ON THE LEFT: Government’s medium term plan holds the key
BARBADOS’ TOURISM has been encouraging so far in 2015, with arrivals increasing by 14.5 per cent to end of September. However, construction activity fell short of expectations, and the spillover effects to the retail and domestic services sectors were muted, resulting in growth of 0.3 per cent for the year so far.
The deficit over the first half of the fiscal year (April to September) was $19 million less than for the same period last year.
Revenue rose by $50 million thanks mainly to property taxes, which were $99 million higher.
Total expenditure increased primarily because of an additional $17 million in domestic interest payments and a $20 million increase in transfers to public institutions.
The Barbados Government’s net indebtedness to the private sector at home and abroad continues on an upward trend, a reflection of the fact that the fiscal deficit continues to exceed the growth of GDP.
The net public sector debt to GDP, which was no more than 28 per cent in 2008, has now risen to 68 per cent.
The major burden of this debt is the interest cost, which absorbs 29 per cent of all Government revenues.
As Government’s deficit is reduced and arrears of payment are paid off, monetary intervention to reduce the excess interest burden will become more effective.
The principal factors affecting the near term growth outlook are the prospects for tourism and the implementation of major private and Government-funded investment projects.
After the significant restoration of airlift capacity from North Atlantic markets last winter season, the growth in long stay arrivals are expected to moderate.
However, the cruise tourism business is expected to get a major boost from an expansion in the home porting services at the Bridgetown Port.
Total investment in hotels currently scheduled to be under construction in 2016 amounts to over US$500 million, to be spread over two to three years.
In addition, the private sector is awaiting approval of other commercial investment projects estimated at about US$50 million, and there are potentially more economically significant investments in alternative energy.
The growth prospects depend heavily on the success of Government’s medium term programme for growth and fiscal adjustment.
This strategy could reverse the slide in the country’s international credit rating, once it features fiscal deficits that fall below the growth rate of GDP, to reduce debt levels and the burden of interest costs.
Over the years, a widening gap has opened up between labour costs and productivity in Barbados.
A medium term strategy for closing this gap has to be placed high on the agenda for action by the Social Partnership.
The Central Bank’s current projection for growth in 2015 is now 0.5 per cent, mainly because of the delayed implementation of the investment projects.
Assuming that these projects will now be under way next year, growth rises to about one per cent in 2016 and two per cent thereafter. It is possible to improve significantly on these forecasts.
Factors that can make for much better performance include the improvement of administrative efficiency in the public service, initiatives to increase labour productivity and worker engagement, an aggressive policy of fiscal consolidation, more effective incentives and support for green energy and new and more appropriate financing of the development of the cultural and heritage sectors.
Dr DeLisle Worrell is Governor of the Barbados Central Bank.