An International Monetary Fund (IMF) team led by Judith Gold, visited
Barbados during November 7-21 to conduct the 2017 Article IV Consultation
discussions. At the conclusion of the visit, Ms. Gold issued the following
statement:
“Continued strong growth in long-stay tourism has supported Barbados’
economic growth, but the fiscal tightening is contributing to a slowdown.
Following last year’s improved performance of 1.6 percent, real growth is
projected to slow to 0.9 percent for the year, reflecting ongoing fiscal
consolidation efforts. Long-stay tourist arrivals continue to expand at a
healthy pace. Inflation is projected to rise by year end to 5.5 percent,
from 3.6 percent at end-2016. While credit growth remains subdued,
financial soundness indicators suggest a relatively healthy banking sector.
“Although the current account balance is improving, net international
reserves (NIR) have fallen further. The current account deficit narrowed to
4.4 percent of GDP in 2016, and it is expected to narrow further in 2017,
as non-oil imports fall in response to the May 2017 budget measures.
However, NIR continue to decline as government debt service exceeds new
funding, and private foreign inflows remain weak. At end-September, NIR
stood at B$550 million.
“Fiscal performance in FY2016/17 improved but the deficit remains large.
The fiscal deficit declined more than anticipated in FY2016/17 to 5.5
percent of GDP reflecting improvement in revenue performance, including
one-off factors and lower current expenditure. Central government debt
increased to 137.1 percent of GDP, up from 134.7 percent in FY2015/16 and
99.4 percent of GDP in FY2011/12. Excluding NIS holdings, central
government debt was 101 percent of GDP in FY2016/17.
“With the growing financing challenges and falling reserves, the government
introduced an ambitious budget on May 30, 2017 aimed at significantly
reducing the fiscal deficit and shoring up international reserves. However,
exemptions to the NSRL, lower-than-expected non-oil imports, shortfalls in
some other revenues, and high transfers indicate that the government is
likely to fall short of its target. Staff estimate that the deficit will
decline to 4.1 percent in FY2017/18 without divestment proceeds. The larger
than expected fiscal deficit is increasing funding challenges. While the
central bank significantly reduced its funding of the government in the
first half of FY2017/18, the commercial banks’ reserve requirements for
holding government securities have been increased.
“Substantial further fiscal effort is needed to decisively place the debt
on a downward trajectory. Given the urgency in addressing funding, balance
of payment risks, the high debt, and the limited policy options, the fiscal
adjustment must continue, with a focus on accelerating SOEs’ reforms to
facilitate a significant and durable reduction in transfers. Staff
recommend that the government seeks to increase the primary surplus from
the 4.4 percent of GDP expected in FY2018/19 to 7.5 percent of GDP by
FY2020/21, corresponding to an overall budget close to balance. The sizable
fiscal adjustment would put the debt-to-GDP ratio on a clear downward path
toward debt sustainability.
“The adjustment strategy should focus on addressing the high transfers,
containing other current expenditures and maintaining a strong revenue
effort. Reforms of state owned enterprises should include improved
management, cost recovery, reduced services, mergers, closures, and
privatization. Containing other current expenditures including the wage
bill and government pensions is also critical. Tax policy should be
reviewed with a view to broadening the tax base and improving its
progressivity, while efforts to strengthen tax administration must
continue. Further, arrears to the private sector should be cleared, and
remaining current should be a government priority. A concentrated effort to
improve implementation capacity, including by providing clear direction and
clarifying expectations, is also needed. In this regard, staff commend the
authorities’ intention to shortly enact a new Financial Management and
Audit Act, which could help address some of the implementation gaps.
“Structural reforms to support growth and improve the business climate for
domestic and foreign investment are also urgent. These reforms would aim to
improve business processes, such as significantly reducing clearance times
for immigration and customs, accelerating approval of building permits, and
streamlining legal procedures. Staff welcomes progress in formulating the
Barbados Sustainable Recovery Program (BSRP), which is being drafted in
consultation with the Social Partnership, and encourages the authorities to
continue to closely collaborate to develop a consensus on a strategy for
reform.
“The IMF stands ready to assist the Government of Barbados, including
through continued policy dialogue and technical assistance. The team would
like to thank the authorities, technical staff, representatives of civil
society, and the private sector, for their open discussions and
constructive dialogue.”
The mission met with Minister of Finance Christopher Sinckler, Acting
Central Bank Governor Cleviston Haynes, Minister of Industry Donville
Inniss, the leader of the opposition Mia Mottley, senior government
officials, and representatives of the private sector, labor organizations
and academia.
