BRIDGETOWN, Barbados, Thursday August 2, 2018 – Despite a contraction in the Barbados economy in the first half of 2018, Central Bank Governor Cleviston Haynes is suggesting there could be some light at the end of the tunnel if initiatives by the new government bear fruit.
Reporting on the performance of the economy up to June, he said economic activity is provisionally estimated to have contracted by 0.6 per cent up to June, despite a good performance by the island’s main foreign exchange earner, tourism.
Tourist arrivals for the first half of the year increased by an estimated 3.4 per cent, but the expansion was not sufficient to off-set a weakening of length-of-stay on real tourism output, Haynes said.
“Visitors from the North American region continued a fourth year of strong growth, with long-stay arrivals from the United States and Canada increasing by 8.9 per cent and three per cent, respectively, while the number of United Kingdom tourists grew by 3.6 per cent. Cruise visitors declined following a reduction in ship calls for the six months ending June 2018,” Haynes said.
Construction activity also weakened and output fell by four per cent for the first six months. In addition, he said, the fiscal consolidation measures of recent years continued to dampen activity in the other nontraded sectors.
But the news was not all bad.
The Central Bank Governor said international reserves rose by $33 million to reach $443 million during the first six months of the year – the first increase for the comparable period since 2008.
Haynes said actions being taken by the Mia Mottley-led government have the potential to bring fundamental improvements.
Following the May general election, the new administration approached the International Monetary Fund (IMF) for endorsement of its home grown economic recovery and transformation plan and for balance of payments support to restore the buffer of international reserves to adequate levels.
Discussions between the Government of Barbados and the IMF have already commenced on the elements of the programme that would support the disbursement of funds.
Government also announced the suspension of payments on external commercial debt obligations and indicated its intention to pursue a comprehensive restructuring of its domestic and external debt.
“This initiative is expected to complement the broader efforts of fiscal consolidation and facilitate a return to fiscal and debt sustainability. Preliminary discussions with external and domestic creditors have commenced and will intensify over the coming months,” Haynes said.
As a first phase of economic reforms, the Government introduced a suite of budgetary measures that are intended to alter the incidence of taxation and provide earmarked funding for some state-owned enterprises.
Haynes said these entities will ultimately need to exhibit greater efficiency as they transition to
functioning independently of Government. In addition, the increase in domestic taxation was partly targeted at strengthening the social safety net and enabling urgently needed infrastructural spending.
Given implementation lags, the Central Bank Governor said the lull impact on fiscal performance will be felt during the 2019-2020 financial year.
“These initiatives, combined with further structural reforms, have the potential to restore stability, engender investor confidence, create the framework for durable growth over the medium-term and enhance resilience to economic and environmental shocks,” he said.
In his outlook for 2018, Haynes said the economy remains vulnerable to external oil price shocks and no significant improvement in growth for 2018 is anticipated.
“The current forecast is for a decline in economic activity of 0.5 per cent. However, implementation of some of the private and public sector projects in the pipeline is expected to raise confidence and contribute to an improved outlook for growth,” the Central Bank Governor said.