Government’s efforts to fix its fiscal problems will leave it holding a double-edged sword next year.
With Minister of Finance and Economic Affairs Chris Sinckler tipped to deliver a statement on new fiscal measures this week, the Inter-American Development Bank (IDB) says it expects fiscal measures already in place to stifle the economic growth the Central Bank and others are predicting for 2015.
In its latest Caribbean Region Quarterly Bulletin, released last week, the IDB said a lot will depend on how good a 2014/2015 tourism season Barbados has, but it pointed out that “Barbados’ growth outlook remains subdued in light of an underperforming tourism sector and the ongoing fiscal consolidation”.
The Central Bank’s most recent forecast said the Barbados economy would grow by two per cent next year and 2.3 per cent in 2016, which Governor Dr DeLisle Worrell said was predicated on growth in tourism and construction. However, in its own “outlook” for Barbados, the IDB said not only would 2014 “likely close with a contraction of GDP as real sector indicators will remain subdued for the remainder of 2014”, but it concluded that Government’s fiscal consolidation programme would stifle economic growth.
“The authorities expect output to increase to 1.2 per cent in 2015 and 2.5 per cent in 2016. The fiscal consolidation programme could improve the fiscal position but would come with an adverse effect on growth,” the report concluded.
It added: “The reductions on public consumption and investment would reduce the Government’s contribution to GDP going forward. However, tourist arrivals could slowly pick up and if private investments in tourism-related projects kick off – such as the Pier-head Marina, Four Seasons, Sandals Resort, Sugar Point Cruise Pier – the sector could see a gradual rebound and increase its contribution to output over the medium term.
The bank, which is a major Government financier, also said that even after introducing a 19-month fiscal consolidation programme that included the retrenchment of “ten per cent of the civil service”, increased taxes, and was to include reduced funding to state-owned enterprises, Government “would likely close the fiscal year in March 2015 below its savings target of five per cent of GDP”.
