IMF Executive Board Concludes 2009 Article IV Consultation with Barbados

Public Information Notice (PIN) No. 09/117
September 14, 2009

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2009 Article IV Consultation with Barbados is also available.

On September 10, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Barbados.1


Barbados benefits from well-functioning institutions and social and political stability. The country has some of the highest social and competitiveness indicators in the region and enjoys investment-grade rating on its sovereign debt. Its low crime rate, well-educated work force, and attractive natural setting have helped make it a top destination for high-end tourism and a prime location for offshore financial services and real estate investment. While the long-standing peg to the U.S. dollar has provided a positive effect on investment and growth, some vulnerabilities arise from the high level of public debt and continued fiscal imbalances.

The global recession is severely affecting the Barbadian economy. After barely growing in 2008, real GDP is expected to contract by 3 percent in 2009 and to remain virtually flat next year, on account of weak performances in the tourism and construction sectors. After peaking at 11.2 percent in September 2008, twelve-month inflation is projected to decline to 3–4 percent by end-2009. The external current account deficit would narrow from 10½ percent of GDP in 2008 to 5¼ percent in 2009, and remain below 6 percent in 2010. International reserves, which declined by almost US$100 million in 2008, are likely to broadly stabilize during 2009, boosted by the recent placement abroad of a US$120 million government bond and by SDR allocations of around US$90 million. Reflecting a steady relaxation of fiscal policies, the nonfinancial public sector balance shifted from a small surplus in FY 2004/05 (April to March) to a deficit of 7½ percent of GDP in FY 2008/09. Based on current policies, it is likely to widen to 8½ percent of GDP this fiscal year, raising the public debt ratio to 115 percent of GDP by year-end.

Executive Board Assessment

Executive Directors noted that Barbados is facing a severe economic recession. Output is contracting, as the global financial crisis has depressed tourism, brought Foreign Direct Investment (FDI) to a sudden stop, and weakened public finances. Consequently, unemployment has risen to double-digit level. While the underlying balance of payments is expected to remain weak, international reserves are expected to increase marginally in 2009, on account of the SDR allocations and the large government bond issue abroad.

Directors took note of the authorities’ commitment to maintaining the fixed exchange-rate peg. The longstanding peg to the U.S. dollar has been an effective nominal anchor, providing price stability with a positive effect on investment and growth. While various indicators suggest that the actual exchange rate is close to its equilibrium level, Directors observed that the current global shocks have put strains on the country’s economy. In addition, possible changes in tax regulations abroad could adversely affect Barbados’s offshore financial sector, which is an important source of foreign exchange.

Directors encouraged the authorities to develop a credible medium-term fiscal adjustment plan and start with its implementation, as soon as possible. They were of the view that, if left unchecked, the large fiscal deficits, combined with an uncertain foreign financing outlook, could result in a deterioration in investor confidence. A concerted adjustment effort was, therefore, crucial to countering such a risk, by reducing fiscal financing needs, supporting the balance of payments, and placing public debt on a firm downward path. This would also enhance growth, including by strengthening confidence and attracting higher investment. To this end, Directors encouraged the authorities to commit early on to decisive fiscal measures, particularly in the area of expenditure restraint. They considered that it would also be important to develop contingency plans, in the event that the economic recovery was delayed and fiscal pressures persisted. Directors, however, underscored that Barbados was well placed to take such bold action, given its established social partnership with a proven track record of reaching social consensus, particularly at difficult times.

Directors noted that monetary policy should be geared to ensuring price stability and protecting foreign reserves. They observed that existing capital controls gave the country some protection against disruptive and volatile capital movements, thereby providing the authorities some room to independently set interest rates. Given the recent decline in foreign reserves, Directors encouraged the authorities, in the context of their strong commitment to the peg, to monitor developments closely before easing monetary policy further.

Directors considered that Barbados’s banks appeared to be well capitalized. Prudential indicators remained favorable, and Directors advised the authorities to carefully monitor the incipient rise in nonperforming loans, although they were still at a relatively low level. On banking supervision, Directors recommended that the authorities review the implementation of certain Basel II standards, particularly regarding the self regulation by commercial banks. They commended the authorities for moving ahead with implementing the recommendations of the 2008 Financial Sector Assessment Program Update, adding that quick and decisive action should be taken to resolve the problems of CLICO-Barbados. Directors also noted that there was a need to develop contingency plans, should the current approach of selling the subsidiaries of CLICO-Barbados to private investors prove unsuccessful. This would be important in order to mitigate any impact on the public finances, and protect the financial system and investor confidence.

Barbados: Selected Economic Indicators

        Prel. Proj.


2005 2006 2007 2008 2009 2010

Output and prices


Real GDP

3.9 3.2 3.4 0.2 -3.0 0.0

Nominal GDP

6.7 6.2 6.8 7.6 -2.0 1.0

Consumer prices

6.1 7.3 4.0 8.1 3.5 5.2

Money and credit


Net domestic assets

14.1 14.2 9.4 13.7 3.0 9.5

Of which: private sector credit

21.7 13.2 6.4 11.1 -0.7 1.9

Broad money

6.9 11.3 13.2 2.8 4.5 5.4

Public sector operations 1/


Overall balance

-6.9 -5.3 -8.0 -7.6 -8.4 -7.1

Central government balance

-1.3 -3.2 -5.7 -6.3 -8.0 -8.9

Off-budget activities

-3.0 -4.9 -3.9 -2.6 -0.5 0.0

National Insurance Scheme balance

3.7 4.1 3.7 3.4 1.5 3.3

Public enterprises balance

-6.3 -1.4 -2.1 -2.1 -1.5 -1.5

Primary balance

-3.2 -1.5 -3.4 -3.4 -4.6 -2.4

Public sector debt 2/

93.7 96.2 103.3 105.9 115.1 123.0

External sector


External current account balance

-13.1 -8.4 -5.4 -10.5 -5.2 -5.9

External debt 3/

28.9 29.6 32.9 30.6 34.4 30.5

Gross international reserves (in millions of U.S. dollars)

618 597 774 678 707 616

Memorandum item:


Nominal GDP (in millions of Barbados dollars)

6,010 6,382 6,819 7,338 7,191 7,263

Sources: Barbadian authorities; and IMF staff estimates and projections.

1/ Fiscal year (April–March).

2/ Includes central government and government guaranteed debt.

3/ Includes public sector and nonfinancial private sector debt; end of fiscal year.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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