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Financial News

Jan 2006 Financial News

Barbados' 2005 economic performance to be reviewed

Jan 31, 2006

DR. Marion Williams, the Governor of the Central Bank of Barbados, will be meeting the press this morning to review the economy for 2005.

She is expected to discuss a wide range of issues as they relate to the performance of the economy. These will include a detailed analysis of the economic sectors, the overall level of price increases in 2005, Government revenue and expenditure position, and the economic outlook for the remainder of 2006.

In his budget on January 16, Prime Minister Owen Arthur reported that the economy expanded by over four per cent. This growth rate is higher than the original projections made in early 2005.

All sectors with the exception of tourism registered growth. The sector where activity continues to be robust but also where caution is being urged, is construction which expanded 17 per cent, the highest in recent years. This is on top of four or five per cent growth in 2004.

Some commentators have warned that the high import content associated with construction, could create problems for the economy at a time when the country is hard-pressed to earn foreign exchange.

Construction is one of those areas dubbed "the foreign exchange-using sector" in the economy. Imported inputs include equipment, machinery, fittings, tools, steel, and conduits.

In 2004, the last full year for which figures are available, imported construction material totalled $187.5 million. The preparation for Cricket World Cup 2007, private sector projects along the West Coast, Government programmes and house building, are the activities fuelling the upsurge in construction. Construction activity has also been driving improvements in other sectors, notably wholesale and retail registered expansion in 2005.

A worrying sign for the economy is the tourism sector, which in 2005 did not maintain the strong growth that was evident in 2004.

Long-stay arrivals between January and October, the Prime Minister said, fell to 425 933 (from 534 136). Cruise traffic was also down by as much as 20 per cent and overall value added in tourism slipped 4.2 per cent last year.

This means in effect that once the fall off in the numbers continued into November and December, tourism receipts will be down on the 2004 figure of $1.5 billion. Dr. Williams is also expected to zero in on the price level in 2005.

During the last year, Barbadians were confronted with some very high prices because of the rising international price of oil and the three per cent cess which the Prime Minister introduced from September last year to reduce consumption on imports. These have had some impact on economic sectors as well.

This brings into focus the defensive measures which Government has instituted to curb the growing demand for imports and to control the loss of international reserves. In his recent budget the Prime Minister raised the cess to six per cent, although he noted that the increase will not apply to those food items which are zero rated under the VAT Act, nor baby napkins nor special foods for diabetics and special healthcare articles for the elderly.

Related to this is the growing national debt, debt repayment schedule for 2006 and whether Barbados is likely to return to the international market for a foreign loan.

At two recent budget seminars, some participants cautioned Government about its excessive spending and foreign borrowing which they say will push the debt to GDP ratio at intolerably high levels.

The performance of the net international reserves in 2005, as well as the assessment of the defensive measures instituted last year to curb the growth in imports, could also be addressed by the Governor.

Recently, Central Bank of Barbados information reported that during the month of November, the NIR declined to $969.1 million.

However, Arthur said that the NIR are projected to be $1.2 billion for 2005, compared to $1.1 billion for the same period in 2004.

"This represents 23.4 weeks of imports still well above the three months equivalence regarded as that required for safety purposes," he said in Parliament.

Towards the end of last year, Barbados concluded a foreign loan to assist with the preparation of Cricket World Cup 2007. This, along with some inflows from exports, helped to push the reserves beyond the November 2005 amount.

Jewel Brathwaite
Tuesday, 31st January, 2006
The Barbados Advocate
http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=24238