Outlook for the Barbados Economy in 2022

Barbados’ economic outlook for 2022 will be heavily influenced by its continued vulnerability to external shocks. The International Monetary Fund is forecasting an increase in global economic activity of 4.4 percent, but the strength of the recovery in tourism-dependent economies like Barbados will be affected by the ability of countries across the globe to control the spread of the pandemic that has caused our economy to operate well below its potential over the past two years.

The outlook for the tourism sector looks more favourable now than it did a year ago, with the increased availability of vaccines and the reopening of economies to international travel and business activity. However, there still exist significant downside risks to travel occasioned by the potential for the emergence of newer strains of the virus and the reversion by major source markets to the re-imposition of travel restrictions.

Given the more favourable outlook, the Bank anticipates that the improvement in economic activity witnessed over the last nine months will accelerate in 2022. This should be driven in part by the continued revival of the tourism sector. All indicators are for a strong, though partial, recovery in the first quarter, aided by the favourable impact of the influx of visitors for the English cricket tours, the expansion of airlift into the country and the positive benefits of enhancements to the tourism plant.

In addition, the Bank is encouraged that some of the delayed medium to large-scale tourism development projects will get underway in 2022. The timing of the commencement of these investments along with the ongoing upgrades by Government to the infrastructure, including for road works and housing, and other small-scale private sector investments should provide a further boost to the revival in economic activity. Positive spill-overs are expected for other sectors, creating the impetus for new jobs. Over the medium-term, some of these investments are anticipated to open new markets, enabling sustained economic growth.

The severe disruption of global supply chains has impacted the international manufacturing, transportation and logistics sectors. Freighting costs have eased off the highs of late last year but prices appear likely to remain elevated, at least for the first half of the year. Oil prices which averaged US$68 per barrel in 2021 are forecast to average US$71 this year[1], but this forecast could be revised upwards as the world economy recovers. Sharp price increases together with further disruptions to the supply chains could have a negative impact on the pace of recovery.

Forecasting growth in this environment where there is uncertainty associated with the pace of the recovery in the tourism sector, the availability and cost of international goods, and the inherent uncertainty in the execution of large-scale capital projects remains a fraught exercise. The Bank has developed multiple scenarios for growth but is optimistic that, absent the re-imposition of travel restrictions, or the deepening of the supply chain disruption, or significant geopolitical shocks, there is potential for a robust recovery leading to double-digit growth in 2022.

Undeterred by the challenges of the current climate, the Government has indicated its commitment to strengthening the fiscal position while fostering sustainable economic activity through meaningful structural reforms, including improving the business environment. The primary balance for FY2021/22 was modified to accommodate the increased expenditure necessary to support the health sector effects to fight the spread of COVID-19 and to assist with damage following two natural disasters.

However, as the recovery gathers momentum, Government expects to generate primary surpluses based on rising revenue and the phase out of the extraordinary pandemic-related expenditures. The resumption of these surpluses will contain Government’s borrowing requirements and enable a return to a reduction in the stock of debt as new borrowings fall below debt repayments.

Government remains committed to the fiscal discipline needed for the sustainability of its debt over the medium term. The adoption of fiscal rules designed to place the debt ratio on a sustainable path is critical to this commitment. We need to build on the fact that the credit rating has remained stable during this crisis and progress towards the planned trajectory of 60 percent will enhance the country’s credit rating over the medium term, restore confidence and facilitate access to private capital markets.

The reserve buffers that we have accumulated over the past three years will be central to the growth of the economy over the medium term. Government’s capital works programme will assist in meeting the immediate challenge of a resumption of growth and the restoration of jobs. However, stimulating private sector activity, including through the planned investment programme and the acceleration of implementation of the renewable energy programme, is crucial for sustainable growth. In this regard, we welcome the focus on infrastructure as this has the potential to enhance the delivery of public services and contribute to diversification, innovation and productivity within the economy.

[1] U.S Energy Infromation Administration. Short Term  Energy Outlook.https://www.eia.gov/outlooks/steo/