BRIDGETOWN, Barbados – The Central Bank of Barbados (CBB) Wednesday said while the local economy exhibited significant resilience over the last two years, the outlook for 2024 and into the medium term appears cautiously optimistic.
In its Review of the Barbados Economic Performance, January to December 2023, the CBB said that despite facing global and local headwinds, the Barbados economy sustained its growth trajectory, driven by the robust performance of the tourism sector.
“Amidst challenges such as elevated foreign interest rates, geopolitical tensions, and local climatic events affecting agricultural output and local prices, the Barbadian economy demonstrated resilience and continued its upward growth path in 2023,” said CBB Governor, Dr. Kevin Greenidge.
He said anchored by thriving tourism, the economy registered an estimated growth of 4.4 per cent and that “this robust expansion not only bolstered transaction-based tax revenues but also contributed significantly to reducing the debt-to-gross domestic product (GDP) ratio, narrowing the external current account deficit, and enhancing the profitability of the financial sector.
“The expectations are that GDP will expand further, by about four per cent in 2024 and into the medium term, predicated on continuous investments by both the public and private sectors,” the CBB said, adding that as Barbados charts it course for 2024, a return to pre-pandemic level tourist arrivals by the end of the year is anticipated.
“Early forward bookings signal renewed interest from travellers in visiting Barbados while continuous growth in seating capacity represents the airlines’ growing confidence and willingness to meet the demand for travel to the destination,” said CBB Governor
He said that the hosting of International Cricket Council (ICC) World Cup matches as well as intensified marketing strategies should also garner significant interest in the destination during the summer months.
“Increased visitor demand for local goods and services should contribute to broader economic growth through the associated activity in wholesale and retail, transportation, construction, and other ancillary sectors.”
The CBB said that the Barbados Economic Recovery and Transformation 2022 (BERT 2022) Plan focuses on amplifying investment to ensure sustainable economic growth over the medium term.
It said that the BERT 2022 Plan aims to achieve a public investment to GDP ratio of five per cent and double private sector investment to15 per cent of GDP, estimated at BDS$1.9 billion (One Barbados dollar=US$0.50 cents) annually over the medium term – the next four to five years.
The CBB said that foreign direct investment (FDI) also needs to pick up to over one billion dollars.
“Focusing on key areas such as tourism, infrastructure, and the energy sector, the BERT 2022 Plan not only aims to boost productivity and modernise the economy but also seeks to reinforce vital interconnections across various sectors. This approach ensures inclusive benefits for all communities and sectors in Barbados.”
Greenidge said it is important to note that the growth outlook remains uncertain and is subject to several risks. He said a projected global economic slowdown and potential geopolitical conflicts are downside risks to the 2024 forecast.
According to the October 2023 International Monetary Fund (IMF) World Economic Outlook, a global economic slowdown is anticipated in 2024, driven by monetary policy tightening in advanced economies and conflicts in the Middle East and Europe, which will impact international travel demand.
“To adapt, Barbados’ tourism industry must focus on offering unique and enriching experiences that go beyond the conventional beach holiday, showcasing the island’s rich culture, natural beauty, and varied attractions,” the Governor said.
He said the willingness to embrace the emerging sharing economy reflects the industry’s commitment to diversifying tourism options.
“By remaining agile, adapting to changing trends, and encouraging collaboration, Barbados’ tourism sector is set to not only recover but also flourish as a top global performer. Over the medium term, the main risks to the forecast are failure to increase investment, particularly private and FDI investments, and to complete the reforms of the State-OwnedEnterprises (SOEs) in the interest of greater efficiency in the allocation of public funds and better service delivery.”
The CBB said that domestic inflation is projected to recede in the medium term, in accordance with falling international commodity prices.
The 12-month moving average inflation rate is expected to moderate to between 3.5 and four per cent by the end of 2024, supported by declining energy prices. However, medium-term inflation forecasts face potential risks from international events such as the ongoing Russia-Ukraine War, escalating conflicts in the Red Sea region, and continued congestion in the Panama Canal.
Moreover, the frequency and severity of adverse weather conditions at home could lead to food shortages and escalate food price inflation. Conversely, the new trade agreements with countries like Suriname and Guyana could help reduce food price inflation over the medium term, the CBB noted.
It said robust growth in tourism and strategic investments are set to bolster Barbados’ international reserves and stabilise its economy against global market fluctuations.
“The country’s international reserves position is expected to be fortified by the projected growth in tourism activity, on-going funding support from international financial institutions and foreign investment flows for tourism related projects.
“In addition, increased foreign exchange savings are expected in the medium term with the continued push to increase the stock and use of renewable energy products as well as to expand the country’s domestic food production capacity. These ongoing developments will aid in cushioning the volatility of international food and fuel prices,” the CBB said.
Greenidge said fiscal discipline and strategic reforms have led to a primary surplus, underpinning the government’s financial stability and future efficiency gains.
He said despite the lower-than-anticipated revenue outturn in the first nine months of the financial year 2023/24, government has maintained fiscal discipline and achieved the end December 2023 primary balance target of BDS$378 million, which bodes well for meeting the primary balance target of BDS$446 million at the end of March 2024.
The state-owned enterprises (SOEs) reform programme, including the restructuring of the Barbados Agricultural Management Co Ltd (BAMC), the amalgamation of the Rural and Urban Development Corporations, and the reform of the National Housing Corporation, is a major step towards achieving medium-term efficiency gains, according to the CBB.
“Furthermore, reforms in the corporation tax structure, aimed at meeting OECD Inclusive Framework Globe Rules, are expected to yield a net tax positive position in the medium term,” it noted, adding that “these gains will support the government’s implementation of vital capital investment programmes while adhering to its primary balance targets that ensure debt sustainability”.
The CBB said despite higher foreign interest rates, the debt-to-GDP ratio is sustainable and on course to meet the 2035/36 financial year target.
“The revival of the domestic securities market alongside external borrowing will assist in meeting the government’s financing needs,” Greenidge said, noting however, despite the increase in debt over the period, the expansion in economic activity and sustained primary surpluses should pave the way for achieving the 60 per cent debt target by the 2035/36 financial year.
The central bank said that maintaining adequate capital buffers and excess liquidity will buttress the soundness of the financial system.
“The anticipated increase in economic activity is expected to further dampen the level of non-performing loans (NPLs) and boost credit demand, which will support both household expenditures and business investments.
“In turn, these developments are likely to generate increased profitability and lower provision expenses in the banking sector, thereby strengthening the adequacy of capital buffers. Although it is likely that the deposit growth will continue to slow as ongoing economic activity will spur demand for imported goods and services, liquidity levels are expected to remain stable.”
Greenidge said that to secure Barbados’ economic prosperity, a united and proactive approach is essential in harnessing growth opportunities and navigating future challenges.
“As Barbados strides towards a brighter economic future, the call to action is clear. Stakeholders, both public and private, must seize the opportunities presented by the BERT 2022 Plan, focusing on sustainable investments in tourism, infrastructure, and energy.
“The private sector, in particular, should capitalise on the potential for growth and innovation, especially in light of the emerging global challenges. It is imperative that we collectively embrace change, encourage investments, and support reforms to ensure a resilient and thriving Barbadian economy for the years ahead,” the CBB Governor added.