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| Barbados's Fiscal Deficit Slips Due To Crisis: Report |
by Phillip Morton, Investors Offshore.com
Wednesday, January 20, 2010
The Barbados Central Bank has released a report on the effects of the financial
crisis on the Barbadian economy during the 2008-09 period, that has showed that the dramatic fall in the economy's productivity, cumulatively 10% of gross domestic product over the period, has had a significant impact on the territory's fiscal position.
“As was to be expected in a country that is highly dependent on tourism,
the performance of the Barbadian economy in 2009 was worse than in 2008, by
most indicators. The impact of the economic and financial crisis in industrialized
countries showed up in a contraction of real output, a reduction of foreign
exchange inflows and an increase in unemployment,” the report observed.
“In addition, the fiscal deficit widened because of a decline in tax
revenue, and the government borrowed both locally and in Trinidad and Tobago
to finance the widening gap. However, the deficit on the current account of
the balance of payments narrowed as a result of the fall in oil prices, which
reduced import payments substantially.”
For 2009, the Central Bank reports that due to the contraction in economic
activity, government revenue was about 10% (or BBD548.5m (USD274m)) less than
the initial forecasts, and coupled with increased government spending, the deficit
drifted by 2.5% more than projections.
The Central Bank has noted, however, that unless there is increased borrowing,
the state deficit will be sustainable or will decrease in 2010. While the Central Bank is optimistic of conditions in 2010, it has warned that "projections for the Barbadian economy in 2010 are clouded by uncertainty
about the pace and robustness of the recovery in the North American and European
markets on which Barbados’ tourism and international financial and business
sectors depend.”
To this end, the Central Bank's report urges the government to consider implementing retrenchment
or tax hikes to reduce the fiscal deficit and to ensure that debt remains sustainable. It has observed, however, that making significant headway on the deficit will
be difficult, as tax revenues remain depressed, alongside a projected, less severe, contraction in the economy in 2010.
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