Barbados economic growth expected to be less than one per cent
Governor of the Central Bank of Barbados, Dr. DeLisle Worrell says tourism-related investment will impart some stimulus to the local economy this year, but this effect will be largely eroded by the fiscal contraction, and the forecast is for growth of less than one per cent.
In an opinion article commenting on the current status of the Barbados economy, Worrell said the recent economic performance has been commendable given the unprecedented recession in the markets for the island’s tourism and traded services.
He said the Central Bank protects the value of the local currency by intervening as necessary on the interbank market.
“Up until April this year, Barbados’s foreign exchange reserves were the equivalent of 19 weeks of imports. By September, reserves had declined to a little over 13 weeks. In response, the government took action to introduce a major budget correction in mid-August.”
He said the measures included expenditure cuts equivalent to about three per cent of gross domestic product (GDP), plus additional taxes of about two per cent.
Worrell said in December, additional measures, including job cuts in the public sector, were introduced to reinforce the effect of the August adjustments.
“Projections are for a deficit equivalent to five per cent of GDP for fiscal year 2014/15, when the budget cuts will have full effect. Tourism- related investment will impart some stimulus to the economy in 2014, but this effect will be largely eroded by the fiscal contraction, and the forecast is for growth of less than one per cent,” he said.
“Fiscal consolidation continues into the medium term, and the ratio of net public sector debt to GDP is expected to peak at about 67 per cent of GDP in 2015, and decline thereafter. The ratio of external debt service to earnings of foreign exchange is projected at eight per cent for 2014, and to remain at about 10 per cent for the foreseeable future,” he added.
Last month, the Freundel Stuart government announced the plan to cut public service jobs in a bid to save BDS$143 million (One BDS dollar = US$0.50 cents).
It said it would also institute a “strict programme of attrition” across the central public service, filling posts only where it is absolutely unavoidable, over the next five years, ending 2018-2019.
“This attrition is expected to reduce central government employment levels from approximately 16 970 to 14, 612 jobs – a projected loss of 2 358 posts; and savings of BDS$121 million. Over the current 19-month adjustment period public sector employment will be reduced by an additional 501 jobs with a projected savings of BDS$26 million,” said Economic Affairs and Finance Minister Chris Sinckler.
The National Union of Public Workers (NUPW), which represents the majority of the 28,000 public servants, has accused the government of already retrenching workers through technical maneuvers.
The government said it intends to trim the service by 3,000 jobs starting from January 15.
Worrell said the current economic recession in Barbados, which hit its lowest point in 2009, is the fourth since the mid-1970s.
He said previous recessions in 1981-82 and 1991-93 were deeper and more prolonged, even though the challenges faced then were nowhere as daunting.
“Economic growth in Barbados is driven by the sectors that earn foreign currency. Small countries like Barbados specialize in the export of a few categories of goods and services that are produced profitably at prevailing international prices. The foreign exchange earned is used to fuel economic growth, which requires a range of consumer and producer goods for which there are no domestic substitutes.”
Worrell said that the Central Bank estimates the potential savings from additional import substitution at less than two per cent of imports.
He said the economy achieves a competitive edge by continuously increasing productivity, efficiency and the quality of final goods and services.
“Barbados’s economic growth is led by private investment in tourism, international business and financial services, and agro- processing all net foreign exchange earners, and green energy, where there is potential for savings on fuel imports.
“ In each of these activities, the prices of Barbadian products are targeted at levels comparable to those of our competitors. To enhance international business and financial services activity, new markets are being explored in Latin America, Europe and the Far and Middle East. In tourism, research is being undertaken for more focused and cost-effective marketing to complement the introduction of new products and services, such as sports, cultural and heritage tourism.”
Worrell said Barbados brings a number of competitive strengths to the international market. The country’s social and political institutions are stable, the labour force skilled and educated, the physical infrastructure good, and there are strong institutions for information- sharing, discussion and democratic decision-making.