IDB Working Paper
Presentation from the Central Bank of Barbados
Since the onset of the global crisis in 2009, the Barbados economy has struggled to achieve growth, with a contraction of 1.2 per cent in 2013, after remaining flat with 0.0 per cent growth in 2012. This trend was sustained into the first quarter of 2014, when the economy further declined by 0.4 per cent. Underlying this enduring sluggishness is the continued underperformance of the tourism sector, the country’s main economic driver, with both long stay and cruise passenger arrivals falling by 1 per cent for the first quarter of 2014 compared to the same period in 2013. Significantly, overall tourist arrivals fell in spite of increases from its traditional source markets, the United Kingdom (8 per cent), and other European destinations (14 per cent), as arrivals from the United States and Canada fell by 8 per cent and 10 per cent, respectively.
Slow growth also resulted in an increased fiscal deficit from 7.3 per cent of GDP in 2012 to 11.3 per cent of GDP by the end of March 2014, as total revenue fell over the period. This led the Government to expand its fiscal consolidation measures over the short to medium term. While government expenditure remained largely unchanged at 41 per cent of GDP between 2012 and 2013, gross government debt to GDP increased from 85.7 per cent to 97.9 per cent.
Although there was a slight decline in imports, a sharper decline in exports resulted in a widening of the current account deficit between 2012 and 2013. Low tourism receipts along with a sharp decline in private capital inflows also placed pressures on international reserves, but this was eased by an injection of capital from additional borrowing.
The prevailing economic conditions were reflected in the trend in domestic inflation, which fell to 1.8 per cent from 4.5 per cent between 2012 and 2013. The unemployment rate also increased to 11.7 per cent as the Government’s retrenchment programme took effect.
Given the recent negative growth, the Government adopted a new growth and development strategy in order to stimulate a sustained economic recovery. Short to medium term challenges will continue to be the high fiscal deficit and a large public debt. The country has however shown maturity as it begins this economic adjustment, with all social partners fully committing to the process. Growth is expected to be 0.5 per cent for 2014, with a possible improvement to 2.0 per cent in 2015. (Economic Survey of the Caribbean 2014)