Second quarter slump in Barbados’ economy due to unemployment
Unemployment across various sectors resulted in a slump in economic activity during the second quarter of Barbados’ fiscal year.
There were significant contractions in tourism, construction and distribution sector as well as storage and other business services sectors, according to the Central Bank of Barbados (CBB).
An update on the country's economic review from January to June of this year was given by CBB Governor Cleviston Haynes on Wednesday.
‘Preliminary data suggest that over 30 per cent of the unemployment claims were related to hotels and restaurants, but there were substantial job losses in other tourism related industries, including real estate. The distribution sector accounted for 17 per cent of job losses,” according to the Governor.
The review of Barbados’ economic performance between January to July also cited that the output in the tourism sector declined by more than 50 per cent, with long-stay visitor arrivals declining by an estimated 54% and cruise passengers by 34 per cent.
“Barbados’ humanitarian efforts to facilitate the repatriation of thousands of cruise crew members enabled modest activity through the air and seaports, but this could not compensate for the lost incomes in hotels, restaurants, tourist attractions, car rentals, duty free sales, etcetera,” the review noted.
Although total agricultural output increased by 3.7% due to improved performance of the non-sugar sub-sector, the general disruption in demand caused by closure of hotels and restaurant led to excess supply of chicken and an eventual 40% cut in production in June.
The prompt start to the sugar industry enabled increased cane harvesting. However, the increased production of higher quality molasses for the rum industry lowered sugar output. The report also noted that more than half of the sugar produced went to domestic consumption.
The non-traded sectors experienced a 6.3 per cent fall in activity driven by a 13.3 per cent slump in output in the second quarter. Wholesale and retail activity fell by an estimated 26% during the April to June period, impacted by restricted social distancing requirements and reduced business hours in response to the pandemic. Construction activity also contracted by almost 9 % in the second quarter, according to the CBB.
In terms of average domestic prices during the review period, figures measured by the Barbados Statistical Service during a 12-month period indicated 5.2 per cent inflation at the end of June. Higher fish and vegetable prices, particularly during the latter half of 2019, contributed to the inflation.
“What we want to be able to see over time is an improvement in agricultural production because that really is the major source of influence on domestic food prices. And therefore to the extent that we are able to expand our agricultural food production, then what the normal laws of demand and supply would suggest is that we would see some tapering of prices and therefore some tapering of the inflation rate,” stated Haynes in response to a question during his press conference streamed on YouTube .
In terms of revenue, the CBB review reported that reduced economic activity resulted in a 10 per cent fall during the first quarter of the fiscal year. Transaction based taxes fell by 37%, with the value added tax, excise taxes and import duties falling by BBD $77 million, $29 million and $18 million, respectively. Personal income taxes fell by BBD $55 million.
Additionally, the report cited a BBD $35 million fall in property taxes due to the shift in the issuance of land tax bills to the second quarter of the fiscal year. Non-tax revenue was also BBD $16 million lower than the previous period, almost half of which was attributable to reduced foreign exchange fee collections.
The CBB review also noted that for the third consecutive year, credit to the non-financial private sector by deposit-taking institutions declined by 1.5 % in the first half of the year as loan repayments outweighed new credit.
The review also indicated that Government’s new Barbados Optional Saving Scheme (BOSS) saw BBD $4.6 million in bonds issued for July. Of the amount, public servants retained BBD $1.2 million, while the remainder BBD $3.4 million was sold on the secondary market to individuals and institutions.
BOSS is an 18-month initiative established by Government in July 2020 to generate economic activity by shifting a portion of its spending on wages to the capital works programme. The Central Bank is the registrar, transfer and paying agent for the bonds.