Barbados warned against hiking taxes due to minimal growth forecast
BRIDGETOWN, Barbados, Wednesday October 12, 2011 – The Central Bank of Barbados (CBB) said government should not consider increasing taxes to bolster the economy, which is forecast to grow a minimal one percent this year.
Any increases could cripple the tentative recovery in output, it warned.
The central bank said the economy grew one percent more than the 2010 period - half of what was projected at the start of the year.
There was a drop in foreign exchange earnings from tourism, despite a significant increase in long stay arrivals. This led by a 10 percent increase in the UK market.
“Tourism receipts contributed 46 percent of foreign exchange earnings in the first nine months of the year. Foreign inflows for international business and other services accounted for 18%,” the CBB stated.
The construction and wholesale and retail trade sectors grew, while manufacturing, sugar production, and non-sugar agricultural sectors contracted.
At the same time, the bank noted, the fuel import bill increased about one-third leading to increased spending on imports.
“Over the first six months of the year, the prices paid for imports of corn, wheat and soya beans had increased by 46 percent, 51 percent and 27 percent, respectively,” it said.
Overall, retail prices for the 12 months ending in July were about seven percent higher than the previous year.
The bank explained, “This represents an acceleration in the rate of inflation, which stood at 5.8 percent at December 2010. The prices of food items, which account for 34 percent of average household consumption, rose 2.8 percent over the 12 months to September, and fuel and light prices were up around 1 percent.”
Unemployment, it estimated, was in the region of 11 percent up to the end of last month, with about 700 new benefit claims made between March and September.
“This is supported by a survey of 30 large employers in tourism, construction, and wholesale and retail, as well as trade unions and the Employer’s Confederation,” it said.
According to the bank, current account deficit rose to 9 percent of GDP for the first nine months of 2011, compared with 8.7 percent for the corresponding period of 2010.
Focusing on the outlook for the remainder of the year and 2012, it said prospects of a full recovery from the economic recession have become more distant because of the weakened growth prospects for the U.S., the U.K. and other advanced economies.
“In view of the impact of the economic recession on government revenues, it is prudent to adopt a somewhat longer horizon for the achievement of an overall fiscal balance, and the fiscal targets published in the Medium Term Fiscal Strategy (MTFS) are being modified accordingly,” the CBB suggested.
“Even so, Government will be challenged to find avenues for further reducing its expenditure, while averting reductions to social spending, and holding employment levels in the public sector.”