Higher output of goods and services in the first six months of 2023 permeated the economy, bolstering other related economic fundamentals. Economic activity expanded by 3.9 percent, representing the ninth consecutive quarter of economic expansion. This growth resulted in fiscal surpluses, improved employment, reduced debt-to-GDP ratio, a narrowing gap between the value of exports and imports, and record foreign reserve levels. The increased economic activity also fed into the financial services sector, improving credit quality, as well as boosting assets and profits.
Barbados’ economy continued to grow during the first half of 2023. Real GDP increased by 3.9 percent between January and June 2023 when compared to the corresponding period of 2022. A strong winter tourist season and broad-based increases in the non-traded economic sectors fuelled the growth. The spill-overs from tourism and robust construction activity enabled the non-traded sectors to contribute two-thirds of overall real GDP growth.
Long-stay tourist arrivals outpaced 2022’s performance. A number of factors drove tourism growth, including persistent demand for travel, especially from the island’s main source markets, improvements in airlift, and increased cruise activity. The United Kingdom (UK) market has recovered beyond pre-pandemic levels, while the other markets are close to pre-pandemic levels and continue to exhibit strong growth.
Gross international reserves remained high mainly due to the tourism rebound. In addition, borrowing from multilateral institutions and a decrease in the value of imports aided in reserve accumulation. As international commodity and fuel prices continued to ease, the rise in import prices during the first six months of the year moderated, leading to an overall improvement in the merchandise trade balance.
Domestic factors kept inflation elevated despite falling international prices for fuel and other commodities. Improved economic conditions pushed up domestic demand for restaurants and recreational services leading to price increases in those categories. In addition, heavy rains followed by drought hampered agricultural production, increasing some domestic food crop prices. These factors outweighed the relief from falling import prices.
Government recorded a primary surplus for the first quarter of FY 2023/24 (April-June). Government revenues benefitted from the buoyant economy, and higher excise and fuel tax receipts from imported fuels. However, a rise in Government interest expenses, public sector labour costs and transfers to state-owned enterprises (SOEs) partially offset revenue collections.
The debt-to-GDP ratio, at 117.5 percent, is now back to its pre-pandemic level. This ratio has continually declined since July 2021, in line with the expanding economy. Though the debt stock was higher at end-June 2023 than at end-December 2022, primarily due to policy loans from international financial institutions, the continuous expansion in economic activity drove down the ratio.
Capital, credit quality and liquidity levels increased at deposit-taking institutions (DTIs), but credit growth remained weak. The sector’scapital levels increased during the first half of the year, with capital adequacy ratios above their respective prudential requirements. Non-performing loans declined, reflecting increased clearance of arrears consistent with the improved labour market conditions and an expanding economy. The liquid asset ratio increased on the strength of deposit growth, leading to a slight decline in interest rates.
