CBB: Revenue decline but country remains resilient
Governor of the Central Bank of Barbados Cleviston Haynes (File Photo)
Although the global outlook remains “highly uncertain” due to the COVID-19 pandemic and other concerns, Barbados’ economy is facing this challenging period from “a position of relative strength,” according to Governor of the Central Bank of Barbados Cleviston Haynes.
“As anticipated, the reduced economic activity affected the public finances during the first quarter of fiscal year 2020-2021,” Haynes acknowledged during a press conference on Wednesday, August 5 presenting the Central Bank’s review of the country’s economic performance from January to June of this year.
Despite initiatives such as lending institutions offering moratoria on existing loans to their clients, and the use of technology to facilitate remote work in some segments of the public and private sectors during the COVID-19 related shutdown, domestic consumption declined. There was also a fall in commodity exports, and planned investments to kick-start economic growth deferred partly because of uncertainty created by the pandemic.
Preliminary data suggests that economic output fell by 27 per cent in the second quarter, resulting in an almost 15 per cent decline during the review period.
“The primary balance, the difference between Government’s revenue and non-interest expenditure, fell by just over BBD $100 million relative to the previous year, but it out-performed the target agreed with the International Monetary Fund. The combined effects of reduced incomes, lower personal income tax rates, deferred issuance of land tax assessments, and the contraction in consumer spending depressed revenue below 2019 levels,” noted the Central Bank Governor in his review streamed on social media include Youtube.
However, Haynes pointed out that the losses experienced were “partly offset by substantial revenue gains” from corporate taxes collected from firms operating with foreign currency permits. Corporate taxes collected this year were a BBD $189 million more for the April to June quarter than they were for the same time frame last year. He attributed tax reforms implemented in 2018 that yielded improved collections of the taxes, as well as adjustments to rates and an increased number of new large international business companies.
“The performance of international reserves also exceeded expectations. Reserves rose by BBD $536 million for the half year to over BBD $2 billion or 27 weeks of import cover,” said the Central Bank Governor, who attributed part of the growth to borrowing from the IMF, and Inter-American Development Bank.
“While the first quarter’s performance was stronger than anticipated because of the higher corporate taxes, the ongoing global uncertainty mandates continued careful management even as Government attempts to provide some stimulus through increased capital spending to offset a decline in overall economic activity and a reprioritising of other expenditures,” said Haynes.
“Loans already received are expected to be buttressed by more funding later in the fiscal year ensuring that Government faces no financing constraints, and that it is able to make a seamless transition from a planned 6 per cent primary surplus to a 1 per cent surplus in the current fiscal year,” he reported.
“This temporary deviation, predicated on an estimated loss in revenue of about 4 per cent of GDP, has altered the path of fiscal consolidation in the Barbadian economy without compromising Government’s medium-term policy objective of reducing the debt ratio and placing the public finances on a sustainable path,” he added.
While current borrowing has raised the debt ratio, a decrease is anticipated as fiscal policy tightens when economic conditions improve. Accumulated reserves and planned future borrowings should also “provide adequate buffers to withstand economic shocks such as a prolonged global economic contraction or rising oil prices,” Haynes noted.
“Despite these positives we are conscious that the IMF has been lowering its global outlook for growth in 2020 amid concerns of an intensification of the virus and fears of a second wave of infections. Indeed, at June, the IMF forecast for global growth this year was negative 4.9 per cent, down 1.9 percentage point from negative 3 per cent in April,” he acknowledged.
“The reopening of borders will enable some businesses to restart their operations and reengage employees currently relying on unemployment insurance. However, some additional job losses can be expected as firms adapt to the reduced economic activity and uncertainty,” stated Haynes.
Data indicates that unemployment insurance payments have exceeded BBD $70 million thus far. Claims between late March to end of June surged to over 33,000. While both private and public sector investment and capital projects may start during the second half of the year, Haynes said these projects were “unlikely to slow the pace of double-digit loss in output in 2020.”
“The crisis has exposed our vulnerability to severe economic shocks and it is testing our resilience. Revitalizing economic activities therefore are crucial to the well-being of the country. But a speedy turnaround hinges on several factors, including the pace of the global economic recovery, and the reduction in the uncertainty that affects decision making,” according to Haynes. He also cited implementation of reforms that enhance business facilitation and project execution.
“Our ability to attract and jump-start investment projects that will create jobs, boost economic activity and earn or save foreign exchange remains critical to the recovery. Sustainable growth will require us to broaden our economic levers through diversification and to adapt to this changed environment by using technology, boosting productivity and enhancing service quality,” he further added.