Barbados Records Economic Growth

BRIDGETOWN, Barbados, July 19, 2016 (CMC) – The Barbados economy grew by 1.3 per cent, over the first six months of 2016, compared to virtually no growth, a year ago, according to figures released, today, by the Central Bank of Barbados (CBB).

It said this was a slight deceleration from the first quarter, mainly on account of unexpected delays in major tourism investment projects.

In addition, while total tourist arrivals exceeded last year’s high, the five percent expansion recorded, was marginally lower than for the first quarter.

“These factors, together with external debt service requirements, resulted in the stock of international reserves falling by BDS$43 million (One Barbados dollar =US$0.50 cents) to BDS$884 million, equivalent to 13.6 weeks of imports of goods and services. This compares with the BDS$84 million decline for the same period last year,” the CBB said.

The CBB is projecting that economic growth in 2016 has been lowered to 1.5 percent, mainly because most major investment projects are behind schedule.

It said the main impact of the recent fall in the value of sterling may well be on the sales of villas and second homes to United Kingdom residents, and that the growth rate could be higher if investment in tourism and alternative energy can be speeded up.

Private investment in hotels and tourism-related activity is expected to be over US$600 million over the course of the next four years,” the CBB said, noting that for the 2016-17 fiscal year, public sector investment of BDS$210 million is planned, with BDS$165 million being externally funded.

Between 2000 and 2008 the government’s fiscal deficit, as a percentage of gross domestic product (GDP), averaged three percent, with average revenue and expenditure accounting for 27 and 30 per cent of GDP, respectively.

“Following the global recession, government’s fiscal accounts began to deteriorate, with a deficit of 11 percent of GDP and expenditure to GDP of 38 percent in financial year 2013/14. In response, government committed to a series of fiscal adjustment measures, under its medium-term program, which served to reduce the deficit to 5.4 percent of GDP in financial year 2015/16,” the bank said.

It said that fiscal consolidation remains a priority for the government, with the aim of reducing the deficit by two percentage points of GDP for the financial year 2016/17

“Private foreign inflows for known investment projects for the remainder of this year are about BDS$55 million, and net foreign financing for the public sector is expected to be about BDS$99 million. Foreign exchange outflows will be tightened by the measures to be announced in the forthcoming budget. Together, these factors should result in foreign reserves of BDS$938 million at year-end, an increase of about BDS$54 million over the course of 2016.”

The Central Bank said that during the first six months of this year, the United States and regional tourist markets registered increases of 13 and 14 percent, respectively, and that increases in the UK and Canadian markets were modest.

It said private financial inflows were BDS$87 million more than for the first half of 2015, due to inflows for hotel development projects, real estate purchases by non-residents and a large foreign purchase of a local firm.

Construction activity is estimated to have expanded by about two percent compared to last year, based on available indicators such as imports of construction materials, employment in the sector and construction projects currently underway.

The average unemployment rate for the 12 months, ending March 2016, was 10.7 percent, compared with 12.4 percent for the period ending March 2015.

The CBB said there was a three percent decline in the number of international business and financial services (IBFS) licenses granted during the first half of the year. The number of international banks stood at 28, with six banks having closed operations since the beginning of the year.

Between January and April, exports of bottled and bulk rum grew by 11 percent and 13 percent, respectively, with the bank indicating that bulk rum shipments benefitted from a modest increase in regional demand.

The CBB noted that the loss of foreign reserves was about half as large as in the first six months of 2015.

Between April and June the fiscal deficit widened by BDS$28 million to BDS$204 million and the primary surplus fell by BDS$14 million, compared with the same period in 2015. Revenue of BDS$563 million was down BDS$25 million, with valued added tax (VAT) and personal income taxes lower by BDS$13 million and BDS$17 million, respectively.

The CBB said current expenditure was marginally higher at BDS$732 million and that grants to public entities fell by BDS21 million, but domestic interest payments increased by $16 million.

The bank said that the government’s financing needs since 2008 have been the main reason for the widening of the gap between the US and Barbadian three-month Treasury bill rates.

“When the Central Bank removed the minimum deposit interest rate stipulation in April 2015, an attempt was made to narrow this gap and reduce the Barbados risk premium, through intervention at the Treasury bill auction.

“However, because of government’s cash flow needs, the minor rate reductions achieved could not be sustained. Since April 2015, commercial banks have lowered their deposit rates more substantially than their loan rates. As a result, the average interest margin has widened by 0.5 of a percentage point,” the CBB noted.

It said that the total government debt, owned by private financial institutions, individuals, businesses and the central bank, was equivalent to 108 percent of GDP at the end of June.