Economy declines by 19.8% and debt levels now 153% of GDP

Barbados is now in full recession, as the economy registers its fourth straight quarter of double-digit decline.

A recession is generally defined by two successive quarters of falling economic activity and shrinkage of its gross domestic product (GDP). The just-ended March quarter witnessed a staggering near 20 per cent fall in economic activity.

In giving an update on the country’s economic performance, Governor of the Central Bank of Barbados, Cleviston Haynes said the picture is gloomy, particularly in the area of tourism, where most hotels remain closed. He reported that occupancy levels plunged to a mere 22 per cent, a direct result of the COVID-19 pandemic.

After making great strides in reducing public debt prior to the onset of the COVID-19 pandemic, the governor revealed that, at the end of March, the island’s outstanding debt was $12.92 billion compared to $12.38 billion at the end of the last financial year. This puts it at 153 per cent of GDP.

But even as Haynes predicted possibly a one to three per cent growth rate in the economy this year, he reminded Barbadians that the situation remains extremely fluid, and much will depend on resurgence in tourism, recovery of international air travel and a robust COVID-19 vaccination process in the country’s key source markets for visitors.

Modest economic recovery expected this year

According to the Central Bank governor, “the bank anticipates that following the sharp decline in economic activity last year, the Barbados economy will make a modest recovery… . The eventual outturn for 2021 will be influenced in large measure by the country’s ability to contain domestic spread of the virus and by the timing and pace of resumption of the activity in the tourism sector”.

In his first economic review for the year, Haynes disclosed that, “tourist arrivals plummeted on account of the unfavourable environment for travel. The weakened tourism sector, together with fallout in other economic activities, and depressed private spending contributed to a 19.8 per cent collapse in economic output”.

Tourism output plunged by an estimated 96 per cent. However, the mild upturn in visitors registered in the fourth quarter of 2020 was reversed with arrivals for the quarter [January to March 2021] being half of those for December [2020] alone.

At the same time, the Barbados Central Bank governor offered hope for tourism’s improvement as “pent up travel demand supports the outlook for the eventual post-COVID recovery”.

Unemployment remains “elevated” at 13.6 per cent.

Slow recovery in employment numbers

The governor observed that some of the thousands of tourism workers who lost their jobs were re-employed as a result of Government’s BEST programme. The Barbados Employment and Sustainability Transformation (BEST) programme, which facilitates re-engagement of tourism workers, property renovation and development, led to some 2,100 workers returning to the industry.

However, about 6,000 workers across various sectors applied for jobless benefits from the National Insurance Scheme (NIS). The country’s international reserves, on which Government is depending to help prop up the economy during the economic shock, declined by $86 million during the January to March quarter, though it still stands at $2.6 billion or 43 weeks of import cover.

According to Haynes, “government suffered a revenue loss of $416 million or five per cent of GDP for the financial year 2020-2021, largely the result of the impact of COVID and discreet policy changes”.

TRANSACTION-BASED TAXES ESPECIALLY HARD HIT

He explained that transaction-based taxes that included the value-added tax (VAT), “were especially hard-hit, declining by $498 million”.

VAT accounted for more than half of that loss.

Even in the pandemic, though, the state was able to increase its tax collection on incomes and investments, which jumped by $119 million. Thanks largely to the international business sector, there was a near doubling of corporation taxes which rose sharply by $304 million.

COVID-19 has been a severe damper on almost every aspect of economic life on the island and caused Government to spend $166 million to manage the health and economic crisis.