The Barbados ship of state continued to weather the economic storm in the first quarter of the year, with no signal that the winds buffeting her sails were likely to lessen in the short term.

However, with hatches battened down and the captain strictly conserving rations, it appears that the Ship Barbados will be able to stay afloat for the medium term, with all hands on deck hoping that the raging waters around them will grow calmer as time goes on.

That in a nutshell, appears to be the message offered by the Central Bank of Barbados in its first quarter review of the economy, published yesterday.

Tomorrow, Central Bank Governor Dr. Delisle Worrell will hold his second quarterly press conference on the economy at the bank’s Church Village headquarters, at 11 a.m.

The main reason why the economy is not worse off than it was in the closing months of 2009, suggested the bank, was that government had managed to cut its spending by nearly a quarter (-23%) when compared to the same period last year, balancing a similar fall off in revenues (-22.8%).

Total revenue for Q1 this year was estimated at close to $670 million compared to projected revenue for Q1 last year of just over $840 million.

Similarly, current expenditure by government was estimated to be about $790 million in Q1 compared to just over $1,044 million for the same period last year.

Overall, the government’s fiscal deficit of $132 million ($670m-$790m) was paid for by the taking on of new debt in the form of loans and issuing bonds and treasury bills, the latter being oversubscribed by the public, the NIS and commercial banks, allowing the Central Bank to reduce its lending to government by $86 million, the bank said.

On the positive side, Barbados’ tourism held its own in the first quarter of 2010, and the country’s foreign exchange reserves held steady, “if we set aside capital inflows and debt servicing,” the bank said.

GDP for the period declined by less than one percent, and unemployment was estimated to have remained around 10 percent, while inflation was estimated to be running at about 3 percent.

Long-stay tourist arrivals rose by only about 2 percent in January and February compared with the same period last year, as arrivals from the UK, Barbados’ largest tourism market, were down. Hotels having to discount prices to remain competitive had an adverse effect on tourist spending, so tourism receipts were “insufficient to provide the usual first-quarter surge in foreign exchange reserves,” the bank said. 

In other promising news, the bank said that net private capital inflows totaled $17.5 million, a turnaround from the same period last year, when there was a net outflow of $21 million.

However, in its outlook for the coming months, the bank warned that, “The prospects for a revival of demand in tourism, international business and financial services, and exports of manufactures and agriculture have not come any closer.”

The reason was that although Barbados’ major industrial trading partners (Britain, the United States Canada and Europe) were now reporting real growth, “ the spillover to increased demand for Barbados’ output is not yet evident.” 

As a result, the “financial constraints” on both government and the private sector remained very tight, said the bank, adding that until demand for Barbados’ exports and services picked up, “there is no good alternative to the current strategy of modest external borrowing, judicious help for the foreign exchange sectors and continuing measures to protect the most vulnerable.” •