The Central Bank of Barbados is predicting a record double-digit decline of up to 13 per cent in economic activity this year. Furthermore, the bank says, Government will be forced to secure millions of dollars in budgetary support from international agencies as it continues to witness significantly reduced revenues as a result of the COVID-19 pandemic.
Additionally, Government could be compelled to go back on an earlier decision and call on the Central Bank for financial support.
“I would have to be honest with you and say we do have to look at the issue of additional Central Bank financing, but it has to be timebound. In other words, it is for a particular period, and it will have to receive the blessing of parliamentary approval if we are going to go that route,” Haynes told journalists on Thursday, as he responded to questions during his first quarter economic review.
He reported that the economy declined by three per cent in the first three months of this year, while the international reserves grew by about $94 million and Government was able to achieve its targeted primary surplus of $634 million or six per cent of gross domestic product (GDP).
The overall decline was driven largely by the sharp decline in tourism and related activities during the second half of March. Tourism contracted by 16.2 per cent, the result of a 17.9 per cent decline in long-stay visitors and 11.5 per cent in cruise passengers during the period.
The manufacturing and agricultural sectors remained weak during the January to March period when Government’s revenues also took a hit, with total revenue for the financial year coming in at $2.98 billion, or 29 per cent of GDP. This was $9 million below the previous fiscal year and $75 million below the initial 2019/2020 target.
Haynes said authorities were also continuing to monitor Government’s expenditure, acknowledging that the pandemic had resulted in some major spending that was not initially budgeted.
“Therefore one of the first challenges that Government has is to look to reprioritize existing expenditure . . . and there is an ongoing review within the public sector to see how they can reorder their priorities to ensure that we are able to keep an overall lid on spending while providing the funds needed to support those areas that need supporting,” he said.
Acknowledging that health care would require substantially more spending from the public purse, Haynes said Government could look to see where it could shift some of its financial resources to support that sector.
“The other point is that we have been working with our international partners to identify additional budgetary support to help us throughout this period and we believe that we have the budgetary support lined up that will enable us, even with the reduced revenue, to be able to get through this phase,” he said.
The amount of budgetary support, he said, could be in the order of US$300 million from multilateral institutions, that would come over time.
“There are still some negotiations that need to take place, but I think it is in that ballpark because what you have done . . . is that you have lost some [$450 million] between revenue and expenditure,” said Haynes, who acknowledged that this would drive up the island’s debt. He however noted that “over time we will be able to repair the situation through focused fiscal consolidation”.
The Governor gave the assurance that further restructuring was not currently on the cards, and that additional measures to assist companies and individuals would have to be done over time and would depend on the availability of Government financing.
“You would appreciate this is not a time where we want to be imposing new tax measures for example. Because what you want to be able to do is give businesses and individuals an opportunity to recover from this economic shock,” he said.
In relation to the issue of increased Central Bank financing of Government, Haynes said he believed the current circumstance could force authorities to relook the decision taken by the Mottley administration to reduce and limit the lending the Central Bank could provide to Government.
“We have to look at it in the context of the overall programme . . . So it is something we have to look at bearing in mind the timing of flows we expect to get us through this period. Sometimes you may not get the flow exactly in the point when you need it, and that is the virtue of having the programme,” he said.
He said given the uncertainty of the full impact of the COVID-19 pandemic on economic activity, it would be difficult to say what decline in GDP was expected for this year, but said it would depend on the speed of recovery in tourism and how long the pandemic lasted.
However, Haynes said the Central Bank was “currently working with a 12 or 13 per cent decline in GDP for 2020”, pointing out that if the construction projects on the cards were started they could help to cushion the blow.
“There are so many moving parts that I don’t want to give you a specific number, but suffice to say, our best estimates right now is that we are going to have a double-digit decline in GDP and if we can keep it to 10 or 11 per cent or so, we think that would not be a bad outturn given the impact in fall in tourism for 2020,” he said.
This forecast is in line with predictions from noted regional economist Marla Dukharan, who recently told Barbados TODAY she did not expect any significant tourism activity for the rest of this year, and she would not be surprised if the economic decline was similar to the predictions for that of Bermuda (-12.5 per cent) or the Cayman Islands (-15 per cent) this year.
The latest IMF economic forecast for Barbados suggests a ten per cent decline for 2020.