It said that the growth prospect may also be hinged upon the international economic and financial climate improving.
According to the Central Bank, the tourism sector remains competitive because the country is known internationally as a high quality destination.
But it warned that in order to maintain a competitive edge in tourism, the industry must attain and maintain international standards at all times.
It said that new investment in luxury accommodation and amenities such as the Four Seasons, Lime Grove and Port Ferdinand strengthens Barbados’ international competitiveness and that further investment is needed in refurbishment and upgrades of hotels and tourism facilities, including the cultural and historical legacy of the country.
The Central bank said that completing the upgrade of financial regulation and the extension of Barbados’ network of Double Taxation Agreements (DTAs) are key actions being used to spur new growth in international business and financial services.
“The prospects for agriculture and agro-industry depend on the development of an integrated strategy which includes a range of traditional and new products, and focuses on products and linkages, which have high value added in Barbados.”
It said that Inter-American Development Bank (IDB) financed programmes for alternative energy use are another important source of potential growth and foreign exchange savings.
But the Central Bank said that the growth prospects for this year are tempered by the unsettled international climate, but the medium term growth prospects are encouraging, once the international economy settles down.
“The growth rate in 2012 may be one per cent or less, unless the international economic and financial climate improves. Construction of tourism facilities and Government’s housing initiatives are expected to be the main drivers. In the medium term, growth rates of two to three per cent are possible, provided the strategies mentioned earlier are successfully implemented.”
The Central bank said that the economy remains stable, and foreign exchange inflows are expected to cover imports and other foreign payments, as in 2011.
“The foreign reserve cover is expected to remain about 18 weeks of imports. The key to maintaining macroeconomic stability will be strict adherence to the targets of the medium term fiscal strategy,” it added.
According to the Central Bank, foreign exchange spending of BDS$5.5 billion (US$2.75 billion) was financed almost entirely from tourist inflows, earnings from the International Business and Financial Services (IBFS) sector, exports and capital inflows.
“As a result there was a minimal need to draw on the Central Bank’s foreign exchange reserves, which fell by only one per cent between the end of 2010 and December 2011. The Barbados currency remains well protected, with foreign reserve cover of 18 weeks of imports at December 2011, comfortably above the international norm of 12 weeks.”
The Central Bank said that the fiscal deficit has been reduced from 7.4 to 4.8 per cent of gross domestic product (GDP) for April to December, in line with the revised targets of government’s Medium Term Fiscal Strategy (MTFS).
The MTFS sets out policies designed to achieve a balanced budget by 2016/2017, and the Central Bank said that thefiscal strategy is sustainable, as evidenced by several factors including the cost of servicing the external debt which will absorb less than 10 per cent of foreign exchange earnings for the remainder of this decade and there is no need to refinance a major borrowing on the international financial markets until 2021.
The Central Bank noted that despite a significant improvement of seven per cent in long-stay arrivals, tourism output grew by only 0.3 per cent, primarily as a result of the 5.6 per cent decline in average length-of-stay between 2010 and 2011.
It said that the United States and the United Kingdom markets rose by 5.5 and 4.4 per cent respectively, while the Canadian market contracted by 0.5 per cent, an improved performance given the three per cent decline during the first half of the year.
It said that more affordable air travel, with the advent of the low-cost airline Redjet, boosted arrivals from the Caribbean Community (CARICOM) region, with the performance of the Trinidad and Tobago market being particularly noteworthy, registering a 35 per cent increase.
The Central Bank said that the non-traded sector grew by 1.2 per cent, led by expansions in construction, business and other services, as well as transportation, storage and communications. Output contracted in manufacturing, sugar and non-sugar agriculture. In contrast, the number of licensed IBFS companies increased by approximately 3.8 per cent.
It said that the uptrend in domestic inflation was in part driven by international fuel and food prices, especially for rice and corn which increased by around eight and three per cent respectively.
Unemployment continued to rise during the year, with the rate increasing from an average of 10.8 per cent for the first three quarters of 2010 to an average of 11.5 per cent for the same period of 2011. Industry estimates from the Barbados Statistical Service indicate that job losses were registered mainly in manufacturing, as well as finance and professional services. Unemployment claims have increased steadily, as has the average period of job searches for persons seeking employment, the Central Bank said.