Worrell: Get back on track
Barbados’ dismal first quarter economic performance has forced Central Bank Governor Dr DeLisle Worrell to call for an about turn in economic strategy.
Worrell said today in his report for the first three months of 2013 “the fiscal consolidation strategy must be brought back on track, and a new medium term adjustment strategy must be implemented using the current deficit as a point of departure”.
After reporting that the economy had contracted by 0.4 per cent, the deficit had widened to 7.3 per cent at year-end, unemployment was up, tourism arrivals had fallen and major tax receipts on the decline, the Governor conceded that the slide had to be reversed.
In a statement, the island’s lead economist said: “On current trends, there may be no real increase in the contribution to GDP from the tourism or international business sectors in 2013. The forecasts for the rest of the economy are no better, with overall GDP expected to be virtually flat.”
He added too: “In order to sustain foreign reserves at end-2012 levels, net capital inflows of about $523 million will be needed, for both the private sector and Government.”
Among the few positives reported by Government’s chief economic advisor was a significant drop in inflation from a 9.4 per cent at the end of March last year to 3.3 per cent this year.
Worrell noted that the all-important foreign reserves had remained stable at $1.42 billion compared to $1.41 billion for the same period last year.
And while the expenditure on public service wages and salaries, and the purchase of goods and services was flat, transfers to several state run entities had jumped by six per cent.
The Central Bank Governor said: “Subventions to the University of the West Indies, Queen Elizabeth Hospital, Barbados Water Authority, Transport Board and other state-funded entities rose by six per cent. Non-contributory pensions and other grants to individuals also increased, by six per cent, and interest expenses were up by seven per cent”.
According to the Governor, “Capital project outlays have declined for seven years in a row, and capital spending was only three per cent of Government’s total spending. For the fiscal year, foreign financed capital spending was $30 million.”
Government’s fiscal deficit, Worrell revealed, was financed through purchases of Treasury bills, Treasury notes, Savings bonds and Debentures, in addition to the sale of Government’s remaining stake in the former Barbados National Bank, which accounted for 14 percent of the fiscal deficit.
“The NIS purchased a net amount of bonds and Treasury bills equivalent to 52 per cent of the deficit, while banks contributed 36 per cent of the gross financing and insurance companies and private individuals provided the remainder,” he added.
Barbados’ main economic engine – tourism – continued to face significant challenges as arrivals were down nine per cent in January and February and tourist spending contracted by about five per cent, even though their average length of stay increased.