1. Press Release
September 2013
Overview
The fiscal adjustment package passed
recently by Government provides a
platform for the restoration of economic
growth through incentives and business
facilitation for the foreign exchange
sectors, and through investment in
infrastructure that will further strengthen
the quality of Barbados' tourism products.
These measures include a reduction in the
VAT for tourism services, additional
financing for small and medium-sized
hotels, support for two major hotel
investments (Almond Resorts and Silver
Sands Hotel), and promoting the Cruise
Pier and Pierhead Marina projects.
The budgetary tightening is intended to
improve the external accounts in the
coming months, as economic agents adjust
their expenditures downwards. In the
interim, the foreign exchange reserves
declined to $1 billion, a fall of $447 million
since December 2012. However, reserve
levels were adequate to cover contingencies
such as this and the foreign reserve cover
was 13 weeks of imports as at the end of
September.
The main contributing factor to the foreign
exchange weakness has been the decline in
private foreign investment, from $473
million at September 2012 to $147 million
at September this year (see Appendix Table
3). In addition, there were declines in
foreign earnings from tourism, other
services, sugar, beverages and chemicals.
Retained imports rose by 8 percent,
primarily the result of increases in the
imports of consumer and some capital
goods.
Figure 2 – Capital and Financial Account
(January-September)
BDS$M
1000
800
600
400
200
0
-200
-400
-600
2005
24.2
26.0
2,000
16.8
16.0
16.4
18.4
19.5
17.7
2009
2010
2011
2012
2013
Net Long-term Private Flows
Capital and Financial A/C Balance
%
15
21.1
20.9
2008
Figure 3 – Inflation Rate
(2009-2013)
BDS$M
24.3
2007
Real economic activity fell by an estimated
0.7 percent, reflecting the decreases in
output of both the traded and non-traded
sectors. Inflation was 2.1 percent at end
July and the average unemployment rate
was estimated to be 11.1 percent for the
first half of the year.
Figure 1 - International Reserves
(2002-2013)
2,500
2006
Net Long-term Public Flows
Short-term Flows
Real Estate Flows
18.4
16.4
15.4
10
13.3
1,500
5
500
0
0
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
July
Sep
Nov
Jan
Mar
May
July
Sep
Nov
Jan
Mar
May
July
1,000
-
2009
International Reserves (Quarterly)
International Reserves
Weeks of Imports of Goods and Services
2010
Food
Transport
Moving Average
2011
2012
2013
Housing
Other
1
2. Tourism value-added is estimated to have
declined by 2.1 percent, with long-stay
arrivals down 6.2 percent, partly offset by
an approximate increase of 2 percent in the
average length of stay. There were declines
in visitor numbers from all major source
markets, the UK, the US, Canada and the
Caribbean. However, cruise passenger
arrivals were up 12.3 percent to the end of
September.
Figure 4 - Arrivals By Major Source Markets
(January to September)
MAJOR MARKETS
2012
U.S.A
101,298
Canada
54,152
U.K
126,602
Germany
5,759
Other Europe
19,872
Trinidad & Tobago
30,753
Other CARICOM
46,242
Other
20,405
TOTAL LONG-STAY
405,083
TOTAL CRUISE
356,705
PASSENGERS
TOTAL CRUISE SHIP
245
CALLS
Source: Barbados Statistical Service
91,532
50,311
123,333
6,828
21,787
25,436
43,045
17,593
379,865
Actual
Change
-9,766
-3,841
-3,269
1,069
1,915
-5,317
-3,197
-2,812
-25,218
%
CHG
-9.6
-7.1
-2.6
18.6
9.6
-17.3
-6.9
-13.8
-6.2
400,569
43,864
12.3
259
14
5.7
2013 (p)
At the end of September, the total number
of active entities in the international
business and financial services (IBFS)
sector was estimated to be 3,990. During
this period, new registrations totaled 334,
on par with the corresponding figure for the
same nine-month period last year.
Output of energy generated from
alternative sources is gathering momentum,
with approximately 4 megawatts of
electricity currently being generated by
solar power, double last year’s level. This
level of energy output represents an
estimated $3 million in foreign exchange
savings so far this year.
The main expenditure reductions were in
grants to individuals ($13 million) and
grants to public corporations ($12 million).
The net public sector debt-to-GDP ratio
was 62 percent at end-September. Against
the gross debt of $8.9 billion, the public
sector holds financial assets of $3.5 billion,
including $1.5 billion of deposits with the
Central Bank and commercial banks,
sinking funds and cash; $0.3 billion of
external assets of the NIS, and $1.8 billion
of foreign reserves and other foreign assets
(see Table 5 of the Appendix.)
An assessment of the financial system over
the first six months of this year, revealed
the sector to be generally stable, with wellcapitalised institutions. Liquidity continued
to be high, and entities were generally
profitable, though with lower profit
margins. While credit quality declined
further at banks, credit unions and nonbank financial institutions experienced no
increase in their non-performing loans. For
banks, the deterioration was mainly in the
personal mortgage and real estate
portfolios. Assets of insurance companies
continued to expand gradually, even though
both life and general insurance premiums
have been falling. In June 2013, the
Judicial Manager presented his final
recommendations to the Barbados High
Court in respect of a resolution of the
CLICO insolvency.
Figure 5 – Bank Profitability and Capital Adequacy
(2005-2013)
%
25
$ Mil
200
With the fiscal measures announced in the
Budget not yet in effect, third quarter
government revenues continued to be
weak. Revenues are estimated to have been
$140 million lower than for the April-toSeptember period of 2012. Corporation tax
receipts were down $59 million, and
collections of VAT and personal income
taxes each fell by $35 million. Expenditure
was reduced, but by only $23 million, and
the fiscal deficit widened by $117 million.
20
150
15
100
10
50
5
0
0
2005
2006
Annual
2007
2008
2009
Jan-Jun
2010
2011
2012 Jun-13
Capital Adequacy (RHS)
2
3. The Outlook
targeted marketing,
infrastructure.
and
upgrades
of
The Central Bank forecasts that the impact
of the fiscal contraction will depress
consumer demand for imports next year
below this year's level. Current forecasts
also indicate a moderate increase in foreign
exchange earnings, based on the planned
intensification of marketing, product
enrichment, fiscal incentives and other
government support. These measures
include the Port Ferdinand marina, joint
public-private sector marketing of IBFS
products and services in Latin America,
and the reduction of the VAT on tourism
services.
On the basis of market intelligence on
investment projects in the tourism sector,
most with a major foreign financing
component, Central Bank forecasts
increased inflows of foreign direct
investment (FDI). The combination of the
anticipated increase in earnings from
tourism, increased FDI, and the dampening
of imports, is expected to result in a
recovery of the foreign exchange reserves
in 2014.
The construction sector is expected to
recover in 2014, as new tourism-related
projects, a cruise pier and other government
infrastructure get underway. Modest real
output increases are also forecast for
tourism. On the other hand, the government
sector is expected to decline. Overall,
growth of less than one percent is
forecasted for next year.
The growth rate of economic activity is
expected to pick up in 2015 and beyond, as
major projects come fully on stream, and
initiatives
to
boost
international
competitiveness begin to bear fruit. These
initiatives include increases in labour
productivity, improvements in service
quality, hotel upgrades, development of
cultural, sporting and health services
related to tourism, market diversification,
3