BRIDGETOWN, Barbados – Barbados' economy is forecast to continue on its growth trajectory this year, even though the global economy is expected to slow in 2023, the Central Bank of Barbados (CBB) reported Wednesday
Central Bank Governor, Cleviston Haynes discussing Barbados economic performance for 2022 (CMC Photo)In its review of the local economy for 2022, the Central Bank Governor, Cleviston Haynes, told a news conference that the economy is predicted to expand in the range of four to five percent and that the CBB anticipates that the resurgence of the tourism sector will not be as rapid as in 2022.
“The momentum for a sustained economic recovery requires increased public and private sector investment. Such investments, including in tourism and the physical infrastructure, have the potential to enhance the economy’s productive capacity, modernize the economy, absorb labour and create positive spill-over effects for small and medium-sized businesses.
”But the road ahead remains challenging because of factors that continue to expose the vulnerability of the domestic economy. For example, inflationary pressures, though declining, remain elevated and the International Monetary Fund (IMF) expects inflation to persist, before declining to its norm in 2024,” Haynes told reporters.
The CBB said macroeconomic conditions remained challenging during 2022 as the international economic environment tightened in the aftermath of spiraling global inflation.
However, Haynes said the Barbados’ economy registered a robust recovery from the coronavirus (COVID-19) induced decline over 2020-2021. He said the rejuvenated performance was led by the tourism sector, as the relaxation of COVID-19 restrictions on travel, recreation and business operations enabled a full reopening of the economy.
“Preliminary estimates are that economic output rebounded by 10 percent, generating a U-shaped recovery path. With the strong upturn, the labour market was marked by fewer unemployment claims, increased participation rates and a reduction in unemployment.”
The CBB said that for the seventh successive quarter, economic activity recovered from the steep decline experienced over the 12 months ending March 2021. It said the performance was stronger in the first half of the year because of the exceptionally weak outturn for tourism during the corresponding period a year earlier.
The CBB said the accelerated resumption of global travel boosted tourism and in the fourth quarter, the sector’s outturn was stronger than forecast, resulting in overall growth for the three-month period of 9.5 percent.
“This together with the positive spill-over to the ancillary sectors buoyed the recovery for the year,” the CBB said, adding that visitors for 2022 more than trebled over the prior year, representing a recovery to 62 percent of 2019 levels.
During the fourth quarter, long-stay arrivals registered their strongest quarterly performance with December arrivals reaching 78 percent of pre-COVID levels. Rising average length-of-stay partly compensated for the loss in arrivals and enabled hotel occupancy to reach 91 percent of that recorded in 2019.
Haynes said Barbados’ recovery was broadly in line with expectations, despite diminished flight availability and elevated ticket prices for the destination.
He said the United Kingdom continued to be the major source market, reaching 76 percent of the 2019 outturn and accounting for 40 percent of long-stay arrivals. Visitors from the United States, Canada, and the Caribbean all showed signs of recovery in 2022, but arrivals from the Caribbean remained below 50 percent of the 2019 performance.
Haynes said activity from the cruise sector recovered more slowly, with arrivals being only 36 percent of pre-COVID levels.
“The start of the winter season was encouraging, but the complete absence of cruise calls in the summer prevented a more robust comeback. Nonetheless, the partial revival contributed positively to the ancillary sectors, including transportation and attractions. “
The CBB said that the lingering conflict between Russia and Ukraine, resulting in geopolitical tensions in Europe, could lead to reduced oil supply and elevated oil prices.
It warned that higher prices raise business costs and have the potential to constrict the purchasing power of consumers, which could slow the projected growth path.
“Moreover, the aggressive measures taken by advanced economies to fight inflation have created the risk of recession. The depth of such a recession is uncertain, but tourism-based economies, like Barbados, face the risk of a slow-down at a critical juncture in the recovery,” Haynes said, adding that the resurgence of COVID-19 cases in China and other Asian countries, which serve as critical cogs in global supply chains, also raises the risk of a global slowdown.
He said the recent surge in the number of cases in China could negatively impact production and this may delay the start and continuation of projects on island and to create shortages within local industries that rely on imported inputs.
“These diverse but interrelated risks underscore the importance of strengthening our marketing efforts and product quality within the tourism sector. All countries are susceptible to a weakening of the economic environment, but the need for economic resilience requires us to enhance our ability to grow market share over time.
“In addition, given the risks to inflation and the reserves, we need to accelerate Barbados’ goals of net-zero by 2030 and 100 percent renewable energy. The EIA Short-Term Energy Outlook forecasts oil prices to average US$82 per barrel by the end of 2023, but future price increases can be anticipated in the event of further supply disruptions,” Haynes noted.
He told reporters that the ongoing inflation trend will raise imports further, but external reserves, boosted by already approved borrowings from international financial institutions, are expected to remain in excess of international benchmarks.
The CBB said government has committed to rebalance the fiscal position which was derailed by the health and climate events over the last few years. It is expected to achieve a primary surplus of at least two percent of gross domestic product (GDP) for the financial year 2022/23, but Haynes said further improvements in the primary balance are needed to ensure that financing remains adequate and that the economy stays firmly on its trajectory to bring the debt-to-GDP ratio to its 60 percent target over the medium term.
The CBB said concerted efforts to make state-owned enterprises (SOE) more self-sufficient remain critical, while government’s capital works program will be a key driver of the growth effort.
“The combined effect of higher primary surpluses, increased capital spending, and ongoing recapitalization of the NIS (National Insurance Scheme) will limit the scope for substantial salary increases over the short term.”
But Haynes warned that the strength of the recovery cannot rely on public sector spending alone. He said the recent pick-up in credit after several periods of weak loan demand is therefore encouraging, as is the reduction in non-performing loans (NPL).
“Financial sector stability is essential to the recovery, and the Central Bank will continue to work with the Financial Services Commission and financial institutions to further strengthen risk management, governance and compliance.”
Haynes said the government has set out an ambitious growth agenda in its Barbados Economic Recovery and Transformation Plan 2022 with success predicated on eight pillars including the extent to which low- and middle-income housing, the green transition and building out climate resilient infrastructure can, together with establishing Barbados as a logistics hub and promoting diversification in niche activities, propel economic activity.
“Given the long period of sluggish growth, there is an urgency of now to ensure that the growth is sustainable. As we embark on a new program with the International Monetary Fund, our focus on debt and fiscal sustainability must be complemented by a focus on growth,” Haynes said.
“As a society, we need the input of all stakeholders, embracing critical thinking, innovation, improved business processes, enhanced skills training and, where necessary, the acquisition of new skillsets.
We must not lose sight of the fact that reducing debt is linked to higher primary balances as well as to growth. We must remain conscious that even with strong primary balances, governments need to borrow because such borrowing finances past deficits.
“We must remain focused on the need for continued fiscal discipline, to engender confidence and to create conditions for borrowing on favorable terms for example with long maturities and low interest rates.
“We must encourage our private sector to rise to the challenge of supporting government’s growth initiatives, to mobilize savings, embrace technology and to seek out export markets that facilitates diversification,” Haynes said, telling reporters “if we retain our focus, we can meet the challenge to build a resilient economy that is able to achieve sustainable growth”.
