Economic review 2015
THE BARBADOS ECONOMY is estimated to have grown by 0.5 per cent in 2015, thanks mainly to a stellar tourism performance. There was a 13 per cent increase in airlift from major source markets, an expansion in room stock, and refurbishment of aging hotel plant. The tourism outturn was the best on record since 2007, with activity in the sector rebounding to pre-crisis levels. Tourism receipts grew by an estimated five per cent, with arrivals up by 14 per cent, and all major markets recorded double digit increases.
Tourism was the only sector to record measurable growth. Construction activity is estimated to have decreased by three per cent, due largely to unexpected delays in the start of major infrastructural projects. The retail, business and other services sectors saw limited spillovers, because there was no impetus from the foreign exchange sectors, other than tourism. The average unemployment rate for 2015 was 11.8 per cent, compared with 12.3 per cent in 2014.
The international reserves of the Central Bank ended the year at $927 illion, which is equivalent to approximately 14 weeks of imports and in excess of the commonly accepted benchmark of 12 weeks of goods and services imports. Net long-term inflows were lower than in 2014. Government had significantly higher debt service costs, and together with Government’s equity subscription in the Andean Development Bank, this resulted in net repayments totalling $126 million. On the private sector side, financial inflows for tourism-related projects were lower by about $85 million.
Retained imports declined 11 per cent principally due to a 31 per cent ($380 million) reduction in payments for fuel imports. The prices of imported fuels have fallen by 42 per cent. Consumer goods imports were also down, by 11 per cent. Total exports of goods were down by roughly seven per cent, owing to declines in food exports. Exports of chemicals, which account for 17 per cent of goods, increased by only one per cent. Rum exports rose by three per cent, on the strength of rum which is aged, bottled and packaged in Barbados for export.
The 2015/16 fiscal deficit target of four per cent of GDP is withini reach, provided that Government completes the planned divestment of the Barbados National Terminal Company Ltd. Accrued revenue for the fiscal year is projected at $2.58 billion, and expenditure at $2.95 billion, for a deficit of $366 million. The fiscal measures announced in June 2015 have now been implemented, except for the taxes on betting and gaming. In the first nine months of the fiscal year, excise taxes increased $19 million, personal taxes rose $15 million and corporate taxes were $7 million higher. However, value added tax receipts declined $47 million partly because of the reduction in fuel imports, and property taxes fell by $13 million.
In the same period expenditure on wages and purchases by Government fell, each by $16 million. However, transfers to public institutions rose by $12 million, with increased payments for operational expenses and debt service. During the first three quarters of the fiscal year, commercial banks provided $140 million in financing directly, while the Central Bank recycled to Government $238 million of additional commercial bank reserves on deposit at the bank. In addition, the bank contributed $166 million of its own resources to the funding of Government. Private individuals and non bank investors provided $86 million, of which $62 million represented investments in Government of Barbados savings bonds. The National Insurance Scheme increased its financing to Government by $43 million. Net public sector debt was 70 per cent of GDP compared to 71 per cent at the end of December 2014. External debt service to current account earnings was three per cent higher in 2015, mainly on account of payments made on Government’s maturing and amortising international bonds.
Based on the 2015 Travel And Tourism Competitiveness Report, Barbados outperformed the majority of its counterparts in the Americas in the areas of health and hygiene, safety and security, the business environment, human resources and tourism related infrastructure. These competitive strengths, together with a projected seven per cent increase in airlift during the current winter tourist season and the completion of a new berth at the Bridgetown Port, augur well for further growth in tourism during 2016. In addition, the planned investment of $1.3 billion in new hotel plant over the next five years is projected to increase hotel room capacity by 40 per cent. Tourism and construction should provide enough stimulus to the wholesale, retail and business services to produce economic growth of about 1.8 per cent in 2016. Over the next five years, real GDP is forecast to expand by 1.7 per cent on average, peaking at about two per cent in 2017 when major tourism infrastructural projects, and other tourism development projects are expected to be in process of nearing completion.
An improved revenue performance is expected in fiscal year 2016/17. Together with changes in the structure of Government departments and official boddies designed to reduce expenditure, this should reduce the size of the fiscal deficit. Over the next five years, Government’s deficit is forecast to fall gradually to around 1.5 per cent of GDP, in the absence of further measures. On this trajectory, the net public sector debt to GDP ratio falls to 60 per cent by the end of the 2020/21 fiscal year. The production and use of renewable energy products offers an opportunity for major saving of foreign currency, which would allow for faster growth of our foreign exchange dependent economy. In addition, it could reduce the costs of production, create new job opportunities, and foster a cleaner environment.
In 2016, we anticipate the construction of a 10 megawatt solar farm by Barbados Light & Power. Barbados has made a good start in the implementation of a renewable energy programme. Further Government incentives and other forms of support are needed to accelerate progress towards the production of electricity entirely from renewable sources.
Taken from the Central Bank’s review of the economy’s performance in 2015 and its 2016 forecast, which was released last week.