BRIDGETOWN, Barbados (CMC) – Barbados’ economy expanded by 4.4 per cent in the first nine months of this year, the largest nine month expansion since 2006, excluding the pandemic recovery period, the Central Bank of Barbados (CBB) reported on Friday.

In its Review of the Barbados Economic Performance January to September 2023, the CBB said this performance also accounts for the 10th consecutive quarter of economic growth.

“Broad-based growth boosted tax collections, improved labour market conditions, reduced the debt-to-GDP ratio, narrowed the trade deficit, increased foreign reserve levels, and improved credit quality as well as bank profitability,” the central bank said.

Central bank Governor, Dr Kevin Greenidge, told reporters that the consistent economic expansion over the past 10 quarters demonstrates that Barbados is on a sustainable growth path.

He said after increasing by 13.8 per cent in 2022, economic growth is projected to moderate to around 4.5 per cent in 2023 which still surpasses pre-pandemic levels.

“The upcoming winter season, bolstered by events and improved air access, is expected to be very good for tourism, although high ticket prices could pose a challenge. The increase in tourism will spill over to other sectors, including distributive trade and transportation. Major construction projects slated for late 2023 will also contribute to the economy’s expansion and employment generation.”

The CBB said that forward bookings and increased seating capacity also bode well for the winter tourism season.

It said the English cricket tour of the West Indies and the opening of the new Sam Lord’s Castle (Wyndham branded resort) Hotel are expected to boost demand for the destination in the upcoming winter season.

Increased airlift into the island should bolster arrivals with the opening of a direct link to the Cayman Islands permitting more access from the United States. Airline ticket prices, however, are well above pre-pandemic levels and remain one of the downside risks to the full recovery in visitor numbers.

The CBB said that inflation is expected to moderate in the medium term in line with recent international commodity price declines. Domestic inflation should fall to five per cent or below by the end of the year given price declines in cereals, vegetable oils and dairy products.

However, the contribution of crude oil prices to the slowing inflation rate for the remainder of the calendar year may not be maintained due to global oil production cuts by members of the Organization of Petroleum Exporting Countries and others (OPEC+) grouping.

Greenidge warned that among the downside risks to the economic outlook include a possible slowing of growth for Barbados’ key trading partners and rising food and commodity prices. He said while the recent World Economic Outlook projects minimal risks to global growth from the China slowdown, a deeper-than-anticipated slowing in the Chinese economy could have significant spillovers to other advanced economies and by extension the Barbados economy via reduced capital and tourism flows.

“Similarly, heightened global geopolitical tensions, including an intensified Russia/Ukraine war and the Israeli–Palestinian conflict along with weather-related shocks, could lead to higher inflation stemming from rising international food and commodity prices.”.

Greendige said more frequent and intense local weather events could dampen domestic food production and exacerbate inflationary pressures.

“Additionally, if global monetary authorities tighten interest rates in response to rising commodity prices, this action could weaken of global economic growth prospects. On the upside, lower air travel costs could strengthen tourism performance, further accelerating growth. An acceleration of the both the level and pace of investment, particularly by the private sector will lead to faster and more sustainable growth.”

The CBB said that Barbados is well poised to maintain a strong external position over the medium-term. It said continued improvement in the tourism sector will narrow the current account deficit. Foreign investment, particularly related to tourism, will also improve the financial account balance.

“However, imports are anticipated to increase given the continued growth in economic activity, thereby placing downward pressure on the current account balance and the accumulation of international reserves.:

The CBB said the transition towards a fossil-free economy holds the key to supporting a strong build-up of international reserves over the longer term.

“Yet, absent any significant savings from renewable energy investment, gross international reserves are still expected to remain well above the internationally accepted benchmark of 12 weeks of imports of goods and services.”

The Central Bank said that the Mia Mottley government is on track to meeting its financial year 2023/24 primary balance target.

According to the CBB, the sustained growth performance bodes well for anticipated revenues for this fiscal year. It said current efforts to modernise the tax administration system and reduce outstanding tax liabilities are expected to contribute to improved revenue collection. “Concurrently, government’s continued commitment to restrain expenditure within budgeted allocations signals a favourable end of year fiscal position. Efficiency gains from state owned enterprise (SOE) reforms, continued improvements in the tax compliance monitoring systems, and enhancements in the tax exemptions framework will be pivotal in boosting the fiscal performance in the medium-term.”

In its report, the CBB said that tourism activity continued to spur Barbados’ economic expansion during the first three quarters of 2023. It said intensified marketing campaigns in key source markets, increased airlift, sporting events, and a full return to Crop-Over festivities fuelled the continued recovery in the tourism sector. The growth in the tourism industry boosted construction and other non-traded activities. Overall, non-traded sectors contributed just over half of real gross domestic product (GDP) growth.

The Central Bank said that the island’s external position strengthened during the review period, adding that the current account deficit narrowed by BDS$156.1 million (One Barbados dollar=US$0.50 cents) relative to the comparable period of the previous year, resulting in a deficit of BDS$805.9 million.

It said an upswing in tourism receipts and a decline in the value of imports led to this outturn. The external position also benefited from increased policy-based loan inflows. Consequently, the gross international reserves expanded by BDS$88 million to reach BDS$2.9 billion, equivalent to 30.3 weeks of imports of goods and services.

The CBB also said that the government achieved its primary surplus target set under the Barbados Economic Recovery and Transformation (BERT) 2022 International Monetary Fund (IMF)-supported programme.

It said that the continued improvement in economic activity coupled with the timely transfer of taxes levied on external transactions contributed to this outcome.

“However, a shift in the timing of taxes on profits and properties offset some of the revenue gains. Higher interest costs, transfers to SOEs as well as increased wages and salaries pushed up spending.

“These developments led to government recording a primary surplus of BDS$274.9 million (2.1 per cent of GDP), with a target of BDS$218 million, and an overall fiscal deficit of $61.1 million (or -0.5 per cent of GDP,” the CBB said.

It said that the debt-to-GDP ratio declined further over the review period. The ratio fell to 115.4 per cent on account of increased economic activity. The debt stock expanded by approximately BDS$187.7 million, primarily reflective of inflows from multilateral institutions for budgetary and developmental purposes, along with the private sector’s uptake of Government securities, the CBB added.