise visitors for the year fell by almost 10 per cent as ships returned to their usual itinerary, after the re-routing of vessels in 2017 due to the effects of hurricanes.
Manufacturing output remained depressed but increases in poultry and sugar production boosted the performance in agriculture. Construction fell by approximately seven per cent during the review period, following moderate growth in 2017. This outturn reflected low levels of infrastructural development in the public and private sectors, evidenced by reduced quarrying, cement consumption and lower imports of other construction materials.
Activity in the other non-traded sectors, including distribution, business and other services and transportation, storage and communication also declined. Electricity consumption remained flat, while homes and businesses increased their reliance on solar power electricity generation, according to the CBB.