The economy has recorded a robust 4.5 per cent real growth in the first half of 2024, with a $300 million year-on-year increase in total production and record employment levels, the Central Bank of Barbados announced on Monday.
Presenting the bank’s six-month economic review during a press conference at its Spry Street headquarters, governor Dr Kevin Greenidge attributed economic expansion primarily to “strong” growth in tourism, describing it as “one of the strongest we have ever had” outside the pandemic period.
“This was the largest first-half tourism performance that we have on record. The sector grew by 18 per cent. All markets performed strongly,” Dr Greenidge stated. He highlighted significant increases across various markets, with the US market showing the largest growth of 45 per cent, rising from 82 000 to 120 000 tourists.
The economic growth has had positive ripple effects across various sectors. Construction grew by 7.1 per cent, benefiting from increased hotel activity and public sector projects. Manufacturing showed positive growth, with increases in food and beverage, furniture, and chemicals production. Agriculture recorded a 5.4 per cent growth, driven by chicken and fish production.
The labour market also benefited from the economic upturn, with the unemployment rate falling to 6.9 per cent in March 2024, down from 8.9 per cent in March 2023. Greenidge noted this as “the lowest first-quarter unemployment rate” in recent history, only surpassed by the 2007 performance.
Inflation has moderated, with the 12-month average rate at 2.7 per cent, down from 4.2 per cent the previous year. This was attributed to easing international commodity prices, including global energy and food prices.
The country’s foreign reserves rose by $245.4 million year to date, reaching $3.2 billion, representing 32.2 weeks of import cover. Greenidge credited this boost to tourism receipts, which amounted to a net addition of $447 million.
On the fiscal front, the government recorded a primary surplus of $509 million and an overall surplus of just over $300 million, or 3.5 per cent of GDP. The debt-to-GDP ratio declined to 105 per cent, reflecting both economic growth and a reduction in the debt stock.
Looking ahead, Dr Greenidge projected four per cent growth for the full year, citing strong hotel forward bookings, increased airlift capacity, and robust cruise ship performance. However, he cautioned about potential risks, including a possible pickup in energy prices and geopolitical conflicts.
“All in all, the outlook remains pretty balanced both with upside and downside risks,” the central bank governor said.
But the central bank’s optimistic outlook for the economy comes with several caveats and areas of ongoing focus.
Dr Greenidge expects inflation to settle between 3 per cent and 3.5 per cent by year-end, but warned of potential risks. These include a possible increase in energy prices due to OPEC’s recent move to constrain supply, ongoing geopolitical conflicts, shipping congestion in the Panama Canal, and the ever-present threat of natural disasters in the Caribbean region.
Despite these challenges, the debt-to-GDP ratio is projected to reach approximately 100 per cent by the end of the year, aligning with the government’s target of 60 per cent by 2035.
“The fiscal position in terms of the primary balances is consistent with the trajectory as we target 60 per cent by 2035,” Greenidge said.
Tourism, while showing impressive growth overall, displayed some variability across markets. The CARICOM market saw a 20 per cent increase, from 35 000 to 42 000 tourists. The Canadian market also grew by 20 per cent. But the UK market remained relatively flat at 137 000 visitors, which Dr Greenidge attributed to factors such as sporting events in Europe and elections, causing travellers to stay closer to home. Despite this, he noted that the UK market is still 14 per cent higher than pre-pandemic levels and remains one of the largest sources of tourists for Barbados.
The governor also highlighted the positive performance of the commercial banking system, with non-performing loans decreasing to 4.3 per cent, one of the lowest rates on record. Financial institutions remain “quite healthy,” with capital adequacy ratios well above requirements.
Government arrears continue to decrease, with state-owned enterprises (SOEs) owing $42 million and Central Government arrears standing at $229 million. Greenidge reported that debt service amounted to $327 million for the period, down from $509 million previously.
The economic review also touched on demographic shifts, noting an increase of approximately 4 000 retired people leaving the labour force. This trend could have implications for future workforce dynamics and social services, the central bank governor suggested.
The central bank’s economic review also shed light on several other important aspects of Barbados’ economic performance and future prospects.
Dr Greenidge insisted on the broad-based nature of the nation’s economic growth: “That growth, we felt, is permeated throughout all of the economy and all the other economic variables reflect that.”
The governor highlighted the performance of the business and services sector, which grew by 5 per cent. This growth reflected improvements in tourism services, insurance services, and other related industries, underscoring the diversification of the Barbadian economy beyond its traditional strengths.
In terms of government finances, Dr Greenidge reported that corporation tax rose by $192 million, and there was also an increase in property tax revenue. He noted that expenditure was well contained, with non-interest spending remaining at about the same level as the previous year. However, interest expenses increased slightly, reflecting the elevated interest rate environment, especially on foreign debt.
The governor also touched on the government’s financing strategies, mentioning the use of treasury bill proceeds and sales of BOSS (Barbados Optional Savings Scheme) bonds. These instruments have played a role in managing the country’s debt and financing needs.
Despite the overall positive outlook, Dr Greenidge pointed out some challenges in the agricultural sector. While overall growth was strong, there was a fall-off in some food crops due to adverse weather conditions. This highlights the ongoing vulnerability of the agricultural sector to environmental factors and the need for resilience measures.
The central bank’s report also indicated that dining and entertainment services prices remain high, contributing to the overall inflation rate. This suggests that while international commodity prices have eased, some domestic inflationary pressures persist.
Greenidge expressed confidence in tourism’s continued growth, citing increased airlift capacity and strong cruise ship performance as positive factors. He however stressed the importance of monitoring global economic conditions and their potential impact on Barbados’ economy.
The governor’s presentation painted a picture of an economy that has made significant strides in its recovery and growth, but one that also faces ongoing challenges and potential risks. He suggested that the government’s continued focus on fiscal discipline, coupled with efforts to boost key sectors and manage debt, appears to be yielding positive results.
Dr Greenidge noted the impact of major events on visitor numbers. The ICC Men’s T20 Cricket World Cup was cited as a significant factor contributing to the 45 per cent increase in US visitors. This highlights the importance of hosting international events as a strategy for boosting tourism and the wider economy.
The governor also addressed the performance of the manufacturing sector: “Manufacturing showed a positive growth where we had increases generally across the sector. Food and beverage up, furniture up, chemicals up.” This broad-based growth in manufacturing suggests a strengthening of the country’s productive capacity beyond services and tourism.
Regarding inflation, Dr Greenidge provided a nuanced view of the factors at play. While the overall trend is towards moderation, he noted that “adverse weather conditions affecting agricultural output and local prices in terms of some foods indices remain elevated.” This underscores the complex interplay between global commodity prices, local production, and weather patterns in determining inflation rates.
The report also touched on the global business sector, mentioning an increase in net transfers representing “net corporation receipts from that sector.” This suggests that Barbados continues to benefit from its position as an offshore financial centre, despite global pressures on such jurisdictions.
Dr Greenidge’s presentation included a comparison of current economic indicators with historical benchmarks. He noted that the average unemployment rate over the last decade has been around 10 per cent, making the current 6.9 per cent rate particularly notable.
The governor also addressed the country’s progress on debt management. “The savings on the primary surplus more than offset the financing needs, which are basically for amortisation and interest payments and the extra primary savings went to also pay down on the Central Government’s facility at the central bank.”
Looking ahead, Dr Greenidge’s outlook for the debt-to-GDP ratio was cautiously optimistic. “We expect to finish this with our debt-to-GDP ratio at or around 100 per cent, even under depending on how strong the economy grows. The fiscal position in terms of the primary balances is consistent with the trajectory as we target 60 per cent by 2035. All in all, the outlook remains pretty balanced both with upside and downside risks,” the central bank chief predicted.
(emmanueljoseph@barbadostoday.bb)
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