Posted on

1% growth expected

SHAWN CUMBERBATCH, [email protected]

1% growth expected

Social Share

THE BARBADOS ECONOMY expanded by an estimated 0.5 per cent during the first half of the year, thanks to an encouraging tourism performance.

The foreign exchange market was almost in balance, with a slight dip in reserves recorded during the second quarter.

The fiscal position is gradually improving, and with the additional fiscal measures announced in the Budget, the fiscal deficit is projected to be reduced further to four per cent of GDP.

Furthermore, the strong demand by private individuals for the recently-issued Government savings bonds demonstrates a renewed confidence in Government securities.

The strong growth in long-stay visitors during the winter season continued into the second quarter of the year. Total arrivals rose by 14 per cent by mid-year, with increases of 25 per cent, 23 per cent and 14 per cent from the United States (US), Canadian and United Kingdom markets, respectively.

Tourism value-added rose by an estimated three per cent for the first half of 2015, although visitors’ stay was shorter on average. Expenditure by tourists is estimated to have risen by five per cent.

At the end of June, the foreign reserves stood at $968 million, which is equivalent to 14.4 weeks of import cover and in excess of the 12-week benchmark of goods and services imports. The reserve movements for the first six months continued to exhibit a normal pattern.

External debt service payments of $278 million were made and reserves fell by only $84 million. Abstracting from debt service payments, the underlying increase in reserves was $178 million.

During the first three months of financial year 2015/16, the fiscal deficit was estimated at $221 million. Total expenditure fell by approximately $4 million. Spending on goods and services, decreased by $14 million, and wages and salaries fell by $2 million. There was no increase in transfers to public institutions. Interest payments and outlays on capital expenditure grew by an estimated $8 million and $12 million, respectively.

Total revenue was lower by $33 million. VAT and personal tax receipts fell by $14 million and $22 million, respectively.

Financing for the April to June period of this fiscal year was predominantly provided by commercial banks ($113 million) and the Central Bank ($140 million). With an increase of $89 million in excess liquidity, in the form of commercial banks’ reserves on deposit at the Central Bank, the net effect from the Central Bank financing was an increase in money created of $51 million.

The successful re-launch of the Government savings bonds programme, in June this year, brought funding of $40 million by June 30, while the National Insurance Scheme funding of the deficit remained virtually unchanged. The net public sector debt was equivalent to 67 per cent of GDP at the end of June, two percentage points lower than the corresponding period one year prior.

Gross Government debt was equivalent to 100 per cent of GDP at December 2014, somewhat lower than for Belgium and the US, and marginally higher than Singapore. Barbados spends about 23 per cent of revenues on interest payments, which is lower than for India and comparable to Brazil.

Government’s foreign debt accounts for about 23 per cent of total debt, or about 32 per cent of GDP. The spread between the Barbados and US treasury bill rates, which has typically been no more than 200 basis points, widened to 300 basis points in the wake of the Global Recession.

The unusually high spread remained unaffected by the introduction in April 2013 of a new Central Bank policy of influencing interest rates through intervention in the treasury bill market. One factor was the Bank’s stipulation of a minimum interest rate on savings deposits of 2.5 per cent. This stipulation was removed in April 2015.

Banks’ cash ratio to deposits continued to rise, moving from an excess of five per cent in mid-2013 to nine per cent at the end of June 2015. At end-June, the average spread was 270 basis points, with a local treasury bill rate of 2.8 per cent.

Growth of about one per cent is now expected this year, rising to a range of two to two and half per cent for the next three years. Tourism and construction should be the main drivers. Recent efforts to enhance the tourism product and enrich the visitor experience are beginning to take effect.

Public sector investment projects already underway and projected over the next three years total $567 million. Private investment in hotels and tourism-related projects over the same period, are expected to be about $2 billion. The growth of green-energy production has the potential to accelerate the overall growth rate, if installation can be ramped up significantly.

Leave a Comment

Your email address will not be published. Required fields are marked *

Maximum 1000 characters remaining in your comment.