||Central Bank Of Barbados
As we reflect on the impact of the dislocation, the re-emergence of lockdowns and travel bans and the tightening of quarantining requirements for travellers, it is clear that the prospects for a strong partial recovery in 2021 for Barbados have been dampened. The IMF, in its most recent forecast, has raised slightly its global growth forecast for 2021. However, although vaccines that can slow the spread of the virus and facilitate a gradual return to more normal levels of global economic activity are now available, the rollout across markets needs to accelerate so as to create conditions for the return to a growth-oriented adjustment path for a tourism dependent economy like Barbados.
The economic environment remains fluid and there is the risk that on-going uncertainty will diminish the confidence of travellers, continue to dampen other domestic activity and cause unemployment to remain elevated. The Bank has not yet taken into account any potential effects of the recently announced planned domestic shutdown, but it has revised downwards its growth forecast from the range of 7 to 10 percent to below 5 percent. The forecast is sensitive to the demand for tourism and, given the uncertainty and the omni-present downside risks in this environment, the Bank stands ready to review and revise its forecast as events unfold.
Economic policy will continue to adapt to the economic circumstances. The front-loaded accumulation of reserves in 2020 will allow Barbados to continue to meet its external obligations on time. However, the unfavourable impact of weak economic activity on revenues and the likely need for Government to continue to address the health and socio-economic issues generated by the pandemic will force government to keep its fiscal targets, including for the primary balance and debt, under constant review.
Acceleration of Government’s capital works programme is critical for generating activity now but also for putting in place the infrastructure to secure growth over the medium term. Equally important at this time will be the support for small tourism related businesses as it is critical that we have a sector, comprising businesses and employees, that is able to respond nimbly as conditions improve.
The interest rate environment is expected to stay low in the midst of the high level of excess liquidity. Financial institutions will need to continue to work with their clients on a case by case basis, including providing new funding, where appropriate, to minimise the risk of default and help borrowers to navigate these difficult circumstances.
As we move forward, we have to reduce our economic vulnerabilities. I cannot but reiterate the importance of the potential contribution of alternative energy to our long-term competitiveness and net foreign exchange earnings. However, central to further reducing our vulnerabilities will be how we adapt our use of technology in everyday life. The innovation and entrepreneurial spirit emerging out of the pandemic demonstrated the resilience of our citizens during difficult times. However, to facilitate the growth of business, whether small or large, we must progress our digital efforts including in banking, payments, tax collections, records management and education.
Let us use this period to ramp up our focus, not only to help us navigate this period, but also to prepare us to be more competitive in the new environment.