The Central Bank of Barbados (CBB) Wednesday said the performance of the local economy continues to be restrained by the protracted global presence of the coronavirus (COVID-19) pandemic, noting that the immediate challenge facing the Barbados economy is to build on the green shoots of growth experienced during the second quarter.
“The global economy remains on track for recovery as countries ease the restrictions that have been introduced to manage the virus. Barbados expects to benefit from the resumption of global activity and our relative success in managing the virus so far encourages optimism that we will register a mild recovery during 2021 and create a platform for sustainable growth over the medium term,” said CBB Governor Cleviston Haynes.
Haynes, delivering the Quarterly Economic Review of the Barbados economy for the first six months of this year, said that given the uncertainty associated with global developments, the CBB has left its economic growth forecast unchanged at between one and three per cent for 2021.
“This outlook hinges on the speed of the recovery in tourism and the reports of planned increased airlift over the next six months to cope with pent-up demand for travel bodes well for energising a strong but gradual recovery.
“However, the environment remains hostile with new virus mutations and the continued uneven distribution of vaccines across the world. There are other downside risks that have to be managed,” Haynes told reporters.
He said, for example, Barbados has recently been placed on the “green list” of its largest source market for tourists, the United Kingdom, thus exempting visitors from having to quarantine after they return from Barbados.
“Retaining this status requires us to continue to manage the virus through careful observance of the health protocols, thus minimising risk to ourselves while providing confidence to potential visitors that the exempt status will not be subject to a sudden change.
“In addition, COVID has slowed the pace of planned investment which is critical for building capacity, enhancing competitiveness and creating opportunities to ease labour market pressures.
“Repairs to the housing stock damaged by recent climatic events should boost construction activity in the short-term, but implementing a programme of private sector investments, including for renewable energy, embracing technology, innovation and process improvements will influence how quickly the recovery accelerates over the medium-term.”
Haynes said that the uptick in global inflation is a source of concern but as the pandemic-driven demand and supply shocks subside, international prices are likely to normalise over the medium-term.
He said that the recent passage of Hurricane Elsa has further exacerbated the already stressed economic conditions.
“With damage assessments still being tallied, government will be challenged to assist in strengthening the housing infrastructure, making it more resilient to withstand future climatic events.
“In addition, the persistence of the pandemic will place pressure on Government to maintain its efforts to alleviate the economic and social consequences of the virus by providing temporary welfare assistance, strengthening the public health infrastructure and the accelerating implementation of public sector projects,” Haynes added.
He said the Mia Mottley Government has relaxed its fiscal stance and the primary balance for the financial year 2021-22 is targeted for a balanced budget, adding that over the past year, government borrowed to facilitate the policy adjustment.
Haynes said that while the sharp contraction in gross domestic product (GDP) has temporarily raised the debt-to-GDP ratio, government remains committed to fiscal and debt sustainability and to attaining its debt-to-GDP anchor of 60 per cent.
“A new timeline of financial year 2035-36 has been established, as achieving debt sustainability over the medium and long-term requires a strengthening of economic growth and higher primary surpluses. Achieving these objectives underscores the importance of maintaining public enterprise reform efforts to ease demands on central government while strengthening Barbados’ competitive position to generate growth,” Haynes said.
The Central bank Governor said that the front-loading of external borrowing has enabled the build-up of the international reserve cover.
He said as the economy recovers, the demand for foreign exchange to support imports will rise, but the International Monetary Fund’s (IMF) planned increase in the Special Drawing Rights (SDR) allocation of its members is expected to further boost the country’s foreign reserve buffer during the third quarter.
The CBB said that the uncertainty created by the high incidence of COVID-19 cases at home and in the key source markets for tourism, international travel restrictions, and the “National Pause” in
February have dampened economic activity.
“However, following the sharp decline during the preceding 12 months, preliminary data suggests that the economic recovery has started. With the on-going weakness of the tourism industry, the non-traded sectors which were particularly hard-hit in the corresponding quarter a year ago served as the principal source of modest growth during the second quarter.”
But the CBB noted that despite these gains, private spending remains well below pre-COVID levels.
It said the recent ash-fall from the eruption of La Soufrière volcano and the passage of Hurricane Elsa have further demonstrated Barbados’ vulnerability to external shocks and resulted in unplanned fiscal costs.
“Government has relaxed its fiscal policy stance to cushion the adverse economic effects of the pandemic by supporting efforts to safeguard lives and livelihoods but it will need to adapt its programme so as to cope with these emerging challenges.”
Haynes said that the local economy grew by an estimated 5.5 per cent during the second quarter, indicative of an emerging mild recovery.
He said the improved performance between April and June reflects the gradual easing of travel restrictions and higher domestic private sector spending relative to last year when the economy was under lockdown for much of the quarter.
“However, the moderate growth was not enough to offset the very weak performance of the tourism sector in the first quarter and preliminary indicators suggest that activity for the first half of the year was nine per cent lower than for the same period in 2020.”
The Central Bank said that activity in the tourism sector remains subdued, adding that in the second quarter, a partial resumption of airlift facilitated 11,289 long stay tourist arrivals compared to only 980 tourists for the corresponding period a year earlier.
“Prolonged travel restrictions, especially in the UK, due to the rising cases of the highly contagious Delta variant of COVID-19, coupled with on-going uncertainty as it relates to travel protocols, served to temper the budding recovery. The modest increase in arrivals were not sufficient to offset the virtual absence of visitors in the first quarter, however, and arrivals for the first half of the year were 88 percent lower than for the same period of 2020.”
It said that the Welcome Stamp programme continued to attract new remote workers, contributing to economic activity through real estate rentals and spending on other ancillary services.
“With the low influx of tourists, the hotel sector suffered from low occupancy and revenues, but some properties benefitted from their use as quarantine facilities and from the local demand for staycation packages. Some hotels and restaurants took the opportunity to effect renovations during the down period, in preparation for offering enhanced service as tourism returns. “
The CBB Governor said that the weak economic activity continued to place pressure on employment levels and that the most recent estimate of the Barbados Statistical Service is that during the first quarter when the economy was under the “National Pause”, 105,700 persons were employed and the unemployment rate was 17.2 percent compared to 13.6 percent at the end of 2020.
He said while some displaced workers have returned to work, given the level of activity over the past year, there has been increased incidence of part time work.
The National Insurance Scheme (NIS) continues to play a central role in helping to stabilise the situation. During the first 12 months of the crisis, claimants for NIS unemployment benefits received payments estimated at almost 14 weeks on average. New unemployment claims for 2021 spiked in February, but for the first six months of 2021 they were over 10,000 fewer claims than for the same period in 2020.
The greater share of applicants was in the tourism sector as the renewed restrictions early in the year dampened the prospects of a robust recovery for the sector.
The CBB said the continued implementation of the Barbados Employment and Sustainable Transformation (BEST) programme for workers in the tourism sector contained new claims from that sector.
“ In the circumstances, wage rates have been frozen, but low-income workers received a boost to their incomes when government introduced an economy-wide minimum wage rate of $8.50 (One Barbados dollar=US$0.50 cents) per hour,” the CBB added.