COVID has Created Severe Economic Challenges for Barbados… But Some Indicators Remain Positive

Central Bank of Barbados Governor Cleviston Haynes, revealed during his half year review that Barbados recorded a double-digit decline in economic activity for the first six months of 2020.

“The virtual cessation of activity in the tourism sector, combined with curfews and temporary business closures, deepened the initial contraction that was realised during the first three months of the year. Preliminary data now suggests that economic output fell by 27 percent in the second quarter, resulting in an overall decline of almost 15 percent over the first six months of 2020.”

The slowdown in the economy resulted in significant job losses, with more than 33,000 unemployment claims and a total pay-out of over $70 million being recorded by the National Insurance Scheme between late March and the end of June. More than 30 percent of those claims were by people directly employed in the tourism sector, which saw long-stay arrivals decline by approximately 54 percent and cruise arrivals down by 34 percent, but layoffs were not limited to that sector. Retail (also known as the distribution sector), construction, and real estate, and other  industries have also seen layoffs, underscoring how significantly tourism activity impacts other areas of the economy.

During his review of the economy, Haynes also disclosed  that Barbados’ debt to GDP ratio increased in the first half of the year, moving from 120 percent at the end of 2019, to an end of June figure of 124.7 percent. This as Barbados has set itself a target of lowering that ratio to 60 percent of GDP by the end of fiscal year 2033/2034. Haynes however indicated that the island is still on track to meet that target.

Despite COVID-19's severe impact on Barbados' economy, Haynes noted during his review that some economic indicators remain positive, including two that are key to Barbados’ agreement with the International Monetary Fund (IMF).

Even with a combined decrease in revenue and increase in expenditure, Government was still able to earn more than it spent, resulting in a fiscal surplus of 0.5 percent of GDP, and critically, a primary surplus – the difference between what Government earns and what it spends, not including interest payments on debt – of 1.7 percent of GDP, or $151.5 million. The primary balance is not only a key provision of Barbados' Extended Fund Facility (EFF) with the IMF, but also an indication that it has the ability – fiscal space – to pay down its debt.

A second positive takeaway from the Central Bank’s review is the continuing improvement in the level of international reserves, which now stand at $2.02 billion, the equivalent of almost 27 weeks of imports. This $536 million increase is due to both funds received from multilateral organisations, and from local earnings:

"This growth was largely attributable to borrowings from the Inter-American Development Bank (IDB) and the IMF, including through an augmentation of the IMF Extended Fund Facility to provide budgetary support for Government during the financial year. Tax revenue that was sourced in foreign exchange and continued net purchases from the banking system also contributed to the reserve accumulation."

Consistent with the challenges currently facing Barbados’ economy, Haynes ended the press conference on a serious note, but one that offered both a glimmer of hope and a call to action:

“The global economic shock created by this pandemic has made it difficult for us and our regional neighbours over the past few months. The continued uncertainties present a challenging period ahead. But in Barbados, we do so with sound economic fundamentals developed over the past two years… The combined efforts of all stakeholders, including government, the financial and non-financial private sector, civil society and labour will be crucial. We must therefore work together to adjust to the new environment and achieve our goals.

“Yes, it will test our resilience but I believe that we are up to the task.”