The growth in tourism output that was experienced in the first quarter of 2012 has not been sustained this year, and as a result Barbados’ overall GDP is estimated to have contracted by 0.4 percent in the first quarter.
However, spending on imports slowed down, and there was no substantial erosion of foreign exchange reserves. The reserve cover at the end of March stood at 19 weeks of imports. The projected rate of inflation for the first quarter is 3.3 percent, down from 9.4 percent at the end of March 2012. The rate of unemployment averaged 11.6 percent in 2012, up from 11.3 percent in the previous year.
The Government’s deficit for the fiscal year just ended reached 7.3 percent of GDP, compared with 4.6 percent and 9.1 percent in the previous two fiscal years. VAT receipts fell 7 percent, largely because of the slowdown in economic activity and spending on imports. The personal income tax yielded 18 percent less than in the previous fiscal year. Increases were recorded in import duties (4 percent) and property tax receipts (2 percent), but these made only a modest contribution to revenue.
Government expenditure on wages and salaries and purchases of goods and services was relatively flat. However, subventions to the UWI, QEH, Barbados Water Authority, Transport Board and other state-funded entities rose by 6 percent. Non-contributory pensions and other grants to individuals also increased, by 6 percent, and interest expenses were up by 7 percent. Capital project outlays have declined for seven years in a row, and capital spending was only 3 percent of Government’s total spending. For the fiscal year, foreign-financed capital spending was $30 million.
Government’s fiscal deficit was financed through purchases of Treasury bills, Treasury notes, Savings bonds and Debentures, in addition to the sale of Government’s remaining stake in the former Barbados National Bank, which accounted for 14 percent of the fiscal deficit. The NIS purchased a net amount of bonds and Treasury bills equivalent to 52 percent of the deficit, while banks contributed 36 percent of the gross financing and insurance companies and private individuals provided the remainder.
The NIS continued to invest the majority of its operating surplus in holdings of Government securities, equities, commercial paper and real estate. The average earnings on the Government securities ranged from 3.5 percent on Treasury bills to about 7.0 percent on securities of longer maturity.
Barbados’ external debt service ratio is relatively low by international standards, at 7.3 percent of foreign exchange earnings. This is well below the comparable ratios recorded in St. Kitts-Nevis and Grenada just prior to their debt restructuring programmes which have adversely affected confidence in Caribbean capital markets. In St. Kitts-Nevis, a partial default resulted in a large haircut being imposed on investors, while the Grenadian Government recently announced a default on maturing bonds. In contrast to these defaults, the Jamaica debt exchange represented a market correction, which involved no loss of principal by investors, and left them with a competitive market return after the exchange was completed. The Government of Belize debt exchange also did not involve any loss of the principal amount invested.
Barbados’ ratios of debt to GDP are within international norms: on a net basis, the ratio for the public sector as a whole is 53 percent, which is below the 60 percent threshold. Excluding Government deposits at banks and other liquid assets of Government, the gross government debt-to-GDP ratio for debt issued to the private sector is 83 percent, which is not much different from the ratios for Canada and Germany, and below the ratios for Japan (the world’s most indebted nation), the US and the UK.
However, interest payments take up as much as 24 percent of Government revenue, a very high ratio by international standards. Visitor arrivals were down by 9 percent in January and February and average spending contracted by an estimated 5 percent, notwithstanding a 6 percent increase in the average length of stay. There were declines in all major markets, a reflection of the 6 percent reduction in airlift capacity. Barbados’ hotel accommodation capacity was reduced by 7 percent and average room occupancy rates declined from 74 percent last year to 71 percent.
Output of the manufacturing and agricultural sectors was estimated to be lower than last year and the production of raw sugar fell significantly. However, domestic exports were up by about 4 percent for 2012, including rum exports, which grew by 16 percent and accounted for roughly 14 percent of total exports.
At the end of February, new registrations of international business and financial services (IBFS) companies were down by 6 percent when compared with the same period in 2012. In addition, output in the construction sector is estimated to have fallen by 7.6 percent at the end of last year.
Commercial banks were resilient in spite of the dampened domestic economic activity. The banking system remained liquid and profitable, with entities continuing to hold more capital than required by local regulatory authorities. As a result, the island’s banking system as a whole is comfortably able to withstand various economic shocks. Loan demand again weakened and credit quality deteriorated for all deposit taking institutions; however, the majority of non-performing loans were classified in the least critical category and no significant losses are expected.
Private individuals’ indebtedness, as measured by the ratio of household debt to GDP, remains well below the international 85 percent threshold. Moreover, households’ capacity to meet these obligations is adequate, with the value of household assets exceeding their liabilities by the equivalent of 17 percent of GDP at the end of 2011.
READ FULL REPORT