The 2012 Financial Statement And Budgetary Proposals
Presented To The House Of Assembly Of Barbados
By The Hon. Christopher Peter Sinckler M.P,
Minister Of Finance And Economic Affairs,
Tuesday, June 26, 2012, 4pm.
Mr. Speaker, honourable colleagues, fellow Barbadians, the famous Jamaican artiste “Admiral Tibet” in one of his more popular standards entitled “Serious” is moved to chant the refrain “times are serious, cantankerous and dangerous……all over the world everyone is in a heated rush….…it’s only in the Father that I put my trust.”
As I rise to deliver these Budgetary Proposals and the accompanying Financial Statement, I am ever mindful Sir, that these very telling words sung more than 20 years ago could very easily be transposed into the current reality in which the whole world has found itself and by which so many countries, Barbados included, have been and are being affected to varying degrees.
Economic hardship, social dislocation, environmental degradation, crime and violence, doubt and despair appear to be the everyday experience of so many across the globe, that one is left to wonder if this era of challenge will ever draw to a close.
Given recent developments and the underlying implications associated with them such pessimism is almost justifiable. For just as planners and populace alike were about to breathe a sigh of relief believing as we did that the worst had past us and the world economy was ready for a new round of growth and prosperity, the bedeviling impacts of the world’s greatest recession have begun to re-emerge.
As if it was not already troubling that financial stability and economic recovery from the crisis of 2008 was slow at best, our worst fears of a second round of economic contraction seems now to be a real possibility.
Small wonder then, Sir, that the World Bank in its most recent update of the World Economic Outlook for 2012 has issued the chilling caution to developing countries in particular to wish for the best but prepare for the worst.
The report states in part Sir and I quote:
“The resurgence of tensions in the high-income world is a reminder that the after-effects of the 2008/09 crisis have not yet played themselves out fully. Although the resolution of tensions implicit in the baseline is still the most likely outcome, a sharp deterioration of conditions cannot be ruled out. While the precise nature of such a scenario is unknowable in advance, developing countries could be expected to take a large hit. Simulations suggest that their GDP could decline relative to baseline by more than four percent in some regions, with commodity prices, remittances, tourism, trade, Finance and international business confidence, all mechanisms by which the tribulations of the high-income world, would be transmitted to developing countries.”
It goes on, Sir, to proffer the following advice:
“A return to more neutral macroeconomic policies would help developing countries reduce their vulnerabilities to external shocks, by rebuilding …fiscal space, reducing short-term debt exposures and recreating the kinds of buffers that allowed them to react so resiliently to the 2008/09 crisis. Currently, developing country fiscal deficits are on average 2.5 percent of GDP higher than in 2007, and current account deficits 2.8 percent of GDP higher (while) short-term debt exceeds 50 percent of currency reserves in 11 developing countries.”
For us in the Caribbean, Barbados especially, the characteristic features directly associated with years of inflexible economic modeling, and cruelly exposed by a most virulent and deep rooted recession, have become a present day reality. A reality Sir, that we may want to wish away but one which will only be conquered by sensible neutral economic policy interventions that avoid extremities whether pro or counter-cyclical, and which focus on laying a platform for medium and long-term structural reform characterized by a well-balanced and diversified economy; A platform that prioritizes economic stability and growth, social advancement and security, and human, cultural and psychological development.
It is to these lofty but imminently achievable objectives that this Democratic Labour Party administration commits itself. It is against the backdrop of the uncertainty of the times in which we live and are forced to manage that I will today outline the third installment of this Government’s programme of policy interventions to protect, promote and procure the future of all Barbadians.
I do so Sir, humbled by the great opportunity given to me by my constituents of St. Michael North West, to serve at this the highest level. Moreover Mr. Speaker like my colleagues on this side I am infused with a sense of immense confidence that the path we have taken in dealing with our economic challenges is indeed the correct one based on the continued high level of strong support and understanding which the vast majority of average right-thinking Barbadians have quietly reposed in this administration over the past four years.
These are not the ones we see writing in the Daily Nation every week with a diet of doom and gloom and a constant repetitive harangue of this administration and its leader. We all know their politics and their political desires.
These are not even the regulars on the daily talk shows, the “masters of the game” and experts of the discipline of everything, tossing around the latest social and economic jargon to give credence to their submissions.
And they are definitely not drawn from the ranks of members of the Opposition, both of the first choir and the second strings whose unity is exhibited only in the hunger for office to waste another fourteen years as they squander opportunity after opportunity.
No Sir, it is regular folk in Deacons, and Black Rock, and Brittons Hill, in Six Roads and Oistins, or Wanstead and Pie Corner, and yes Sir in Parris Gap who, as you could attest, Sir have cautioned, encouraged, cajoled, demanded and flat out motivated us as a Government to do our best to keep this country stable and safe.
Those are the people that matter, the ones whose children will have to inherit the legacy of the decisions we take today in an even more challenged world tomorrow. It is to the welfare of these people that we feel a sense of solemn duty to protect the gains which this country has made since the introduction of self-Government in 1954, to promote a higher spirit of productivity and self worth in our citizens and through this to procure an even greater standard of living across this nation.
And Sir, it is to those people that I speak this evening hoping Sir that at the conclusion of my presentation they will be better informed of where we are at in our efforts to keep their economy stable, further educated as to the choices we have had to make in pursuit of those objectives and ultimately reassured that once we stay the course making wise and opposing wild decisions that we too shall emerge stronger for having gone through this experience.
Our remit as a people is not to curse our luck but to learn from the lessons of our experiences in handling economic and social dislocation. It is not to lament what we could have or should have done but to deal with the current reality that confronts us.
It is ultimately about the choices we make and responsibility we take for making them.
It was the choice of the last administration to squander the opportunities of the boom years and not restructure the Barbados economy thereby making it more diversified and resilient to economic shock. That was their choice. Today as a country we are living the fall-out from that lack of foresight, and we must face it and fix it.
It was the BLP’s choice to waste millions of tax payer dollars in a slew of poorly conceptualized and badly implemented projects such as nearly 300 million dollars in GEMS, 40 million on a dump that never opened, 400 million on a prison, more than 100 million on the infamous Barack building (with 70 million more still owing), 165 million on the ABC highway without even a contract in place, 125 million on the Judicial Centre, etc etc etc. It was even their choice Sir, to knock down the old Kensington Oval and build a new one at a cost of nearly 150 million dollars and enter into a 99 year lease with the Barbados Cricket Association that would cost the tax payers of Barbados 813 million dollars.
It was their choice not to spend those large sums on diversifying our source markets for tourism, or agriculture, or manufacturing or small business development; their choice not to restructure the sugar industry when the country could afford it and invest in alternative energy technologies to reduce our dependence on foreign oil.
It was their choice Sir, not ours, to hoard land into a land bank, waiting for the highest bidding developer to put his money on the table, rather than seeking to construct houses for ordinary Barbadians to live in, thus creating what can only be described as a massive housing crisis among the poor of this country.
And this Democratic Labour Party Government that in the worse recession has built more houses and provided homes in four years that they did in fourteen is being called a “do nothing Government”.
It was their choice Sir to sell a dream of Barbados becoming a second rate knock off version of Miami where the rich and famous played and life was built around consuming rather than producing; copying rather than innovating.
That Sir was their choice.
Our choice was not to inherit a recession. We would have loved to govern this country in a period of massive global economic expansion and prosperity where between 1994 and 2007, world output almost doubled, Finance capital grew nearly six fold, world trade grew faster than at any time in the post World War 2 period and foreign direct investment virtually tripled.
In that environment practically any Government bar the most wayward would have done well enough for itself and its citizens.
But that Mr. Speaker was not our fate. Indeed the stark reality today fellow Barbadians is that we are not living in those times anymore. The very premise upon which that version of the global economy was constructed has now collapsed. What’s more Mr. Speaker it is highly unlikely that it will ever be coming back, at least not in the short to medium term. The free and unbridled access to capital through poorly regulated and inappropriately secured credit to facilitate profit making and pleasure seeking is now at its end.
Unfortunately its devastating collapse has instituted a paradigm shift in the way in which the world economy and national economic spaces comport themselves. Put another way, the old ideas of economic management so slavishly clung to by myopic academic economists are no longer intimately relevant to the current day practicalities of socio-economic engineering.
Small wonder then Sir, that when in a famous encounter at the London School of Economics at the height of the financial crisis, Queen Elizabeth II asked a room full of economic experts why they never saw the crash coming and what’s their best advice to Governments to extricate themselves from it, a deafening silence rang out.
The most that anyone of these so-called experts could muster was that it really depends on what choices you make. And that Sir is the object lesson of Government and governance in recessionary times
The choices we make today if not conditioned by prudence and characterized by appropriateness to circumstance will not only act to wipe away the gains we have made but condemn the next generation to a future of backwardness. We cannot conspire to do that.
Given our state of affairs, our limited resources and fiscal space, our undiversified economy, our high dependence on the global economy and resultant vulnerabilities in many of these things we frankly have little or no choices to make. But when we do have the chance to exercise choice we must as a country do so wisely.
It wasn’t this Government’s choice was to inherit massive debt burden but we did, made worse by copious levels of ill-advised off budget spending which had to be brought to book. It wasn’t our choice to have tourists stop coming in their numbers, or to have financially wrecked or otherwise anxious investors pull back their money from our economy in massive amounts. It was not our choice to see off-shore business registrations decline or profits in the sector fall off because of the global recession.
And it certainly was not of our choosing to have consumers of our exports lose their jobs by the millions and have less of our goods and services purchased in foreign markets.
That Sir was not of our making but we had no choice to face it and face it we have.
Our goal Mr. Speaker in facing these invidious realities was to ensure we achieved three broad objectives:
To cushion Barbadian businesses and households from the mal effects of the worse recession the world has encountered.
To halt the economic decline in the shortest possible time, by stabilizing the economy.
To restore a growth trajectory in the fastest time possible, while beginning a process for structural reform of the economy to allow for a more resilient, faster growing economy.
Mr. Speaker I make bold to say that when one considers the magnitude of the problems we have faced, and the failure of so many economies around the world which have feared much worse than this country, that this Democratic Labour Party regime has done very well to keep the country stable and capable of fighting its challenges every day.
Yes Mr. Speaker we would like to boast of a GDP that is growing at a rate of over 3% per annum, and surely we are working to return to those days. But I ask the question who among us, either developing our developed economy, is growing at that rate.
Is it Trinidad with all of its oil and gas reserves and large manufacturing sector? I don’t think so. Maybe it is St. Lucia, whom they say is getting more tourists than Barbados every year? I don’t think so. Is it St. Vincent, Dominica, Belize, Antigua?
Or maybe it is the United States, the UK, perhaps France, Spain, Ireland?
The plain truth Mr. Speaker Sir is that among our closest trading partners and across the rest of the western liberalized economies economic recovery has been shallow at best and non-existent at worse.
Yes unemployment has risen to above 11 percent. But surely without the policies we adopted to hold the hands of businesses in the toughest part of the recession, and our commitment to retaining public service jobs it would have been terribly worse.
Yes, visitor arrivals hit rock bottom in 2009, but surely were it not for the efforts of this country’s Minister of Tourism and his officials we would not have seen the recovery in numbers in 2010 or 2011.
Yes the off-shore business and financial services sector took a bad beating from the financial collapse in 2008/2009, but surely were it not for our persistence in fighting to bring new business to Barbados we would not have seen a near 20% growth in new registrations in 2011.
Yes our fiscal deficit increased as we sought to protect the poor and vulnerable in the country but surely the spectre of having tens of thousands of public servants laid off from work and lining up at the welfare office waiting in the weekly dole as banks foreclosed on their homes and other creditors hustle them before the courts for non-payment of debt, would have been far more damaging to the economy of Barbados.
And so Sir, having taken the choice to hold the hands of Barbadians in October 2010 we equally ask the public to embrace their Government’s efforts to deal with our fiscal challenges.
Today, on behalf of the Government of Barbados I wish to publicly express our profound gratitude for the support and maturity which Barbadians have exhibited these past eighteen months.
So that Sir, in the context of what this country has had to face over the last four years, the debate in this country cannot be framed either by simplistic comparisons to what transpired between 1994 and 2007 or by the sterile discourse over austerity versus growth.
Permit me a moment to explain.
Daily we are inundated by members of the Opposition and their misguided supporters declaring how well Barbados did during their years in office. They speak continually about “the lowest unemployment in the history of Barbados” and highest levels of foreign reserves (2.8) billion, and how our economy grew by an average of 2.5 % over the course of their time in Government.
Then they simplistically say look, look at what the Dems did to Barbados, and find every possible negative piece of news to conjure up a feel of total destruction in Barbados. Indeed Sir, if one member of the Opposition was as good at fortune telling as he is at hyperbole Barbados would have disappeared off the map by now given his constant, four-year-long prediction of collapse.
But yet Sir we are still here. Garbage is still being collected, school children and still going to school, people are still shopping in supermarkets, businesses though under some stress are still functioning, we just installed a new Governor General and the Queen is still on the Throne. The country has not gone down the chute.
But yet we are to compare an economy operating in the most difficult of global and regional circumstances with an economy which operated when the world was booming. It is like comparing apples with oranges and lamenting the fact that neither tastes alike.
No Government of Barbados has had to face what this administration has had to in the past four years. And the measure of a Government is not how well it does when managing in prosperous times; it is how well it manages when times are tough.
Then the other amazing thing, picked up no doubt from the talk overseas, is this artificial debate about austerity versus growth. It is being put forward as though the two are two mutually exclusive types of economic interventions and one cannot take place if the other is to succeed. This is a dangerous piece of reasoning Sir which is being championed in Barbados by people who frankly should know better.
In most of Western Europe the choice has been for heavy fiscal austerity and that has driven many of those Eurozone economies into deep recession. In the United States the choice was to go for the big federal stimulus spending package matched by permanent tax cuts for the wealthiest Americans. It worked partially for one year and now has seemingly tapered off and decline has begun to step in again.
So that neither side of the policy prescription – overdose on austerity or intoxication from over-spending and tax cuts – has worked with any credible results.
Yet we in Barbados are supposed to get caught up in that the polemic. I strongly disagree. We know by practice and convention in Barbados that neither extreme austerity nor wasteful counter-cyclical spending is good for a small vulnerable economy such as ours.
Rather, our best results are always based on finding a correct balance between demand and supply management. When one or the other is too far out of line economic problems are bound to emerge.
In times of global economic downturn, and depending on its severity, we may be called upon to relax our hand somewhat to protect our businesses and households. Other times because of the impact of those choices we may have to exercise restraint through the imposition of difficult measures.
It is this latter approach of trying to find a balance between fiscal consolidation and strategic investments in traditional and non-traditional economic sectors that this Government has sought to engineer over the past eighteen months.
This evening Mr. Speaker I give the country a report card on what we have been able to achieve and the challenges we still face.
In doing this Sir I feel it is incumbent on me to share with the people of Barbados how we go about keeping our economy stable and the process which is engaged by the Government to achieve our overall objective as highlighted above.
As I indicated to this House in the Estimates Debate in March, it is now widely accepted Sir that the most critical variable for any small, open, and vulnerable economy is its foreign exchange variable. That is not to say Sir that other variables in the economy are not important but the country’s ability to earn foreign exchange to pay for its imports of goods and services and amortize its debts rank highest above all.
This importance is further amplified because of our policy of maintaining a fixed exchange rate peg. To this extent, in the absence of adequate levels of foreign exchange reserves to meet the demands for daily activities in the economy the value of the domestic currency cannot be defended by the Central Bank and inevitably will have to be devalued.
So that in that context Government’s most critical tasks are to ensure that:
1. Our capacity to earn foreign exchange is maintained and where possible enhanced and;
2. Ensure that our reserves management policy and tools are effective enough to maintain reserves adequacy especially for those periodic occasions when task number 1 is weakened or compromised.
That therefore Mr. Speaker is the fundamental bed rock policy, the central objective of this Government and any other Government of Barbados whether D or B. In the context of needing to have adequate stocks of foreign reserves our policy options at the fiscal level are particularly constrained, thereby limiting how far we can go with certain policies.
The Barbados economy is highly dependent on a few key sources of foreign exchange inflows: earnings made from the export of our goods and services such as tourism and manufacturing, taxes remitted to the Treasury from the operations of our international business and financial services sector companies, and private, and public investment flows for projects and other activities. From time to time we also go to the private capital markets to sure up our reserve position as necessary.
The earnings we garner from these activities are then used to help the country make its current payments and build up a surplus of reserves to underwrite our capacity to defend our domestic currency.
In the throes of a global economic recession, for a small open economy such as Barbados that is so highly dependent on the international economy for growth in the foreign exchange earning sectors, it is normal to expect that any slow down or contraction in our source markets will compromise our ability to earn foreign exchange.
As you have heard repeatedly Sir, this last recession and the resultant recessionary drag which it has produced hit our foreign exchange earning sectors particularly hard. What’s more, this downturn in the business cycle has lasted way longer and caused more damage that any of us would have expected.
Sir it is no mystery that our foreign exchange earnings have taken a major hit. Corporate receipts from the international business and financial services sectors are still below pre-crisis levels, and the tourism spend is down even though the numbers are up.
On top of that Sir, we have been called upon to expend more foreign exchange on fuel, now more than US $300 million per year and on commodities with our food import bill more than US $350 million a year. And the point must also be made here Sir, that our food import bill has jumped not only because we are importing more of what we eat, but because the prices at which we import have increased tremendously in the last four years.
That is why this administration has sought to pursue a set of policies to increase our competitiveness in the productive sectors, diversify our source markets and invest in alternative technologies that would help save foreign exchange.
But given the fact that most of these interventions would at best require some time before their fully begin to bear fruit, our administration has taken the only sensible decision it could take in the circumstances, that is to employ a strategic foreign reserves management policy to ensure that the country maintains an adequate stock of reserves to meet our current and future foreign exchange needs, defend our domestic currency peg and the value of the local currency and ensure stability in the financial system and overall economy.
In the absence of an effective interest rate tool, fiscal policy may be used to stabilise the economy by controlling aggregate demand. The balance of external payments and receipts is the best measure of the stability of an open economy like ours because of the very high import content of all production and consumption. This is so to the extent that any excess of aggregate demand over the supply of goods and services will immediately spill over into an additional demand for foreign exchange which, if it persists, will erode the reserves of foreign exchange at the Central Bank. This is precisely what we were trying to avoid occurring in this economy.
And since our foreign exchange earning prospects were being so severely challenged, in the short run adjustment policies had to be adopted to shore up the reserve management tools.
It is for this reason Mr. Speaker that we were so careful to design a set of policies as iterated in the MTFS and given expression to through the Financial Budgetary Proposals for 2010 and 2011, and the accompanying fiscal programmes as laid out in the Estimates of Revenue and Expenditure for the current financial year and the previous one.
That programme was and is not only correct but it is absolutely necessary to maintain stability in our economy. We surmised from our intensive analysis of domestic, regional and international trends that the resumption of normalcy in the global economy was not imminent and so it could not be business as usual.
We concluded that the best way to tackle Government’s deficit was through a mix of expenditure reductions and increases in tax rates, both resulting in a smaller deficit to be Financed and reduced aggregate spending in the economy.
Today I am happy to report to this House and to the country that not only is the programming working but it has largely brought stability to and economy operating in a highly unstable international environment.
We have been able make significant gains this past year in reducing our deficit; liquidity in the banking system remains strong; and our stock of foreign reserves have remained on average at around 1.4 billion dollars for the duration of this tough economic period.
ECONOMIC REPORT 2011-2012
INTERNATIONAL ENVIRONMENT OVERVIEW
Following a 5.3 per cent increase in world output in 2010, the prospects for full global recovery weakened somewhat at the end of 2011 as the global economy, according to the IMF World Economic Outlook (April 2012), expanded by 3.9 per cent. Earlier during the first half of 2011, the global economy progressed steadily even though this period witnessed weather-related reductions in crop production, as well as oil supply disruptions associated with the “Arab Spring” unrest in the Middle East.
However, by the third quarter, prospects for recovery abated as reflected in worsening fiscal conditions in Europe and the United States (US) which resulted in credit rating downgrades. Moreover, during the fourth quarter, risks sharply escalated as a result of intensifying strains in the Euro area and elevated downside risk. As such, there was a reduction in confidence, which triggered further fall-out in financial, labour and housing markets in advanced economies. What is more, growth in emerging and developing economies slowed, although this reduction in pace helped to temper inflationary pressures.
Given these developments, policymakers maintained explicitly accommodative monetary stances, aimed at boosting recovery, while intensifying efforts to address fiscal imbalances and make debt more sustainable. Fiscal policy received particular emphasis in advanced economies, given the challenges faced during the review period.
Due to continued global economic weakness job creation remained sluggish, particularly in Europe. However, in the United States where economic activity gained some strength during 2011, job growth was evident.
ADVANCED ECONOMIES
Within the Advanced Economies, Real GDP rose by an estimated 1.6 per cent in 2011 compared with an increase of 3.2 per cent a year earlier. In the U.S., economic activity rose by an estimated 1.7 per cent compared with an increase of 3.0 per cent at the end of 2010. That economy witnessed attempts to balance fiscal consolidation with support for an economic recovery during 2011. However, a slight improvement in consumer spending and business investment in the final quarter helped to sustain output growth.
In the United Kingdom, economic activity rose by a projected 0.7 per cent compared with an increase of 2.1 per cent in 2010. In Canada, growth was projected to have moderated, reflecting ongoing fiscal withdrawal and down-drafts from the U.S. slowdown. The unemployment rate, at 7.5 per cent, was well below that in the United States and has been declining steadily since early 2009. IMF projections were that output would rise by 2.5 per cent by the end of the review period.
Preliminary IMF estimates showed real GDP growth in Japan to have declined by 0.7 per cent compared with an increase of 4.4 per cent at the end of 2010. The slowdown from the earthquake was concentrated in the first half of 2011, as activity started to recover in the third quarter, with supply-side constraints having eased significantly and fiscal policy oriented towards support for reconstruction activities. In the Euro area, economic activity rose by 1.4 per cent compared with an increase of 1.9 per cent a year earlier. Major contributors to this growth were Germany (3.1 per cent), France (1.7 per cent) and Spain (0.7 per cent).
EMERGING AND DEVELOPING ECONOMIES
In the Emerging and Developing Economies, the emphasis was generally on macroeconomic policy tightening, given that many were combating domestic overheating and inflationary pressures. However, some tightening cycles were stopped and in some cases reversed, as these pressures subsided over the course of the review period in line with moderating growth rates. Within this region, Real GDP was estimated to have increased by 6.2 per cent in 2011 relative to 7.5 per cent a year earlier. Driven by domestic demand, economic growth in China and India was estimated to have risen by 9.2 per cent and 7.2 per cent respectively.
In the Latin America and the Caribbean, economic activity rose by 4.5 per cent compared with an increase of 6.2 per cent a year earlier. Major contributors to this growth were Mexico (4.0 per cent) and Brazil (2.7 per cent). During 2011, this region benefitted from strong terms of trade and easy financing conditions.
industrial production during March 2012. And in the Euro Zone, the grouping was able to avoid going back into recession as growth at the end of the first quarter 2012 remained flat, compared with a 0.3 per cent decline for the fourth quarter 2011. This outcome was due to strong performance by the Global Economic Developments for 2012.
The latest analysis of global economic developments, both from the IMF and the EU, suggest that the global economy should improve during 2012 despite a marked slowdown in Europe and still cautious recovery in other industrialized nations. According to IMF projections, world output should expand by 3.5 per cent, with advanced economies growing by 1.4 per cent and emerging and developing economies by 5.7 per cent, mainly on account of China and India.
Results for the first three months of 2012 showed the performances of the major industrial economies to have been moderate yet encouraging. In the United States real GDP increased at an annual rate of 2.2 per cent in the first quarter of 2012 even though this was down from 3.0 per cent in the previous quarter. In Japan first quarter growth stood at 1.1 per cent given a bounce back in German economy.
Alternatively, economic activity in the United Kingdom continued to be subdued as real GDP again declined by 0.2 per cent at the end of the first quarter owing to a contraction in construction activity. In the emerging markets, real GDP in China decelerated to 8.1 per cent in the first quarter of 2012 as external conditions remained weak.
REGIONAL PRESEPCTIVE
While Caribbean countries economies gained some momentum during 2011, most of them continued to struggle as the negative effects of on-going developments in Europe and other developed markets slowed the economic recovery process. This was particularly so for those service- or tourism-based economies, such as Barbados and the Bahamas, who are dependent on travellers from these advanced economies. Alternatively, high commodity prices strengthened the growth of those commodity-based countries in the region, particularly Guyana. Overall, economic growth within the region averaged 1.7 per cent, an improvement from the 0.2 per cent recorded for the same period in 2010. However, this growth still lagged behind pre-crisis levels.
As a result of the challenges which the region faced during 2011, most countries reported low or negative growth. Countries registering negative growth included: Antigua and Barbuda (-3.2 per cent) and Trinidad and Tobago (-1.4 per cent). St. Kitts and Nevis, St. Vincent and the Grenadines, Jamaica and Barbados recorded growth rates under 1.0 per cent. The five (5) countries posting growth, ranging from 1.0 per cent to 3.0 per cent were – Anguilla, The Bahamas, Dominica, Grenada, and St. Lucia. While commodity producers Guyana (4.5 per cent), and Belize (3.1 per cent), recorded growth rates above 3.0 per cent.
The growth outlook for the region remains tied to what will happen in the global economy. The best projections are for most countries to grow modestly between 1.0 to 2.5 per cent. This will hinge on the recovery in regional tourism which continues to face challenges from the Air Passenger Duty. It is also not expected that foreign direct investments will pick-up significantly, given the continued uncertainty in the global financial markets. Also, with limited fiscal space and the need for fiscal consolidation, the countries of region will continue to face challenges to their development.
DOMESTIC ECONOMIC REVIEW
Annual Review 2011
At the end of 2011, growth in the Barbados economy, as measured by the change in real GDP, stood at a revised 0.5 per cent compared with 0.2 per cent in 2010. Provisional data also showed that Gross Domestic Product at market prices increased by 1.6 per cent, a significant improvement from the 3.4 per cent decline in 2010.
The overall increase in real GDP growth was led mainly by an improved performance in the non-traded sector. This sector grew by 1.2 per cent in 2011, following a 0.4 per cent increase a year earlier. This growth was attributed to improved activity in the construction sub-sector which rose by 4.4 per cent.
In relation to the traded sector, overall activity declined by 2.5 per cent in 2011. This was attributed to weak performances in all the sub-sectors including tourism which fell by 0.2 per cent due mainly to a 6.9 per cent decline in cruise arrivals even though long-stay arrivals would have expanded by 6.7 per cent.
In the International Business sector the number of licenses issued during 2011 totalled 616 as compared with 515 at the end of 2010, representing a 19.6 per cent increase in overall new company formation. There were 508 new International Business Companies (IBCs) licensed during the year compared with 420 in 2010, an increase of 21.0 per cent.
The pass-through effect of rising oil and commodity prices led to the inflation rate increasing during 2011, moving from 5.8 per cent at the end of 2010 to 9.4 per cent at the end of 2011. On account of the weak economic recovery, the unemployment rate remained unacceptably high at 11.2 per cent compared with 10.7 per cent at the end of 2010.
At the end of 2011, the balance on the external current account was estimated to be in deficit of 8.6 per cent of GDP. This was due a noticeable increase in imports by 15.0 per cent, mainly on account of a 27.4 per cent increase in fuel imports.
Fiscal Outturn 2011/2012
Current Revenue
Information received from the Accountant General indicates that current revenue for the period April 1st to March 31st, 2012 was $2,513.0 million, an increase of $211.6 million or 9.2 per cent from the amount recorded for the corresponding period during 2010-2011. The actual revenue for April to March 2012 was $22.9 million below the original projection for the period.
Taxes on incomes and profits realized $776.3 million, an amount of $33.1 million or 4.5 per cent more than collected for 2010-2011 and $23.5 million less than the original April to March’s projection for this financial year. The amount of withholding tax collected during the period under review was $66.1 million, an amount of $12.6 million more than the corresponding period in 2010-2011. Taxes on property increased by $0.7 million over the corresponding period in 2010-2011 to $150.8 million. The amount collected was $24.1 million less than the original projection for the period under review.
Taxes on goods and services increased by $179.0 million or 17.0 per cent to $1,232.1 million. The original projection was $1152.7 million for the period April to March 2012. Receipts of VAT totalled $949.6 million, an increase of $184.9 million. The original projection was $823.9 million. Excise Duties recorded $170.2 million, an increase of $24.2 million from the actual outturn for 2010-2011 and $4.4 million less than the original projection.
Import duties increased by $4.4 million to $195.7 million. This represented an increase of 2.3 per cent from the amount collected in 2010-2011. Special Receipts decreased by $2.6 million to $51.2 million while Non-Tax Revenue decreased by $13.4 million over the corresponding period of 2010-2011 to $81.0 million.
Expenditure
Current expenditure, exclusive of amortization of $454.6 million, decreased by $103.0 million or 3.5 per cent over the 2010-2011 figure to $2,819.0 million.
Wages and Salaries increased, due to emoluments, by $7.4 million from $798.5 million in the corresponding period for 2010-2011 to $805.9 million. Expenditure on goods and services increased by $17.9 million to $396.4 million, while expenditure on current transfers decreased, moving from $1,174.0 million in 2010-2011 to $1,017.3 million for the period April to March 2012.
Total debt payments in the period April 2011 to March 2012 amounted to $981.9 million with interest payments of $527.3 million and amortization payments of $454.6 million. Interest payments increased by $26.9 million whereas amortisation decreased by $366.4 million from the corresponding period in 2010-2011. Capital expenditure for the period under review was $91.9 million compared to $108.3 million for the corresponding period in 2010-2011.
Total expenditure for April 2011 to March 2012 was $3,356.5 million compared to $3,842.5 million in the corresponding period of 2010-2011, a decrease of $486.0 million.
Current Balance
The current balance for the period ending March 2012 was negative $751.6 million. By comparison, the current balance for the period ending March 2011 was negative $1,432.7 million.
Fiscal Balance
At the end of the review period ending March 2012, the fiscal balance was in deficit to the amount of $388.9 million. This represented a deficit of 4.5 per cent of GDP at market prices of $8,626.0 million or approximately $8.6 billion. The deficit for the corresponding period in 2010-2011 was $720.0 million, which represented 8.8 per cent of GDP at market prices of $8,208.2 million or approximately $8.2 billion.
The First Quarter Review 2012
The Barbados economy remained stable during the first quarter 2012. Real output increased by an estimated 1.5 percent, stimulated in part by a 2.4 percent growth in tourist arrivals. The economy recorded a balance of external receipts and payments in the first quarter of the year, and the Central Bank’s foreign exchange reserves increased by $3.8 million.
Net long-term capital inflows for the private sector were sufficient to cover external debt service, including $37.0 million in amortisation and $50.0 million in interest payments on foreign bonds and loans from international institutions. However, the current account of the balance of payments continues to be adversely affected by persistent increases in the prices of oil and commodities, and the deficit for the first quarter is estimated at 3.8% of GDP.
