## 1brbea2020001 — EXECUTIVE SUMMARY ## Source details **Canonical URL:** [1brbea2020001 — EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2020/english/1brbea2020001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1brbea2020001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1brbea2020001.pdf.json) --- ### Recent developments - Progress implementing the Economic Recovery and Transformation (BERT) plan to restore fiscal and debt sustainability, rebuild reserves, and increase growth; major challenge from the global coronavirus pandemic. - Public external debt restructuring completed in December 2019, placing public debt on a clear downward trajectory. - International reserves: - Reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018. - Increased to more than US$850 million since then, supported by IFI lending and external commercial debt restructuring. - IMF engagement: - IMF Executive Board approved a four-year Extended Arrangement under the Extended Fund Facility (EFF) on October 1, 2018. - Second review completed on December 16, 2019. - Credit rating: Standard and Poor’s upgraded Barbados’ foreign currency sovereign credit rating from Selective Default to B- on December 11, 2019. - COVID-19 impact on tourism and economy: - Starting March 2020, tourism came to a standstill; most hotels closed, occupancy plummeted, flights sharply reduced or suspended. - Unemployment more than doubled; large recession projected for 2020. - Local outbreak contained by swift implementation of the National Preparedness Plan. - Real sector (2019): - Output contracted by 0.1 percent. - Tourism sector expanded by about 3 percent and directly represents about 17 percent of real GDP. - Inflation increased to 4.1 percent in December 2019. - Fiscal sector (FY2019/20): - Primary surplus target of 6 percent of GDP achieved. - Tax revenues fell short by close to 1 percent of GDP, largely due to lower corporate tax receipts from financial institutions following public debt restructuring. - Transfers to public institutions fell by BRB$114 million (1.1 percent of GDP) in FY2019/20. - Financial sector (2019 and Q1 2020): - Private sector credit unchanged in 2019. - Rate spread between bank loans and deposits about 6 percent. - NPL ratio rose by 30 bps to 6.9 percent in Q1 2020. - Profitability (ROA) improved to 1.8 percent (yoy), up from 0.6 percent in 2019. ### Program implementation and augmentation - All performance criteria for the review were met. - Structural benchmarks: - New structural benchmark proposed: submit an amended CBB law to Parliament by end-September 2020. - Adoption benchmark reset from end-December 2019 to end-December 2020; other benchmarks proposed to be reset due to COVID-19. - SOE reforms: oversight strengthened and reporting tightened under the FMA law; CARTAC conducted two workshops in November 2019 on financial reporting and risk assessment. - Program augmentation in response to COVID-19: - Proposed IMF augmentation of US$90mln (70 percent of quota) to accommodate the external COVID-19 shock with a lower primary surplus. - IDB disbursed a US$80 million policy loan in April. - Caribbean Development Bank disbursed a policy-based loan of US$75 million following completion of the second review. - A US$100 million budget loan from CAF is expected later in the year. ### Outlook and risks - COVID-19 management and containment: - Pre-emptive actions: stockpiling medicines and equipment, quarantine centers, four-stage National Preparedness Plan (NPP). - Borders initially remained open with enhanced screening and mandatory self-quarantine; movement restrictions implemented within two weeks of first confirmed case; 24-hour lockdown on non-essential services imposed. - Flattening of the curve in the post-lockdown period suggests early actions were effective. - Macroeconomic scenario and projections: - Baseline assumes no tourist arrivals for 2020Q2 and Q3 and a moderate recovery in 2020Q4. - Aggregate tourist arrivals expected to contract by around 40 percent for 2020 under the scenario where tourism starts to recover gradually in Q4 2020. - Barbadian economy contracted by 3 percent in 2020Q1 (over the same quarter last year). - Unemployment jumped to 24 percent of the labor force at the beginning of May 2020 (32,844 claims representing 24 percent of the labor force as of May 6th, 2020). - Economy projected to contract by about 11-12 percent in 2020, with recovery expected to start in Q4 2020 and medium-term growth converging to about 2 percent. - Balance of payments and reserves (In millions of U.S. dollars; Pre COVID-19 shock | Baseline | Difference): - Current account balance: -180 | -474 | -294 - o/w Trade balance: -828 | -470 | 357 - o/w Travel (credit): 1,211 | 568 | -642 - Capital and financial account: 305 | 204 | -101 - o/w FDI flows: 183 | 55 | -128 - COVID-19 BOP financing gap: 0 | 218 | 218 - Gross international reserves: 851 | 681 | -171 - Oil price (WTI, US$ per barrel): 53 | 33 | -20 - External metrics: - In 2020, current account deficit expected to deteriorate to around 10 percent of GDP, driven by a 55 percent decline in travel exports and a US$320 million deterioration (or 7 percent of GDP). - IFIs expected to ramp up official financing; proposed IMF augmentation US$90 million (70 percent of quota) and IDB US$80 million already disbursed. - Fiscal outlook: - Authorities lowered their primary surplus target to 1 percent for FY2020/21 (compared to 6 percent before the pandemic). - Revenues projected to recover in FY2021/22; some expenditures (welfare transfers) projected to remain elevated during recovery. - COVID-19 impact on fiscal balances (In percent of FY GDP; Pre COVID-19 shock | Baseline | Difference): - Primary Balance: 6.0 | 1.0 | -5.0 - Overall Balance: 2.7 | -2.7 | -5.5 - Net Financing: -2.7 | -3.2 | -0.5 - External (excluding new IFI financing and proposed augmentation): 0.1 | 0.8 | 0.7 - Domestic: -2.9 | -4.0 | -1.1 - COVID-19 Fiscal financing gap: 0.0 | -5.9 | -5.9 - o/w IMF budget support: 0.0 | -1.9 | -1.9 - o/w other IFIs budget support: 0.0 | -4.0 | -4.0 - Debt sustainability and risks: - Debt remains above the 70 percent of GDP risk assessment threshold under the baseline. - COVID-19 increased risks to debt sustainability and raised gross financing needs (GFNs) close to the 15 percent risk assessment threshold. - COVID-19 induced fiscal accommodation will need compensation by higher primary surpluses in the medium term to reach the 60 percent medium-term anchor in FY2033/34, while delaying by two years the interim 80 percent achievement (now FY29/30 under new profile). - Mitigants: Barbados’ track record under the EFF-supported program and composition of financing — about 50 percent of GFNs have no rollover risk because commercial banks committed to rollover the full stock of T-bills for 10 years and the rest of short-term debt is held by the CBB. ### Risks overview (section 13) - Key risk: further deepening and lengthening of the COVID-19 crisis lowering external demand and economic activity. - Major tourism source market shares: UK about 33 percent, US 30 percent, Canada 13 percent. - Travel appetite expected to be negligible the next six months; timing of return to normal tourism trends hard to predict. - Domestic containment: school closures and 14-day quarantine for all visitors. - Possible pandemic fiscal and macro outcomes: health and non-health spending overruns, revenue collection underperformance, potentially unsustainable debt trajectory if crisis severe. - Mitigants: maintain external buffers per program; large share of domestic debt reduces rollover risks. - Upside: stronger than projected growth could allow more rapid debt reduction if savings preserved. ### Fiscal policy in FY2020/21 and beyond — immediate impact and measures (section A) - Authorities aim for reduced FY2020/21 primary surplus of 1 percent of GDP (from budgeted 3 percent in March 2020; FY2019/20 was 6 percent). - Expected overall revenue loss: about 4 percent of FY2019/20 GDP. - Planned additional and reallocated expenditures for FY2020/21: - Higher health spending: about ¼ percent of GDP in addition to ½ percent already spent in FY2019/20. - Temporary transfers to public institutions facing revenue shortfalls: about ½ percent of GDP. - Enhanced welfare schemes: about ¼ percent of GDP. - Higher capital expenditure to support activity: about ½ percent of GDP. - Government support and liquidity actions: - Repurchase up to BRB$250 million bonds held by the NIS. - Accelerate payment of BRB$131 million in PIT and VAT refunds. - Use existing Catastrophe Fund for temporarily interest-free loans to businesses. - Budget impact table (Pre vs. Post COVID-19 forecast, BD$ millions and change in percent of FY2019/20 GDP): - Revenue: -426.7 -4.2 - Tax revenue: -395.2 -3.9 - Non-tax revenue: -31.6 -0.3 - Expenditure: 101.1 1.0 - Health related: 35.1 0.3 - Transfers to individuals: 20.0 0.2 - Transfers to SOEs: 56.4 0.6 - Non-health related capital spending: 61.0 0.6 - Expenditure rationalizations -71.4 -0.7 - Primary Balance: -556.3 -5.5 - Overall Balance: -527.9 -5.2 - Note: an additional 0.45 percent of GDP of spending was undertaken in FY2019/20 for hospital refurbishment, medical equipment, and isolation centers. ### Fiscal policy — medium term stance and fiscal rule - Projected primary surpluses: - FY2020/21: 1 percent of GDP. - FY2021/22: 3½ percent of GDP projected as economy recovers. - Thereafter: primary surpluses projected to reach 5 to 5½ percent of GDP. - Measures to achieve surpluses: contain grants to public institutions, phase out crisis welfare payments, strengthen expenditure control, improve fiscal planning and monitoring. - Institutional support: build macro-fiscal unit at Ministry of Finance; FAD TA for annual budget process and customs reform. - Fiscal rule expected by mid-2021 (proposed reset structural benchmark to end-June 2021) with an escape clause for natural disasters and other shocks; rule to support reducing debt/GDP to 60 percent by FY2033/34. ### Key fiscal and debt projections and statistics (selected) - Central government operations (percent of FY GDP; fiscal year April–March): - Total revenue: 2019/20 Program 31.2; 2019/20 Est. 30.2; 2020/21 Program 29.2; 2020/21 Est. 30.9; 2021/22 Program 30.9 - Total expenditure: 2019/20 Program 27.4; 2019/20 Est. 27.5; 2020/21 Program 31.9; 2020/21 Est. 31.6 - CG Primary balance: 2019/20 Program 6.3; 2019/20 Est. 6.0; 2020/21 Program 1.0; 2020/21 Est. 3.5 - CG gross debt (including CG, SOE issued/guaranteed debt, and CG arrears): 2017/18 158.3; 2018/19 125.6; 2019/20 117.1 Program / 122.2 Est.; 2020/21 Program 109.9 / Est. 133.6; 2021/22 Program 124.2 - Nominal GDP, FY (BDS$ millions): 2017/18 10,011; 2018/19 10,235; 2019/20 10,445 Program / 10,129 Est.; 2020/21 Program 10,786 / Est. 9,467; 2021/22 Program 10,245 ### SOE reforms (section B) - Context: transfers to SOEs were close to 8 percent of GDP in FY2017/18 and represented a major fiscal burden and risk. - FY2020/21: grants to SOEs expected to temporarily increase due to COVID-19 related expenditures. - Target: grants to SOEs decline to under 6 percent of GDP by FY2021/22 through stronger oversight, tighter control over SOE borrowing, cost reduction (including wage bill), revenue enhancement (increased user fees), and mergers/divestment. - Reforms implemented prior to COVID-19: staff layoffs at SOEs; debt restructuring; renegotiation of supplier contracts (e.g., Barbados Water Authority); tariff increases; new levies; reduction in number of SOEs from 60 to 52; strengthened oversight and SOE ownership policy. ### Monetary and financial sector policies (section C) - March 2020 measures to support credit market: - Reduction of the overnight lending discount rate from 7 to 2 percent. - Reduction of minimum statutory holding requirement for government securities from 17.5 to 5 percent of deposits. - Collateralized loans for up to six months as liquidity support for licensed financial institutions. - Commercial banks announced a six-month moratorium on loan repayments for affected individuals and firms. - Observations: - Financial system very liquid though liquidity at individual institutions may fluctuate. - Banks have not borrowed from the overnight lending discount window nor used CBB liquidity support. - Staff assesses CBB measures as appropriate signals of available liquidity support. - Central bank law and TA: - New central bank law under preparation to enhance CBB autonomy and limit government financing; dismissal procedures for Governor among details under consideration. - Submission of the new CBB law to parliament as structural benchmark for September 2020; expected adoption by end-year. - MCM TA to introduce liquidity management framework and develop central bank recapitalization plan; related TA missions delayed due to coronavirus. - Banking sector soundness: - Depository corporations remain sound and liquid; profitability recovering. - One bank received a capital injection in late 2019. - Capital adequacy ratios in all banks above 8 percent; average ratio 13.6 percent in March 2020. - Credit to private sector flat in 2019. - Six-month grace period on loan repayments appears muted given comfortable liquidity and capital buffers; lenders accruing interest to be included in restructured loans. - CBB should enhance monitoring for regulatory standards and early identification of distress. - AML/CFT and correspondent banking: - In February 2020, FATF added Barbados to the list of jurisdictions under increased monitoring (“grey list”). - Authorities working to address deficiencies; correspondent banking relationships not materially impacted though compliance costs increased. ### Enhancing growth (section D) - Structural reforms to accelerate post-pandemic, including: - Streamline business start-up processes. - Eliminate requirement to use a company seal. - Introduce single business administration number. - Amend company law to strengthen minority shareholder protection. - Reform customs to facilitate cross-border trade. - Digitize property records in land registry. - Establish credit and credit collateral registries; broaden eligible collateral to facilitate access to credit. ### Data improvements and TA - Rebasing annual GDP estimates to 2010 and development of quarterly GDP by activity underway with CARTAC and PRASC support. - Two-year national accounts capacity building project funded by Canada commenced May 2019. - Additional staff hired at Barbados Statistical Service (BSS) for STA TA delivery. - Most TA operations temporarily on hold owing to the pandemic. ### Program issues, financing support, and benchmarks - Proposed IMF augmentation: about US$90 million (SDR66 million, about 70 percent of quota). - Total access under the EFF would reach 290 percent of quota (SDR274 million or just under U$400 million). - Access within normal access limits under the GRA. - Reserve coverage target: staff supports augmentation to maintain reserves at about 143 percent of ARA (unchanged in 2020 vs. 2019). - Other IFIs willing to provide additional financing of about US$200 million. - Performance criteria and structural benchmarks: - All QPCs and two out of three structural benchmarks for the third review were met; adoption of CBB law not implemented and proposed to be reset to end-December 2020. - Staff proposes to modify five PCs for end-September 2020 at authorities’ request: - Revise floor on net international reserves downward. - Revise ceiling on net domestic assets of the CBB upward. - Revise floor on the CG primary balance downwards (reflecting nominal GDP revision and lower primary surplus target for FY2020/21). - Revise ceiling on transfers to SOEs to reflect higher COVID-19 related transfers. - Revise ceiling on debt to reflect higher borrowing needs. - Staff proposes to revise the ceiling on transfers to public institutions upwards to allow one-off increases to the Queen Elizabeth Hospital and polyclinics related to the coronavirus outbreak. - Safeguards and audits: - CBB implemented IFRS for FY 2019 under Audit Committee oversight. - Audit arrangements strengthened with selection and appointment policy for external auditors and modernization of internal audit. - Work in progress: enhancing oversight in reserves management and RTGS system controls; FY 2019 audited financial statements pending. ### Structural benchmarks proposed to be introduced or reset (selected) - Introduce: Government to submit amended CBB law to Parliament (proposed end-September 2020 structural benchmark #19). - Reset: adoption of new CBB law by Parliament from end-December 2019 to end-December 2020 (structural benchmark #15). - Reset: actuarial review for civil service pensions from end-June 2020 to end-September 2020 (structural benchmark #20). - Reset: new public pension law from end-September 2020 to end-December 2020 (structural benchmark #22). - Reset: development of plans to recapitalize the CBB and address NIS medium- and long-term challenges from end-June 2020 to end-December 2020 (structural benchmark #23). - Reset fiscal rule benchmark from end-December 2020 to end-June 2021 (structural benchmark #25). ### Repayment capacity and financing assurances (section 29) - Debt service to the IMF projected to remain below 2 percent of exports and below 1 percent of GDP throughout projection period to 2032. - Gross reserves projected to remain adequate at about 100 percent of ARA over projection period. - Authorities’ commitment to program and solid repayment history provide reassurance. - Safeguards: memorandum of understanding between CBB and Ministry of Finance to detail roles/responsibilities for servicing Fund obligations. - Program remains fully financed. - Authorities committed to safeguarding public resources for crisis response via strengthened public procurement, publication of contracts and successful bidders (and beneficial owners), and ex post verification of delivery for COVID-19 outlays. ### Staff appraisal and recommendations (sections 36 and staff appraisal) - Staff recommends completion of the third review of the extended arrangement under the EFF, augmentation of access for budget support, and modification of five performance criteria. - Growth and output projections (CY Real GDP annual % change, 2017–2025): 0.5, -0.6, -0.1, -11.6, 7.4, 3.9, 1.8, 1.8, 1.8. - CPI inflation (average, 2017–2025): 4.4, 3.7, 4.1, 2.9, 1.6, 2.3, 2.3, 2.3, 2.3. - Public debt trajectory: central gov't gross debt (percent of FY GDP, 2017/18–2025/26): 158.3, 125.6, 122.2, 133.6, 124.2, 117.1, 111.3, 105.8, 100.4. - Public Debt (Millions BBD, 2017/18–2025/26 sample): 15,843; 12,853; 12,380; 12,651; 12,722; 12,698; 12,623; 12,546; 12,448. - External sector: Current account balance (US$ million, 2017–2025): -189; -253; -162; -474; -302; -204; -181; -148; -162. - Gross international reserves (US$ million, selected/projections 2017–2025): 206; 500; 739; 681; 671; 705; 757; 822; 743. - Policy implication: continue strong program implementation to ensure completion of the third review and access augmentation; preserve program momentum to sustain fiscal consolidation benefits from debt restructuring. ### Debt Sustainability Analysis (Annex I) — key points - With external debt restructuring completed, debt projected to decrease from 123 to about 107 percent of GDP in the next five years. - COVID-19 induced recession and relaxation of fiscal stance in 2020 must be compensated by higher primary surpluses to ensure public debt trends towards 60 percent debt/GDP by end-FY2033/34. - Stress tests: risks to debt sustainability notably increased; debt remains above the 70 percent of GDP risk assessment threshold under the baseline. - Public debt restructuring details: - October 14, 2018 domestic agreement: upfront debt reduction of 30 percentage points of GDP via nominal haircuts and lifting guarantees on SOE guaranteed debt, longer maturities, longer amortization grace periods, and lower interest rates. - October 19, 2019 external creditor committee agreement: new instrument with 10-year maturity, 5-year grace period, coupon 6.5 percent, 25 percent haircut on principal (35 percent haircut on accrued interests and penalties), BRB$80 million payment in first two years, and an adverse weather clause. Restructured debt began trading in December close to par; present value loss for creditors about 30 percent of principal. - Overall amount restructured equivalent to about 147 percent of GDP including claims by public sector agencies. - Public debt structure after restructuring (end FY2019/20): - Public debt about 122 percent of GDP, down from about 126 percent in FY2018/19. - Public domestic debt decreased from about 93 to 90 percent of GDP. - Short-term CG debt decreased from 9 to 6 percent of GDP. - Long-term CG debt decreased from 84 to 83 percent of GDP. - Domestic arrears decreased from 3 to about 1 percent of GDP. - Public external debt decreased from about 33 to 31 percent of GDP. - DSA assumptions: - FY GDP growth: from minus 3 percent in 2019 to about minus 7 percent in 2020 due to tourism shock. - Medium term growth stabilizes around 1.8 percent in 2022-24. - Average inflation projected to increase to 4.5 percent in 2020; medium term return to around 2.3 percent in 2022-24. - Fiscal multiplier used: 0.3. - Primary balance: FY2020/21 projected at 1 percent of GDP; increases to 5.5 percent by FY2022/23 and stabilizes at 5 percent thereafter. - Domestic expenditure arrears fully extinguished by end-FY2022/23. - Projections and stress test outcomes: - Public debt-to-GDP ratio projected to decrease from 123 to about 107 percent between FY2019/20 and FY2024/25. - In 2020, debt projected to increase from 123 to about 136 percent of GDP (contributors: primary balance -1; GDP contraction +10; interest expenditure +3; EFF augmentation +2 percentage points). - Cumulative impact of primary surplus: about minus 27 percentage points of GDP; automatic debt dynamics: +8 percentage points; real GDP growth: about minus 3 percentage points; real interest rate: about +11 percentage points. - Public debt projected to be below 60 percent of GDP by end-FY2033/34. - GFNs expected to remain below the 15 percent threshold except stressed in 2020. - Public short-term debt projected not to exceed 5 percent of GDP; target max 5 percent short-term debt. - By end FY2033/34, long-term and short-term debt projected about 55 and 5 percent of GDP, respectively. - External debt projected to decline to 8 percent of GDP by end-FY2033/34. - Stress tests: - Debt level remains above 70 percent and GFNs exceed 15 percent only in 2020 under primary balance, real GDP, combined macro, and contingent liability shocks. - Combined and contingent liability shocks could raise debt-to-GDP ratio by about 20 percentage points above baseline by end-FY2024/25. - About 50 percent of GFNs have no rollover risk due to bank commitment to roll over T-bills for 10 years and CBB holdings of remaining short-term debt. - Confidence intervals for debt and GFNs narrow because domestic restructuring reduced debt service and fixed exchange rate. ### External debt projection (section 14) - External debt projected to decrease to about 33 percent of GDP by FY2024/25 with a low risk profile. - Public nominal gross debt (FY GDP percent, selected): 2017: 122.1; 2018: 158.3; 2019: 125.6; 2020: 122.7; 2021: 136.2; 2022: 127.0; 2023: 120.1; 2024: 113.8; FY2024/25: about 107.4. - Public gross financing needs (percent of FY GDP, selected): 2017: 33.8; 2018: 51.3; 2019: 15.0; 2020: 11.1; 2021: 14.3; 2022: 11.3; 2023: 8.4; 2024: 9.0; FY2024/25: 8.5. - Effective interest rate (percent): 2019: 2.9; 2020: 3.4; 2021: 4.1; 2022: 4.4; 2023: 4.6; 2024: 4.6. - Under all stress tests summarized, external debt not projected to exceed about 39 percent of GDP by FY2024/25. ### Technical Memorandum of Understanding (TMU) — program monitoring and definitions - TMU sets definitions for quantitative performance criteria (PCs) and indicative targets (ITs) and reporting modalities for monitoring under the EFF. - Program exchange rates (as of 08/29/2018): - Barbadian dollar to the US dollar: 2.0000 - Barbadian dollar to the SDR: 0.345745 - Barbadian dollar to the euro: 2.3392 - Barbadian dollar to the Canadian dollar: 1.54662 - Barbadian dollar to the British pound: 2.5739 - Barbadian dollar to the East Caribbean dollar: 0.74074 - Barbadian dollar to the Belizean dollar: 1.00000 - Quantitative PCs include: floor on CG primary balance; ceiling on stock of NDA of CBB; floor on NIR; non-accumulation of CG external debt arrears; ceiling on CG transfers and grants to public institutions; ceiling on stock of public debt. - Indicative targets include ceilings on domestic CG expenditure arrears and public institutions’ expenditure arrears and a floor on CG social spending. - Reporting framework: daily, monthly, quarterly and annual reporting frequencies with specific maximum lags (one week, two weeks, four weeks, six weeks) for specified items (CBB NIR, GIR, NDA, CG budgetary accounts, BOP, etc.). - Public institutions list provided for coverage of transfers and reporting. ### Program overview and concluding priorities - Requested augmentation of access under the EFF: US$90 million. - FY2019/20 primary surplus target met at 6 percent; FY2020/21 primary balance targeted at 1 percent of GDP. - Medium-term objective: public debt to reach 60 percent of GDP by FY2033/34. - Priorities: phase out crisis spending, contain grants to SOEs, improve expenditure control, strengthen customs and revenue administration, introduce fiscal rule by mid-2021, and maintain reserve adequacy via IFI financing. - Near-term focus: protect lives and livelihoods; continued commitment to BERT to restore macroeconomic stability and create sustainable and inclusive growth. - Authorities call for multilateral institutions to consider country vulnerability (e.g., 2020 hurricane season) when granting access to grants and concessional financing. *International Monetary Fund — EXECUTIVE SUMMARY (1brbea2020001).* ### EXECUTIVE SUMMARY ### 1brbea2020001 - EXECUTIVE SUMMARY ### Recent developments - Barbados has continued to make good progress implementing the Economic Recovery and Transformation (BERT) plan to restore fiscal and debt sustainability, rebuild reserves, and increase growth, but now faces a major challenge owing to the global coronavirus pandemic. - Completion of the public external debt restructuring in December 2019 reduced economic uncertainty and placed public debt on a clear downward trajectory. - International reserves: - Reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018. - Increased to more than US$850 million since then, supported by lending from international financial institutions and external commercial debt restructuring. - IMF engagement: - IMF Executive Board approved a four-year Extended Arrangement under the Extended Fund Facility (EFF) on October 1, 2018. - Second review of the EFF-supported program completed on December 16, 2019. - Credit rating: On December 11, 2019, Standard and Poor’s upgraded Barbados’ foreign currency sovereign credit rating from Selective Default to B-. - COVID-19 impact on tourism and economy: - Starting March 2020, tourism came to a standstill: most hotels closed, occupancy plummeted, and flights were sharply reduced or suspended. - Unemployment more than doubled; a large recession projected for 2020. - Local outbreak was contained by swift implementation of the National Preparedness Plan. - Real sector (2019): - Output contracted by 0.1 percent. - Tourism sector expanded by about 3 percent and directly represents about 17 percent of real GDP. - Inflation increased to 4.1 percent in December 2019. - Fiscal sector (FY2019/20): - Primary surplus target of 6 percent of GDP was achieved. - Tax revenues fell short of budget projections by close to 1 percent of GDP, largely due to lower corporate tax receipts from financial institutions following public debt restructuring. - Transfers to public institutions fell by BRB$114 million (1.1 percent of GDP) in FY2019/20. - Financial sector (2019 and Q1 2020): - Private sector credit remained unchanged in 2019. - Rate spread between bank loans and deposits about 6 percent. - NPL ratio rose by 30 bps to 6.9 percent in Q1 2020. - Profitability (ROA) improved to 1.8 percent (yoy), up from 0.6 percent in 2019. ### Program implementation and augmentation - All performance criteria for the review were met. - Structural benchmarks: - New structural benchmark proposed to submit an amended CBB law to Parliament by end-September 2020. - An earlier benchmark to pass this law by end-December 2019 is proposed to be reset to end-December 2020. - Resetting of benchmarks for future reviews is proposed due to the global coronavirus pandemic. - SOE reforms: Authorities are strengthening oversight and tightening reporting requirements under the new FMA law; CARTAC conducted two workshops in November 2019 to train SOEs and the Management Accounting Unit in financial reporting and risk assessment. - Program augmentation in response to COVID-19: - Proposed augmentation of US$90mln (70 percent of quota) to help accommodate the external COVID-19 related shock with a lower primary surplus. - IDB disbursed a US$80 million policy loan in April. - Caribbean Development Bank disbursed a policy-based loan of US$75 million following completion of the second review. - A US$100 million budget loan from the Development Bank of Latin America (CAF) is expected later in the year. ### Outlook and risks - COVID-19 epidemic management: - Pre-emptive actions included stockpiling medicines and equipment, establishing quarantine centers, and rollout of a four stage National Preparedness Plan (NPP). - Borders remained open with enhanced screening and mandatory self-quarantine protocols in March. - Authorities implemented movement restrictions within two weeks of the first confirmed case, culminating in a 24-hour lockdown on non-essential services. - Flattening of the coronavirus curve in the post-lockdown period suggests early actions were effective in containing virus spread. - Macroeconomic scenario and projections: - Baseline assumes no tourist arrivals for 2020Q2 and Q3 and a moderate recovery of arrivals in 2020Q4. - Aggregate tourist arrivals expected to contract by around 40 percent for 2020 under the scenario where tourism starts to recover gradually in Q4 2020. - The Barbadian economy contracted by 3 percent in 2020Q1 (over the same quarter last year). - Unemployment rate jumped to 24 percent of the labor force at the beginning of May 2020 (32,844 claims representing 24 percent of the labor force as of May 6th, 2020). - Economy is projected to contract by about 11-12 percent in 2020, with recovery expected to start in Q4 2020 and medium-term growth converging to about 2 percent. - Balance of payments and reserves: - COVID-19 impact on balance of payments (In millions of U.S. dollars; Pre COVID-19 shock | Baseline | Difference): - Current account balance: -180 | -474 | -294 - o/w Trade balance: -828 | -470 | 357 - o/w Travel (credit): 1,211 | 568 | -642 - Capital and financial account: 305 | 204 | -101 - o/w FDI flows: 183 | 55 | -128 - COVID-19 BOP financing gap: 0 | 218 | 218 - Gross international reserves: 851 | 681 | -171 - Oil price (WTI, US$ per barrel): 53 | 33 | -20 - In 2020, current account deficit expected to deteriorate to around 10 percent of GDP, driven by a 55 percent decline in travel exports and a US$320 million deterioration (or 7 percent of GDP). - IFIs expected to ramp up official financing; proposed IMF augmentation US$90 million (70 percent of quota) and IDB US$80 million already disbursed. - Fiscal outlook: - Authorities lowered their primary surplus target to 1 percent for FY2020/21 (compared to 6 percent before the pandemic). - Revenues projected to recover in FY2021/22; some expenditures such as welfare transfers projected to remain elevated during recovery. - COVID-19 impact on fiscal balances (In percent of FY GDP; Pre COVID-19 shock | Baseline | Difference): - Primary Balance: 6.0 | 1.0 | -5.0 - Overall Balance: 2.7 | -2.7 | -5.5 - Net Financing: -2.7 | -3.2 | -0.5 - External (excluding new IFI financing and proposed augmentation): 0.1 | 0.8 | 0.7 - Domestic: -2.9 | -4.0 | -1.1 - COVID-19 Fiscal financing gap: 0.0 | -5.9 | -5.9 - o/w IMF budget support: 0.0 | -1.9 | -1.9 - o/w other IFIs budget support: 0.0 | -4.0 | -4.0 - Debt sustainability and risks: - Debt remains above the 70 percent of GDP risk assessment threshold under the baseline. - COVID-19 increased risks to debt sustainability and raised gross financing needs (GFNs) close to the 15 percent risk assessment threshold. - COVID-19 induced fiscal accommodation will need to be compensated by higher primary surpluses in the medium term to reach the 60 percent medium-term anchor in FY2033/34, while delaying by two years the achievement of the interim target of 80 percent (now achieved in FY29/30 under the new profile). - Risks are mitigated by Barbados’ track record under the EFF-supported program and by the composition of financing: about 50 percent of GFNs have no rollover risk because commercial banks committed to rollover the full stock of T-bills for 10 years and the rest of the short-term debt is held by the CBB. ### Key mission and procedural details - Mission: Virtual (conducted remotely using teleconferencing) during April 27-30, 2020. - Mission team: Bert van Selm (head), Gregorio Impavido, Dmitry Vasilyev (WHD), Genet Zinabou (FAD), Atticus Weller (SPR), Claudio Visconti (MCM). Chris Faircloth and Ann Marie Wickham (Resident Representative Office) assisted. Jeremy Weil (OED) joined the mission. - Document date: May 26, 2020. - Proposed program augmentation: US$90mln (70 percent of quota). *International Monetary Fund — EXECUTIVE SUMMARY (1brbea2020001).* ### 13. Risks to the outlook are very high and tilted to the downside. ### 13. Risks to the outlook are very high and tilted to the downside. ### Risks overview - Key risk: a further deepening and lengthening of the COVID-19 crisis, which would lower external demand and reduce economic activity. - Major tourism source market shares: UK about 33 percent, US 30 percent, Canada 13 percent. - Travel appetite expected to be negligible the next six months; timing of return to normal tourism trends is hard to predict. - Domestic containment measures include school closures and a 14-day quarantine period for all visitors. - Possible pandemic fiscal and macro outcomes: health and non-health spending overruns, revenue collection underperformance, and a potentially unsustainable debt trajectory if the crisis is severe. - Mitigants: keeping external buffers at a more than adequate level as envisaged in the program; large share of domestic debt reduces rollover risks. - Upside: if growth turns out higher than projected, more rapid debt reduction than the baseline is possible, conditional on authorities preserving the savings. ### A. Fiscal policy in FY2020/21 and beyond — immediate impact and FY2020/21 measures - Authorities aim for a reduced FY2020/21 primary surplus of 1 percent of GDP (from a budgeted primary surplus of 3 percent of GDP in March 2020). - Parliament-targeted primary surplus (March 2020 budget): 3 percent of GDP (from 6 percent in FY2019/20). - Expected overall revenue loss: about 4 percent of FY2019/20 GDP. - Planned additional and reallocated expenditures for FY2020/21: - Higher health spending: about ¼ percent of GDP in addition to ½ percent already spent in FY2019/20. - Temporary transfers to public institutions facing pandemic-related revenue shortfalls: about ½ percent of GDP. - Enhanced welfare schemes: about ¼ percent of GDP. - Higher capital expenditure to support activity: about ½ percent of GDP. - Government support measures and liquidity actions: - Government will support NIS liquidity by repurchasing up to BRB$250 million bonds currently held by the NIS. - Government plans to accelerate payment of BRB$131 million in PIT and VAT refunds. - Use of an existing Catastrophe Fund to provide temporarily interest-free loans to crisis-struck businesses. - Budget impact table (Pre vs. Post COVID-19 forecast, BD$ millions and change in percent of FY2019/20 GDP): - Revenue: -426.7 -4.2 - Tax revenue: -395.2 -3.9 - Non-tax revenue: -31.6 -0.3 - Expenditure: 101.1 1.0 - Health related: 35.1 0.3 - Transfers to individuals: 20.0 0.2 - Transfers to SOEs: 56.4 0.6 - Non-health related capital spending: 61.0 0.6 - Expenditure rationalizations-71.4 -0.7 - Primary Balance: -556.3 -5.5 - Overall Balance: -527.9 -5.2 - Note: 1/ Only reports FY2020/21 measures; an additional 0.45 percent of GDP of spending was undertaken in FY2019/20 to refurbish the hospital, order medical equipment, and build isolation centers. ### A. Fiscal policy — medium term stance and fiscal rule - Projected primary surpluses: - FY2020/21: 1 percent of GDP (reduced). - FY2021/22: 3½ percent of GDP projected as economy recovers. - Thereafter: primary surpluses projected to reach 5 to 5½ percent of GDP. - Measures to achieve surpluses: contain grants to public institutions, phase out crisis-related welfare payments, strengthen expenditure control, and improve fiscal planning and monitoring. - Institutional and technical support: - Building up the macro-fiscal unit at the Ministry of Finance. - Annual budget process improvements with FAD TA; continued resident FAD advisor support for customs reform. - Structural benchmarks implemented to improve Barbados Revenue Authority (BRA) and customs processes. - Fiscal rule: - A fiscal rule is expected to be introduced by mid-2021 (proposed reset structural benchmark to end-June 2021). - FAD TA mission to advise on fiscal rule design was delayed; the rule will include coverage and an escape clause for natural disasters and other shocks. - The fiscal rule will support reducing debt/GDP to 60 percent by FY2033/34. ### Key fiscal and debt projections and statistics - Central government operations (selected items, in percent of FY GDP unless otherwise noted; fiscal year is from April to March): - Total revenue: 2019/20 Program 31.2; 2019/20 Est. 30.2; 2020/21 Program 29.2; 2020/21 Est. 30.9; 2021/22 Program 30.9 - Total expenditure: 2019/20 Program 27.4; 2019/20 Est. 27.5; 2020/21 Program 31.9; 2020/21 Est. 31.6 - CG Primary balance: 2019/20 Program 6.3; 2019/20 Est. 6.0; 2020/21 Program 1.0; 2020/21 Est. 3.5 - CG gross debt (including debt issued by the CG, by SOEs and guaranteed by the CG, and CG arrears): 2017/18 158.3; 2018/19 125.6; 2019/20 117.1 Program / 122.2 Est.; 2020/21 Program 109.9 / Est. 133.6; 2021/22 Program 124.2 - Nominal GDP, FY (BDS$ millions): 2017/18 10,011; 2018/19 10,235; 2019/20 10,445 Program / 10,129 Est.; 2020/21 Program 10,786 / Est. 9,467; 2021/22 Program 10,245 - Debt trajectory and risks: - Debt is projected to decrease to the long-term anchor of 60 percent of GDP by FY2033/34. - Interim 80 percent target now expected to be reached in FY2029/30, instead of FY2027/28. - Debt remains assessed as sustainable given the exogenous and transitory nature of the COVID-19 shock, but risks have notably increased given potential for lower medium-term growth. ### B. SOE reforms - Context: transfers to SOEs were close to 8 percent of GDP in FY2017/18 and represented a major fiscal burden and risk. - FY2020/21: grants to SOEs expected to temporarily increase due to one-off COVID-19 related expenditures (health, tourism, social assistance). - Target: grants to SOEs decline to under 6 percent of GDP by FY2021/22 through: - Stronger oversight and improved reporting. - Tighter control over SOE borrowing. - Cost reduction, including wage bill reductions. - Revenue enhancement, including increased user fees. - Mergers and divestment. - Reforms already implemented prior to COVID-19: - Staff layoffs at SOEs. - Debt restructuring reducing need for transfers to SOEs. - Renegotiation of supplier contracts (e.g., Barbados Water Authority). - Increases in some tariffs (bus fares, water rates, FSC fee structure). - New levies on sanitation, health services, and tourism. - Reduction in number of SOEs from 60 to 52 through mergers or closures. - Strengthened oversight and establishment of a SOE ownership policy. ### C. Monetary and financial sector policies - March 2020 central bank and banking measures to support credit market: - Reduction of the overnight lending discount rate from 7 to 2 percent. - Reduction of the minimum statutory holding requirement for government securities from 17.5 to 5 percent of deposits. - Collateralized loans for up to six months as liquidity support for licensed financial institutions. - Commercial banks announced a six-month moratorium (grace period) on loan repayments for individuals and firms affected by the pandemic. - Observations and assessments: - Financial system is very liquid, though liquidity at individual institutions may fluctuate. - Banks have not borrowed from the overnight lending discount window nor used the CBB liquidity support, and are not expected to given system-wide excess reserves with the CBB. - Staff assesses the CBB measures as appropriate signals that sufficient liquidity support is available. - Central bank law and TA: - A new central bank law is under preparation to enhance CBB autonomy and limit government financing; details under consideration include dismissal procedures for the Governor. - Authorities agreed to submit the new Central Bank law to parliament as a structural benchmark for September 2020, expecting adoption by end-year. - MCM TA will help introduce a liquidity management framework and develop a recapitalization plan for the central bank; related TA missions were delayed due to the coronavirus crisis and some benchmarks were proposed to be reset. - Banking sector soundness: - Depository corporations remain sound and liquid while profitability appears to be recovering. - One bank received a capital injection in late 2019. - Capital adequacy ratios in all banks are above 8 percent; the average ratio was at 13.6 percent in March 2020. - Credit to the private sector was flat in 2019; banks indicated limited lending opportunities. - Six-month grace period on loan repayments appears muted in immediate implications for banks given comfortable liquidity and capital buffers; lenders are accruing interest to be included in restructured loans. - CBB should enhance monitoring of banks to ensure regulatory standards and early identification of distress. - AML/CFT and correspondent banking: - In February 2020, FATF added Barbados to its list of jurisdictions under increased monitoring (“grey list”). - Authorities are working to address deficiencies and strengthen the AML/CFT framework. - Correspondent banking relationships have not been materially impacted; banks maintained most CBRs and replaced others, though compliance costs have increased. ### D. Enhancing growth - Structural reforms to accelerate once the pandemic recedes; a solid recovery depends on business climate improvements, including: - Streamlining the process for setting up new businesses. - Eliminating the requirement to use a company seal. - Introducing a single business administration number. - Amending the company law to strengthen protection of minority shareholders. - Reforming customs administration to facilitate trading across borders. - Digitizing property records in the land registry. - Establishing a credit registry and credit collateral registry and broadening eligible collateral to facilitate access to credit. ### Data issues - Data improvements underway with CARTAC and PRASC support: - Rebasing annual GDP estimates to 2010 and development of quarterly GDP by activity. - A two-year project funded by Canada commenced in May 2019 for national accounts capacity building. - Additional staff hired at the Barbados Statistical Service (BSS) to ensure effective delivery of STA TA. - Most TA operations temporarily on hold owing to the pandemic. ### Program issues, financing support, and benchmarks - Proposed augmentation: about US$90 million (or 70 percent of quota) to be delivered as budget support. - SDR66 million or about US$90 million corresponds to 70 percent of quota. - Total access under the EFF would reach 290 percent of quota (SDR274 million or just under U$400 million). - Access would remain within normal access limits under the GRA. - Reserve coverage target and rationale: - Staff supports the augmentation to maintain adequate reserve coverage; unchanged reserves in 2020 compared to 2019 at about 143 percent of ARA. - Other IFIs indicated willingness to provide additional financing of about US$200 million. - IMF budget support appropriate given few other financing sources and the recent comprehensive debt restructuring. - Performance criteria, structural benchmarks, and proposed modifications: - All performance criteria and two out of three structural benchmarks for the third review were met; adoption by Parliament of the CBB law was not implemented and proposed to be reset to end-December 2020. - Staff proposes to modify five performance criteria (PCs) for end-September 2020 at authorities’ request: - Revise floor on net international reserves downward. - Revise ceiling on net domestic assets of the CBB upward. - Revise floor on the CG primary balance downwards (reflecting nominal GDP revision and lower primary surplus target for FY2020/21). - Revise ceiling on transfers to SOEs to reflect higher COVID-19 related transfers. - Revise ceiling on debt to reflect higher borrowing needs to finance larger deficit. - Staff proposes to revise the ceiling on transfers to public institutions upwards to allow one-off increases to the Queen Elizabeth Hospital and polyclinics related to the coronavirus outbreak. - Safeguards and audits: - CBB implemented IFRS for FY 2019 under the Audit Committee’s oversight. - Audit arrangements strengthened with a selection and appointment policy for external auditors and modernization of internal audit. - Work in progress: enhancing oversight in reserves management and system controls within RTGS; publication of FY 2019 audited financial statements is pending. - Structural benchmarks proposed to be introduced or reset: - Introduce benchmark: Government to submit the amended CBB law to Parliament (proposed end-September 2020 structural benchmark #19). - Reset benchmark: adoption of new CBB law by Parliament from end-December 2019 to end-December 2020 (structural benchmark #15). - Reset benchmark: actuarial review for civil service pensions from end-June 2020 to end-September 2020 (structural benchmark #20). - Reset benchmark: new public pension law from end-September 2020 to end-December 2020 (structural benchmark #22). - Reset benchmark: development of plans to recapitalize the CBB and address NIS medium- and long-term challenges from end-June 2020 to end-December 2020 (structural benchmark #23). - Reset fiscal rule benchmark from end-December 2020 to end-June 2021 (structural benchmark #25). *Source: IMF staff report (chapter titled "13. Risks to the outlook are very high and tilted to the downside.")* ### 29. With strong implementation of the program, Barbados’ capacity to repay the Fund ### 1brbea2020001 - 29. With strong implementation of the program, Barbados’ capacity to repay the Fund ### Repayment capacity and financing assurances - Debt service to the IMF is projected to remain below 2 percent of exports and below 1 percent of GDP throughout the projection period to 2032. - Gross reserves are projected to remain adequate at about 100 percent of ARA over the projection period. - The authorities’ commitment to the program and their solid repayment history following the two previous Fund-supported programs provide reassurance. - The projected external debt service does not undermine the medium-term viability of the BOP and thereby, the capacity of Barbados to repay the Fund. - Safeguards for the use of Fund resources will be strengthened by the adoption of a memorandum of understanding between the CBB and the Ministry of Finance detailing their respective roles and responsibilities for servicing the financial obligations to the Fund. - The program remains fully financed. - The authorities are committed to safeguarding public resources, particularly those related to fend of the crisis, via: - strengthened public procurement including audit of these crisis expenditures, - publication of contracts and the names of successful bidders (and their beneficial owners), - ex post verification of delivery to ensure that COVID-19 related outlays will be efficiently allocated. ### Staff appraisal — program implementation and performance - The Barbadian authorities continue to make good progress in implementing the comprehensive Economic Recovery and Transformation (BERT) plan. - All quantitative performance criteria (QPCs), and two out of three structural benchmarks for end-March 2020 were met. - Prospects for continued strong program performance are good. ### Fiscal policy stance and COVID-19 response - The policy response to the global coronavirus pandemic is adequate with a primary surplus targeted at 1 percent of GDP for FY2020/21. - The reduction of the primary surplus to 1 percent of GDP is financed by additional resources from IFIs, including a proposed augmentation of the IMF extended facility of US$90 million (or 70 percent of quota). - Preserving debt sustainability will require that the fiscal accommodation in FY2020/21 be compensated by higher primary surpluses in the medium term to reach the long term debt anchor of 60 percent in FY2033/34. - Exerting a sustained fiscal effort as soon as the crisis wanes will be required to preserve debt sustainability. ### SOE reforms and fiscal space - SOE reforms remain essential for achieving higher primary surplus targets and maintaining them over the medium term. - To secure fiscal space for investment in physical and human capital, transfers to SOEs need to continue to decline after the global coronavirus pandemic is over by a combination of: - phasing out of COVID related additional transfers; - much stronger oversight of SOEs, supported by improved reporting; - cost reduction, including reduction of the wage bill; - revenue enhancement, including an increase in user fees; - mergers and divestment. ### Central Bank governance - Amendments to the Central Bank Law are needed to limit central bank financing of the Government to short-term advances and to strengthen the CBB’s mandate, autonomy, and decision-making structures. - Improving the CBB’s governance framework is necessary to secure achievements in restoring fiscal sustainability. ### Structural reforms to support recovery and growth potential - Solid recovery after the global pandemic will depend on accelerating structural reforms to increase growth potential. - Much room for improvement exists in the business climate. - Establishing a credit registry and credit collateral registry, in addition to broadening the types of eligible collateral, would further facilitate access to credit. ### Risks to program implementation - Program implementation going forward will remain challenging. - Identified risks include: - a longer and/or larger than expected impact of the global coronavirus pandemic, - slower than expected global recovery, - limited implementation capacity, - untested ability to maintain high primary surpluses over a sustained period required in the future to achieve the 60 percent debt anchor. - A much more prolonged economic recession than currently projected could make the debt trajectory unsustainable. - Implementing the ambitious structural reform agenda will be challenging given limited implementation capacity and the current coronavirus external shock. *Source: 1brbea2020001 - 29. With strong implementation of the program, Barbados’ capacity to repay the Fund* ### 36. With continued strong program implementation, staff recommends the completion of ### 1brbea2020001 - 36. With continued strong program implementation, staff recommends the completion of ### Program recommendation - Staff recommends the completion of the third review of the extended arrangement under the Extended Fund Facility, augmentation of the access for budget support, and supports the authorities’ request to modify five performance criteria. ### Real sector developments - Growth and output - CY Real GDP (annual % change): 0.5, -0.6, -0.1, -11.6, 7.4, 3.9, 1.8, 1.8, 1.8 (2017–2025 projections). - Prices and labor - CPI inflation (average): 4.4, 3.7, 4.1, 2.9, 1.6, 2.3, 2.3, 2.3, 2.3 (2017–2025). - CPI inflation (end of period): 6.6, 0.6, 7.2, -0.8, 2.4, 2.3, 2.4, 2.3, 2.4 (2017–2025). - Total employment (ten thousands) and unemployment rate: labor participation increased while unemployment slightly increased after layoffs starting in 4Q2018. - Sectoral notes - Negative contributions from construction and services; tourism arrivals were weak relative to peers (Barbados, ECCU, Dominican Republic, Jamaica). - Potential GDP growth recovering from low levels; capital accumulation and potential GDP trends shown. ### Fiscal sector developments and public debt - Fiscal balances and composition (fiscal year April–March) - Revenue and grants (percent of GDP): 28.6, 29.2, 31.2, 29.2, 30.9 (select years). - Expenditure (percent of GDP): 32.9, 29.5, 27.4, 31.9, 31.6 (select years). - Central Government Fiscal Balance (percent of GDP): -4.3, -0.3, 3.8, -2.7, -0.7 (select years). - Interest Expenditure (percent of GDP): 7.6, 3.8, 2.5, 3.7, 4.2 (select years). - Primary Balance (percent of GDP): 3.3, 3.5, 6.3, 1.0, 3.5 (select years). - Central government operations (selected FY values, Millions of Barbados dollars) - Total revenue (2017/18–2025/26 sample): 2,864; 2,994; 3,192; 3,156; 3,260; 2,762; 3,390; 3,162; 3,348; 3,500; 3,659; 3,825. - Total expenditure (2017/18–2025/26 sample): 3,293; 3,024; 2,826; 2,772; 2,964; 3,019; 3,129; 3,233; 3,323; 3,425; 3,581; 3,727. - Interest (Millions BBD): 763; 385; 263; 250; 351; 352; 412; 430; 518; 549; 575; 584. - Public debt (selected totals and ratios) - Public Debt (Millions BBD): 15,843; 12,853; 12,380; 12,651; 12,722; 12,698; 12,623; 12,546; 12,448 (2017/18–2025/26). - Central gov't gross debt (percent of FY GDP): 158.3, 125.6, 122.2, 133.6, 124.2, 117.1, 111.3, 105.8, 100.4 (2017/18–2025/26). - Composition (external/domestic, Millions BBD): External 2,853; 3,340; 3,154; 3,885; 3,921; 3,909; 3,893; 3,861; 3,497. Domestic 12,990; 9,513; 9,226; 8,766; 8,801; 8,788; 8,731; 8,685; 8,951. - Fiscal effects of debt restructuring - Debt restructuring helped reduce interest bill in FY 18/19 and contributed to improved fiscal balance. ### External sector developments - Current account and trade - Current account balance (US$ million, calendar year): -189; -253; -162; -474; -302; -204; -181; -148; -162 (2017–2025). - Exports of goods and services (US$ million): 2,100; 2,098; 2,265; 1,472; 1,898; 2,191; 2,317; 2,468; 2,588 (2017–2025). - Imports of goods and services (US$ million): 2,027; 2,020; 2,098; 1,670; 1,933; 2,111; 2,217; 2,327; 2,455 (2017–2025). - Trade balance (percent of GDP): -14.4; -14.4; -14.4; -10.2; -12.7; -13.6; -13.7; -13.7; -13.9 (2017–2025). - Reserves and financing - Gross international reserves (US$ million): 205.7; 499.6; 738.9; 680.8; 670.8 (select years). - Reserve coverage (months of imports of G&S): 1.2; 3.0; 4.2; 4.9; 4.2 (select years). - Capital and financial account and IFI inflows: declining capital inflows were reversed owing to inflows from IFI loans, contributing to a turnaround in international reserves. - External metrics (percent of GDP) - Current account (percent of GDP): -3.8; -4.0; -3.1; -10.2; -6.0; -3.8; -3.2; -2.5; -2.6 (2017–2025). ### Monetary sector developments - Central Bank and liquidity - Central Bank's claims on central government (Millions BBD) declined after the domestic debt restructuring (series shown). - Banks' reserves at CBB and international reserves increased sharply; commercial banks’ reserves remained high. - Interest rates and credit - T-bill rate declined after the debt restructuring; deposit rate remained very low. - Private sector credit (percent change, 12-month moving avg.): -7.0; -5.0; -3.0; -1.0; 1.0; 3.0; -7.0; -5.0; -3.0; -1.0; 1.0; 3.0 (charted series). - Private sector credit growth remained weak; excess liquidity parked at the CBB. - Monetary aggregates (selected) - Net domestic assets (percent change): 2.8, 4.1, 0.0, 0.0, 3.3, 3.3, 3.3, 3.3, 3.3 (2017–2025). - Broad money (percent change): 1.2, -0.2, 3.0, -3.0, 1.9, 3.1, 3.8, 4.0, 1.7 (2017–2025). ### Selected economic and social indicators (from Table 1) - Population (2017 est., thousand): 286.4 - Adult literacy rate: 99.7 - Per capita GDP (2017 est., US$ thousand): 17.8 - Poverty rate (individual, 2010): 19.3 - Life expectancy at birth (2013): 75.3 - Gini coefficient (2010): 47.0 - Rank in UNDP Development Index (2014): 57 - Unemployment rate (2018 est.): 10.4 ### Key projections and memoranda - Nominal GDP, CY (BDS$ millions): 9,956; 10,173; 10,418; 9,260; 10,086; 10,725; 11,213; 11,723; 12,256 (2017–2025). - Oil price (WTI, US$ per barrel): 50.9; 64.8; 57.0; 32.9; 35.0; 37.9; 39.9; 41.4; 42.7 (2017–2025). - Gross international reserves (US$ million) (selected): 206; 500; 739; 681; 671; 705; 757; 822; 743 (2017–2025). ### Policy implications and priorities (implied by content) - Continue strong program implementation to ensure completion of the third review and access augmentation under the EFF. - Preserve program momentum to sustain fiscal consolidation benefits from debt restructuring (lower interest burden and improved primary/fiscal balances). - Support measures to restore tourism and non-tourism growth, strengthen private sector credit conditions, and maintain reserve adequacy through IFI financing and mobilization of long-term capital flows. *Source: IMF staff report and accompanying tables and figures contained in the Barbados country report content unit.* ### Annex I. Debt Sustainability Analysis ### Annex I. Debt Sustainability Analysis ### Overview - With the external debt restructuring now completed, debt is projected to decrease from 123 to about 107 percent of GDP in the next five years. - COVID-19 induced recession and the relaxation of the fiscal stance in 2020 will need to be compensated by higher primary surpluses in subsequent years to ensure public debt remains on a steep downward trajectory towards 60 percent debt/GDP by end-FY2033/34. - Over the projection period, stress tests suggest that risks to debt sustainability have notably increased because of the COVID-19 crisis and debt remains above the 70 percent of GDP risk assessment threshold under the baseline. - Risks include the need to maintain high primary surpluses and increase medium-term growth; these risks are mitigated by Barbados’ strong track record under the EFF-supported program. ### A. Public Debt Restructuring - The public debt restructuring was completed in two phases: - On October 14, 2018 agreement with domestic creditors achieved an upfront debt reduction of 30 percentage points of GDP through nominal haircuts and lifting guarantees on SOE guaranteed debt, plus longer maturities, longer amortization grace periods, and lower interest rates. - On October 19, 2019 agreement with the external creditor committee: new instrument with 10-year maturity, 5-year grace period, coupon of 6.5 percent, a 25 percent haircut on principal (and a 35 percent haircut on accrued interests and penalties), a BRB$80 million payment in the first two years, and an adverse weather clause. The restructured debt began trading in December close to par; at this exit yield this would translate into a present value loss for creditors of about 30 percent of the principal. - Overall amount of debt restructured was equivalent to about 147 percent of GDP, including claims held by public sector agencies (CBB and NIS). - The restructuring covered central government domestic debt including treasury bills and other short-term claims (overdrafts), central government debt to external commercial creditors, SOE external and domestic debt guaranteed by the central government, domestic expenditure arrears incurred by the central government, and external arrears that started accumulating after the external default. - Bilateral external debt and debt held by multilaterals were excluded from the restructuring perimeter. - Combined with domestic restructuring, fiscal adjustment, and growth measures, the external restructuring helps restore debt sustainability and ensures debt reaches the 80 percent of GDP program medium term anchor in FY2029/30 and the 60 percent of GDP program long-term anchor in FY2033/34. ### B. Public Debt Structure and Profile After the Restructuring - At end FY2019/20, public debt was about 122 percent of GDP, down from about 126 percent of GDP in FY2018/19. - Public domestic debt decreased from about 93 to 90 percent of GDP. - Short term central government (CG) debt decreased from 9 to 6 percent of GDP primarily due to consolidation and offsetting of multiple overdraft facilities. - Long term CG debt decreased from 84 to 83 percent of GDP due to ongoing amortization. - Domestic arrears decreased from 3 to about 1 percent of GDP due to repayment of domestic expenditure arrears. - Public external debt decreased from about 33 to 31 percent of GDP due to: IDB and CDB budget support loans (~3 percentage points of GDP), IMF disbursement (~1 percent of GDP), external debt restructuring immediate relief (~4 percent of GDP), and amortization of non-restructured debt (remainder). - Profile improvements: - Domestic restructuring reduced debt service by swapping short-term debt for long-term debt or discounting it; restructured securities have long amortization grace periods and low interest rates. - External restructuring introduces a 5 year grace period on commercial debt amortization and smooths debt service thereafter. - Together with large fiscal adjustment, these keep gross financing needs well below the 15 percent risk assessment threshold (subject to exceptions noted below). ### C. Public Debt Sustainability Assessment Assumptions - Growth and Inflation: - FY GDP growth: from minus 3 percent in 2019 to about minus 7 percent in 2020 due to tourism shock from COVID-19. - Medium term: growth expected to recover slowly, stabilizing to long-term average of around 1.8 percent in 2022-24. - Average inflation: projected to increase to 4.5 percent in 2020; medium term return to around 2.3 percent in 2022-24. - Fiscal multiplier used: 0.3 (FAD methodology guidance). - Staff used conservative assumptions; downside risk remains if recovery does not materialize. - Primary Balance: - FY2020/21 primary balance projected to decrease to 1 percent of GDP as countercyclical response. - Primary balance assumed to gradually increase to 5.5 percent by FY2022/23, then gradually decrease to 5 percent and stabilize at this level until the long-term anchor in FY2033/34. - Staff assesses programmed fiscal adjustment as realistic with low probability of “adjustment fatigue”. - Arrears: - Domestic expenditure arrears are gradually repaid and fully extinguished by end-FY2022/23. ### D. Projections - Overall risks: - Risks to debt sustainability have notably increased; debt remains above 70 percent of GDP under the baseline. - COVID-related fiscal accommodation raises gross financing needs (GFNs) close to the 15 percent threshold. - Medium-term compensation via higher primary surpluses is required to reach 60 percent debt/GDP by FY2033/34. - Key projection figures: - Public debt-to-GDP ratio projected to decrease from 123 to about 107 percent between FY2019/20 and FY2024/25. - In 2020, debt projected to increase from 123 to about 136 percent of GDP. - Contributors to 2020 increase (percentage points): primary balance contributes minus 1; contraction in GDP contributes about 10; interest expenditure contributes about 3; augmentation of the EFF arrangement contributes about 2. - Over the projection period: - Cumulative impact of primary surplus: about minus 27 percentage points of GDP. - Automatic debt dynamics: contribute about 8 percentage point of GDP. - Cumulative impact of real GDP growth: about minus 3 percentage points. - Cumulative impact of real interest rate: about 11 percentage points (more than offsetting growth effect). - Public debt projected to be below 60 percent of GDP by end-FY2033/34. - Gross financing needs expected to remain below the 15 percent threshold except where stressed in 2020. - Public short-term debt projected not to exceed 5 percent of GDP; debt management targets max 5 percent of GDP in short-term debt. - By end FY2033/34, long-term and short-term debt projected to be about 55 and 5 percent of GDP, respectively. - External debt projected to decline to 8 percent of GDP by end-FY2033/34. - Public debt management assumes a 50 percent rollover ratio of commercial external debt maturing. ### E. Stress Tests - General outcomes: - Debt level remains above the 70 percent of GDP risk assessment threshold and GFNs exceed the 15 percent threshold only in 2020 under the primary balance, real GDP, combined macro, and contingent liability stress scenarios. - Debt remains above 70 percent but on a steep downward trajectory; combined macro and contingent liability shocks significantly affect this trajectory. - Combined and contingent liability shocks would result in a debt-to-GDP ratio 20 percentage points higher than baseline by end-FY2024/25. - Gross financing needs: - GFNs breach the 15 percent threshold only in 2020 under the primary balance, real GDP, combined macro, and contingent liability scenarios. - Elevated GFNs in FY2020/21 are solely due to the lower primary balance; with a balanced budget assumed thereafter, GFNs remain well below 15 percent. - About 50 percent of GFNs have no rollover risk: commercial banks committed to rollover the full stock of T-bills for 10 years and the rest of short-term debt is held by the CBB. - Domestic restructuring reduced short-term debt to less than 5 percent of GDP and provided long grace periods on restructured long-term securities; hence GFNs are not meaningfully affected by real GDP, primary balance, interest rate, or combined shocks. - Debt profile vulnerabilities: - Significantly reduced after restructuring. - External debt now trading at par on the secondary market; risks from market sentiment are below the 600 basis points threshold. - External debt held by non-residents is above the risk assessment threshold of 15 percent. - Share of external debt expected to decrease over time as debt management favors domestic and cheaper external concessionary financing. - Risks from external financing requirements are below the lower risk assessment threshold of 3 percent. - Confidence intervals: - Stress tests produce narrow confidence intervals for debt and GFNs due to drastically reduced debt service requirements from the domestic restructuring and the fixed exchange rate. - Sensitivity of debt and GFNs is higher for growth and primary balance shocks. - Contingent liability shock composition (as applied in stress testing): - Includes a 1 standard deviation of real GDP growth, a 25 basis points decrease in inflation for every 1 percentage point decrease in real growth, unchanged fiscal revenues, an increase in expenditures of 5 percent of the size of the banking sector, and interest rate increase by 25 basis points for every 1 percent of GDP deterioration in the primary balance. *IMF staff calculations as presented in Annex I. Debt Sustainability Analysis* ### 14. External debt is projected to decrease to about 33 percent of GDP by FY2024/25 with a ### 1brbea2020001 - 14. External debt is projected to decrease to about 33 percent of GDP by FY2024/25 with a ### Key findings and projections - External debt is projected to decrease to about 33 percent of GDP by FY2024/25 with a low risk profile. - Large external financing sources for 2020 explain the increase in debt for that year. - After debt restructuring, risks from the external debt profile are reduced through smoother and lower debt service and gross financing needs. - External debt is not projected to be higher than about 39 percent of GDP by FY2024/25 under any of the stress tests considered. ### Public debt dynamics and composition (selected indicators) - Nominal gross public debt (FY GDP percent, selected years shown in text/figures): 2017: 122.1; 2018: 158.3; 2019: 125.6; 2020: 122.7; 2021: 136.2; 2022: 127.0; 2023: 120.1; 2024: 113.8; FY2024/25 (projection referenced above): about 107.4 (figures as presented in the source). - Public gross financing needs (in percent of FY GDP, selected years): 2017: 33.8; 2018: 51.3; 2019: 15.0; 2020: 11.1; 2021: 14.3; 2022: 11.3; 2023: 8.4; 2024: 9.0; FY2024/25: 8.5 (values as presented in the source). - Effective interest rate (in percent, projections by year shown in source): 2019: 2.9; 2020: 3.4; 2021: 4.1; 2022: 4.4; 2023: 4.6; 2024: 4.6 (values as presented in the source). ### Stress tests and scenario outcomes - Under multiple stress tests (Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, Contingent Liability Shock), gross nominal public debt remains below stress thresholds reported in the source. - External-debt boundary tests (Figure 7 excerpts) show: - Baseline external debt around 33 percent of FY GDP in the projection horizon. - Interest rate shock scenario and other individual shocks produce higher debt paths, but none exceed about 39 percent of GDP by FY2024/25 per the summary text. - External financing requirement definition used in risk assessment: sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period. ### External Debt Sustainability Framework — Selected table highlights (2014–2024, in percent of FY GDP unless otherwise indicated) - Baseline: External debt (by year): 2014: 34.1; 2015: 34.0; 2016: 31.3; 2017: 28.5; 2018: 32.6; 2019: 31.1; 2020: 41.0; 2021: 38.3; 2022: 36.0; 2023: 34.3; 2024: 32.6. - Change in external debt (by year): 2014: 1.0; 2015: -0.1; 2016: -2.7; 2017: -2.8; 2018: 4.1; 2019: -1.5; 2020: 9.9; 2021: -2.8; 2022: -2.2; 2023: -1.7; 2024: -1.8. - Identified external debt-creating flows (by year): 2014: 2.4; 2015: 0.3; 2016: 0.0; 2017: -0.2; 2018: -1.0; 2019: -0.7; 2020: 11.3; 2021: 0.0; 2022: -1.4; 2023: -1.9; 2024: -2.6. - Current account deficit, excluding interest payments (by year): 2014: 7.5; 2015: 4.4; 2016: 2.5; 2017: 2.1; 2018: 3.5; 2019: 2.6; 2020: 8.4; 2021: 4.1; 2022: 2.0; 2023: 1.5; 2024: 0.9. - External debt-to-exports ratio (in percent, by year): 2014: 84.6; 2015: 82.4; 2016: 73.1; 2017: 67.9; 2018: 79.6; 2019: 69.6; 2020: 132.0; 2021: 103.3; 2022: 89.2; 2023: 84.0; 2024: 78.2. - Gross external financing need (in billions of US dollars, by year): 2014: 0.5; 2015: 0.4; 2016: 0.3; 2017: 0.3; 2018: 0.3; 2019: 0.2; 2020: 0.6; 2021: 0.4; 2022: 0.3; 2023: 0.3; 2024: 0.2. - Gross external financing need (in percent of FY GDP, by year): 2014: 10.5; 2015: 9.0; 2016: 6.5; 2017: 6.6; 2018: 5.6; 2019: 4.4; 2020: 11.9; 2021: 7.3; 2022: 5.3; 2023: 4.7; 2024: 4.1. - Scenario with key variables at their historical averages (10-Year averages shown in table): 10-Year: 31.1; 10-Year: 30.7; 29.2; 29.8; 31.6; 34.1; -4.4 (as presented in table row header context). ### Policy context and program actions (from Letter of Intent) - Barbados completed a public debt restructuring and has tripled international reserves to US$850 million as of April 2020. - Authorities request an augmentation of access under the EFF of 70 percent of quota (SDR66 million, or about US$90 million) to be made available at the time of the third review under the EFF. - A Memorandum of Understanding will be established regarding responsibilities for servicing financial obligations to the IMF, given disbursement for budget support. - Authorities target a lower-than-envisaged primary surplus for FY2020/21 of 1 percent of GDP, down from 6 percent of GDP originally envisaged under the BERT Plan. - The Government requests completion of the third review of the extended arrangement under the Extended Fund Facility, modification of five performance criteria relating to the primary balance, net international reserves, and net domestic assets, transfers to State-Owned Enterprises and debt, and resetting of four structural benchmarks. *Source: IMF staff.* ### introduction of a fiscal rule) had to be delayed. We also request the introduction of one new ### Attachment I. Supplementary Memorandum of Economic and Financial Policies ### I. Programme objectives and growth strategy - Barbados has embarked on a comprehensive Economic Recovery and Transformation (BERT) plan aimed at restoring fiscal and debt sustainability, addressing falling reserves, and increasing growth. - Target: debt-to-GDP ratio of 60 percent by 2033. - Strategies: fiscal consolidation, policies to boost growth, reform of public finances, and debt restructuring to support private sector-led investment and growth. - Vision elements: green, climate resilient, fossil-fuel free; smart, technological nation; culturally rich and diverse; cohesive nation with social justice and economic opportunity. - IMF engagement and program status: - IMF Executive Board approved a four-year extended arrangement under the Extended Fund Facility (EFF) on October 1, 2018. - First review of the Extended Arrangement under the EFF approved June 2019; second review approved December 2019. - By April 2020, international reserves had recovered to almost US$850 million, and a restructuring of public debt had been completed. - Completion of the debt restructuring: important in reducing economic uncertainty and placing public debt on a downward trajectory; reduces Government interest bill and creates fiscal space. - Programme implementation and governance: - Continued meeting of BERT and EFF programme targets despite coronavirus outbreak; all quantitative targets for end-December 2019 and end-March 2020 were met. - FY2019/20 primary surplus: 6 percent of GDP. - Structural benchmarks achieved: BCED established a Trusted Traders program in March 2020; Barbados Revenue Authority implemented measures to improve on-time filing rates. - Broad societal support via Social Partnership; BERT Monitoring Committee (BERT MC) established with monthly monitoring and quarterly published reports. ### II. Fiscal policies for the remainder of FY2020/21 and beyond - COVID-19 impact and fiscal posture: - Projected impact on FY2020/21: government revenue could decline by about 4 percent of GDP; additional health outlays, supports to vulnerable households and transfers to public institutions could amount to about 1 percent of GDP. - Revised primary surplus target for FY2020/21: 1 percent of GDP (down from 6 percent of GDP under original BERT Plan and 6 percent achieved in FY2019/20). - Note: FY2020/21 primary surplus target may need further lowering depending on epidemic duration. - The budget for FY2020/21 was passed by Parliament in March 2020. - Crisis response measures: - Purchase of government bonds that the NIS holds to facilitate unemployment benefits and provide cash to NIS. - Accelerate planned repayment of remaining VAT and income tax arrears to provide critical cash to the economy. - Start cultivation of 750 acres of land to enhance food security. - Work with IDB’s private sector lending arm to establish a Barbados Tourism Facility to provide working capital and investment loans to Barbadian hotels. ### Tax policy and administration reforms - Corporate Income Tax (CIT) reform: - Unified treatment of domestic and international companies; single converged scale of tax rates. - Profits up to BRB$1 million taxed at 5.5 percent. - Profits above BRB$30 million taxed at 1 percent (with two intermediate brackets). - Several allowances, including foreign currency earnings allowance, abolished. - Expectation: reform to be revenue neutral in part because the rate for the highest income bracket increased from 0.25 percent to 1 percent. - Objective: create an excellent climate to do business in Barbados. - Personal Income Tax (PIT) and revenue measures: - Top PIT rate reduced to 28.5 percent as of January 1, 2020. - To compensate for revenue loss: VAT base broadened; land taxes and tourism room rate levies increased; new gaming taxes and online taxes introduced. - Goal: modern tax system supporting growth and enhancing fairness. - Strengthening tax administration: - BRA introduced measurable targets to improve on-time filing for CIT and VAT from less than 50 percent to 75 percent over Calendar Year 2019 (structural benchmark for end-December 2019). - Outcomes: on-time filing rates for VAT increased to 86 percent and for CIT rose to 97 percent. - BRA progress on Tax Administration Management Information System (TAMIS); legacy IT systems to be retired. - Commitment: all refunds due to taxpayers to be paid within six months after the filing date going forward. - Large taxpayer segment: - By June 2020, BRA will (structural benchmark): (i) execute an initial 20 “issue based” audits on large taxpayers, and (ii) develop a risk-based compliance plan to improve on-time filing and payments. - Status: BRA has commenced “issue based” audits on 30 companies. - Target during 2020: on-time filing for all large taxpayers to move to over 90 percent for core taxes (VAT, CIT, PAYE). - LTU compliance improvement plan to be developed and fully implemented by September 2020 with sectoral KPIs, baselines, and timely reporting. ### Modernization of Customs (BCED) - Priorities: traceability, targeting of cargo, clearance of goods, post clearance audit, special regimes controls; improved risk assessment and governance, operational standards, legal framework, and staff retention. - Revised benchmarks and achievements: - Trusted Trader Program (TTP) established with at least 8 companies participating (structural benchmark for end-March 2020). - By end-August 2020 BCED will: - Deploy staff to the exemption monitoring unit and undertake at least eight exemption verification assignments (process begun via Cargo Inventory Management Unit; more than 8 verifications completed). - Train and deploy at least 6 officers full-time in the post clearance audit unit and undertake at least 8 field audits (post clearance audit unit established and fully staffed – 4 audits completed to date). - Undertake post release verification and subject at least 3500 entries to this control (about 1500 entries have been subjected to this control). ### A Fiscal Rule - Government intends to seek Parliamentary approval of a fiscal rule to enhance fiscal transparency and lock in fiscal consolidation gains (reset structural benchmark for end-June 2021). - Key elements to be designed with IMF Fiscal Affairs Department technical assistance: - Aim: limit annual budgeted overall fiscal deficits of the public sector to achieve reduction in public debt to no more than 60 percent of GDP by 2033. - Coverage: all fiscal activities associated with the public sector, including SOEs (term includes commercial entities, statutory bodies, and other public entities), and fiscal implications of PPPs (capturing actual or contingent fiscal liabilities and risks). - Automatic correction mechanism: triggered by substantial cumulative deviations from the annual overall balance target; once cumulative deviations exceed a pre-specified threshold, additional fiscal adjustment required in subsequent years. - Escape clause: limited to major adverse shocks and triggered only with Parliamentary approval or ratification; will pre-define list of events and measurable conditions for triggering. - Institutional arrangements and legal options: consider requiring an independent body to assess macroeconomic projections, disclose budget execution with respect to the fiscal rule, support transparency via Parliamentary hearings, and require the Minister of Finance to explain deviations in a mid-term budget review and outline corrective steps. ### Reforms to Public Financial Management (PFM) and the Budget Process - Financial Management and Audit (FMA) Act: - Adopted by Parliament in January 2019 and proclaimed in July 2019 (structural benchmark); most provisions to enter into force in 2020. - Introduces measures to improve PFM, fiscal transparency, and strengthen SOE oversight. - CARTAC executing training for finance officers in SOEs on obligations under the FMA Act. - Action plan highlights: - Strengthen strategic phase of budget formulation: annual update of BERT Plan, setting budget ceilings in accordance with BERT, clear Cabinet instructions for budget submissions. - Reform Budget Documentation: Annual Budget Documentation (Budget Estimates) to include assessment of alignment between fiscal framework and fiscal objective and description of revenue/expenditure measures. - Strengthen Government procurement efficiency and transparency: audit of crisis expenditures, publication of contracts and names of successful bidders (and beneficial owners), ex post verification of delivery. - Review legal and regulatory framework for PPPs: define PPPs, integrate into investment strategy and medium-term fiscal framework, safeguard public finances against PPP fiscal risks, ensure transparent competitive processes and reporting/auditing in line with international standards. ### Debt restructuring, debt management, and arrears - Debt restructuring: - Comprehensive restructuring including external debt to private creditors and treasury bills announced June 1, 2018. - Agreement with domestic creditors announced October 15, 2018, with support from commercial banks, insurers, NIS, CBB, and smaller creditors. - November 2019: agreement with External Creditor Committee on terms for restructuring US dollar-denominated commercial debt. - Upfront face value reduction: 26 percent. - Agreed interest rate: 6.5 percent. - These terms support medium-term targets: 80 percent debt/GDP by 2029/30, and 60 percent by 2033/34. - Inclusion of a natural disaster clause to build financial resilience. - Central Bank and NIS implications: - Debt restructuring has impacted the CBB’s capital; plans to recapitalize the CBB will be developed. - Plans to address medium and long-term challenges for the NIS stemming from the debt restructuring (reset structural benchmark for end-December 2020). - Debt management improvements: - Establishment of a Debt Management Committee. - Development and implementation of a medium-term debt management strategy (MTDS) with objective to meet financing needs at lowest possible cost consistent with prudent risk. - Commitment to publish medium-term debt strategy and borrowing plan with the budget annually. - Review of debt management practices including auction mechanism effectiveness for long-term debt. - Expenditure arrears and SOE oversight: - Domestic expenditure arrears are being gradually reduced and resolved; commitment not to run new expenditure arrears. - System developed for monitoring SOE arrears on an ongoing basis. - Legislation introduced requiring Minister of Finance approval for all borrowing by SOEs. - Government guarantees for SOE loans where SOE is not commercial and dependent on Central Government, or borrowing is not for commercial purpose. - Program includes a target for non-accumulation of new SOE arrears. *Source: Attachment I. Supplementary Memorandum of Economic and Financial Policies.* ### 22. The Government is committed to modernising and improving the efficiency, quality ### 22. The Government is committed to modernising and improving the efficiency, quality ### Public sector modernisation and State-Owned Enterprise (SOE) reform - Ongoing analysis of public programmes to classify: essential, highly desirable, optional, or better delivered elsewhere; entails adjustment and rationalisation of SOEs and some Government Departments. - Retooling, empowering, retraining, and enfranchising public sector workers to improve effectiveness; two studies underway to review public sector labour laws. - Comprehensive review of all state-owned entities to identify potential for efficiency gains, cost recoveries, and enfranchisement through divestment of entities and/or activities. - SOEs listed in the TMU have submitted standardized quarterly financial reports (structural benchmark); consolidated report prepared and first report submitted to Parliament together with the Budget Estimates in early April 2019 (structural benchmark). - Review of all tariffs and fees charged by SOEs completed in September 2019 (structural benchmark). - Price and fee adjustments implemented: increased bus fares; adjusted water rates; introduced an interim health levy; airline & travel development fee; garbage and sewage contribution levy. ### Fiscal management, legal framework, and oversight - Financial Management and Audit (FMA) Act adopted by Parliament in January 2019: - Confers greater autonomy to the Ministry of Finance to oversee SOEs. - Ensures prior approval of all borrowings and other assumptions of liabilities. - Establishes clear definitions for classification of public entities, roles and responsibilities, tighter reporting requirements for SOEs, and sanctions for noncompliance. - Commitment to table a revised public pension law by end-December 2020 (reset structural benchmark). - Actuarial review of the civil service pension system to be conducted by end-September 2020 (reset structural benchmark). - External consultants hired to cost different pension systems for new entrants; considerations include making the public service scheme contributory for new employees, increasing the earliest age of eligibility for new employees, and reducing the rate of benefit accrual for each year of service for new employees. ### Social protection and mitigation for restructuring - Programme measures to mitigate adverse effects of SOE restructuring: - Models of worker enfranchisement. - Preferential access to public procurement and agricultural lands owned by the State for those displaced. - Enhanced severance packages. - Household Survival Programme managed by a Household Mitigation Unit to track and support affected workers, including support and training opportunities for the self-employed and newly unemployed. - Response measures to the coronavirus pandemic build on pre-existing protections for those affected by public sector restructuring. ### Monetary and financial sector policies - Exchange rate peg to the US dollar maintained since 1975 as a key anchor; strong commitment to maintain the peg and rebuild international reserves. - Amendments to the Central Bank Law: - Draft prepared; process of review ongoing with stakeholders. - Legal technical assistance from the IMF received to meet international best practice and address safeguards assessment issues. - Submit amended Central Bank Law to Parliament by end-September 2020 (new structural benchmark). - IMF completed its Safeguards Assessment of the Central Bank of Barbados; outstanding recommendations to be implemented. - Gradual relaxation of exchange controls (targeted approach to increase investor confidence while protecting reserves): - Effective August 1st, 2019: all Barbadians allowed to open foreign currency denominated accounts. - Effective August 1st, 2019: foreign currency proceeds from the sale of assets may be repatriated in foreign currency or kept locally in a foreign currency account. - Effective August 1st, 2019: eliminated the surrender requirement of 70 percent of foreign exchange brought into Barbados. - Increased select foreign exchange limits, e.g., personal travel facilities. - Increased delegated authority to foreign exchange dealers to approve foreign exchange transactions without reference to the Central Bank. - Central bank and commercial bank measures in March 2020 in response to the coronavirus crisis: - Reduction of the overnight lending discount rate from 7 to 2 percent. - Reduction of the minimum statutory holding requirement for government securities from 17.5 to 5 percent of deposits. - Commercial banks announced a six-month moratorium on loan repayment and revised loan terms on new loans for individuals and firms affected by the pandemic. - Commitment to strengthen AML/CFT framework in keeping with action plan agreed with the FATF to promptly exit the FATF’s International Review Group process. ### Growth-enhancing reforms and human capital - Barbados Economic Recovery and Transformation Plan pillars: - (i) invest in a high-skilled, productive, and knowledge-based economy (skills training and education); - (ii) better mobilize private domestic savings for local investment; - (iii) make Government an enabler of growth by improving ease of doing business, accelerating licensing, and increasing predictability of fiscal and regulatory environment; - (4) diversify the economy into renewable energy, high-tech and software development, complementing traditional services sectors. - Knowledge-based initiatives: - Large commitment to retooling and retraining Barbadians over the next 4 years across all sectors and levels. - Launched Barbados Youth Advance Corps to cater to 1,000 students per year for a 2-year programme. - Launched National First Jobs Initiative and apprenticeship scheme. - Reintroduced return to free tertiary education at vocational, technical and undergraduate levels. - Plans to integrate Barbados Community College, Samuel Jackson Polytechnic and Erdiston Teacher Training College. - Reforms to secondary schooling to support improved teaching and performance. - Improve efficiency in post-secondary and tertiary institutions and reinvest savings into enhanced offerings. - Justice and dispute resolution: - Established a Commercial Court; Commercial Judges appointed. - Introduce new legislation compliant with UNCITRAL for arbitration and alternate dispute resolution. - Appointed five additional judges to the criminal courts (three temporary) to address backlog; additional Criminal Courts intended to ensure serious cases can be dealt with within six to nine months. - Gender and labour participation: - Facilitate opening of day care facilities in industrial parks and key Government office buildings over the next two years. - Develop paternity leave legislation expected to be introduced by end FY2020/21. - Digitalisation and service delivery: - Government began facilitating services online: drivers’ licenses, police certificates of character, planning and development applications; plans to add customs clearance, passports, and other functions. - Ministry of Innovation Science and Smart Technology earmarked seven departments to start digitalization: Immigration Department, Civil Registry and the Courts, Police Department, International Business division, BCED, Town and County Planning Office, Barbados Licensing Authority. - IDB-funded programme to be scaled up in the current fiscal year to accelerate access to goods and services online and a new digital economy; aims to engage newly-unemployed workers, in particular women. ### Business climate reforms - World Bank Doing Business Reform Note outlines short-, medium- and long-term measures to improve Barbados’ Doing Business ranking and investment climate. - Doing Business Sub-Committee of Cabinet and Private Sector Committee established to execute and monitor reforms by indicator, including registry and regulatory service delivery. - Early improvements observed in time to receive planning decisions and Financial Services Commission registrations. ### Selected structural benchmarks and targets (highlights) - Prior Action: Government to launch exchange offer for debt restructuring before Board 10/1/18 — Met. - Structural Benchmarks for first review (end-December 2018): - Parliament to adopt revised FMA Act — end-December 2018 — Not met (Implemented with delay). - All SOEs listed in TMU to prepare and submit standardized quarterly financial reports — end-December 2018 — Met. - Government to launch a training and outplacement programme for SOE restructuring mitigation — end-December 2018 — Met. - Parliament to adopt new Town and Country Planning legislation — end-December 2018 — Not met (Implemented with delay). - Establish Sandbox regime for fintech start-ups — end-December 2018 — Met. - LTU to update taxpayer accounts and commence audits — end-December 2018 — Met. - Structural Benchmarks for second review: - Comprehensive review of the tax system — end-June 2019 — Met. - Comprehensive review of all tariffs and fees charged by SOEs — end-September 2019 — Met. - Governor General to proclaim the FMA Act — end-July 2019 — Met. - Structural Benchmark (third review): - Parliament to enact an amended Central Bank Law — end-December 2019 — Not met (Proposed reset for end-December 2020). - Future and proposed structural benchmarks (selected): - Government to submit to Parliament an amended Central Bank Law — end-September 2020 — Proposed new Structural Benchmark. - Actuarial review of the civil service pension system — end-June 2020 — Proposed reset to September 2020. - Government to table a revised public pension law — end-June 2020 — Proposed reset to December 2020. - Government to develop plans to recapitalize the CBB and address NIS challenges stemming from debt restructuring — end-June 2020 — Proposed reset to December 2020. - Government to table legislation for a fiscal rule developed with IMF technical assistance — end-December 2020 — Proposed reset to June 2021. ### Selected quantitative program figures (as reported) - Exchange peg maintained since 1975. - Barbados Youth Advance Corps: 1,000 students per year for a 2-year programme. - Overnight lending discount rate reduced from 7 to 2 percent. - Minimum statutory holding requirement for government securities reduced from 17.5 to 5 percent of deposits. - Surrender requirement eliminated: 70 percent. - Criminal case adjudication target: within six to nine months for serious cases. - Structural benchmark dates and statuses include multiple end-December 2018, end-March 2019, end-June 2019, end-September 2019, end-December 2019, end-June 2020, end-September 2020, end-December 2020, and end-June 2021 milestones as specified above. *Source: 1brbea2020001 - 22. The Government is committed to modernising and improving the efficiency, quality* ### 1. This Technical Memorandum of Understanding (TMU) sets out the understanding ### 1brbea2020001 - 1. This Technical Memorandum of Understanding (TMU) sets out the understanding ### Purpose and scope - Sets out the understanding between the Barbados authorities and the IMF regarding: - Definitions of quantitative performance criteria (PCs) and indicative targets (ITs) for the program supported by the arrangement under the Extended Fund Facility (EFF). - Modalities for assessing performance under the program and information requirements for monitoring performance. - PCs and ITs are shown in Table 1 of the MEFP. Prior actions and structural benchmarks are listed in Table 2 of the MEFP. - For program monitoring purposes, PCs and ITs are set for: - June 30, 2020; - September 30, 2020; - December 31, 2020; and - March 31, 2021. - The same variables are ITs for September 30, 2020; December 31, 2020; and June 30, 2020. ### Definitions and valuation conventions - Foreign currency-related assets, liabilities and flows will be evaluated at “program exchange rates” except items affecting Government fiscal balances, which are measured at current exchange rates. - The program exchange rates are those that prevailed on 08/29/2018. Table 1 lists the rates (Average daily selling rates as reported by the CBB). - Barbad ian dollar to the US dollar: 2.0000 - Barbadian dollar to the SDR: 0.345745 - Barbadian dollar to the euro: 2.3392 - Barbadian dollar to the Canadian dollar: 1.54662 - Barbadian dollar to the British pound: 2.5739 - Barbadian dollar to the East Caribbean dollar: 0.74074 - Barbadian dollar to the Belizean dollar: 1.00000 - Central Government (CG): - Consists of institutions currently covered under the state budget including transfers to SOEs. - Revenues and expenditures cover all items included in the CG budget as approved by Parliament. - Fiscal year: starts on April 1 and ends on March 31 of the following year. - Definition of debt follows paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision 15688 (14/107), adopted on December 5, 2014): - “Debt” means a current (i.e., not contingent) liability created under a contractual arrangement through provision of value (assets or services) requiring obligor to make one or more payments in assets or services at future dates to discharge principal and/or interest. - Primary forms include: - i) loans (including deposits, bonds, debentures, commercial loans, buyers’ credits), temporary exchanges equivalent to fully collateralized loans (repurchase agreements, official swap arrangements); - ii) suppliers’ credits (deferred payments for goods/services); and - iii) leases (debt equals present value at inception of all lease payments expected during agreement, excluding payments for operation, repair, or maintenance). - Arrears, penalties, and judicially awarded damages from failure to make payment under a contractual obligation that constitutes debt are debt. - External CG debt: debt contracted or guaranteed by the CG in foreign currency. - Domestic CG debt: debt contracted or guaranteed by the CG in Barbados dollars. - A CG guarantee arises from any explicit legal or contractual obligation of the CG to service a debt owed by a third-party debtor. - CG debt is considered contracted when authorized by Barbadian law or approved by Parliament and signed or accepted by the relevant authority. - Public institutions covered under Section I (listed verbatim in source): - Queen Elizabeth Hospital - University of the West Indies - Barbados Tourism Marketing Inc. - Sanitation Service Authority - Barbados Agricultural Management Corporation - Barbados Community College - National Conservation Commission - Transport Board - Child Care Board - NLICO - Barbados Water Authority - National Assistance Board - Barbados Cane Industry Corp. - Barbados Investment and Development Corporation - Invest Barbados - National Housing Corporation - Barbados Tourism Product Inc. - Student Revolving Loan Fund - Urban Development Commission - Barbados Agricultural Development and Marketing Corporation - Barbados Tourism Investment Inc. - Rural Development Commission - Caves of Barbados Limited - Barbados Conferences Services - Fair Trading Commission - Kensington Management Oval Inc. - National Accreditation Board - National Productivity Council - Financial Services Commission - Southern Meats - Gymnasium - Cultural Industries Development Authority - Caribbean Broadcasting Corporation ### I. Quantitative Performance Criteria (PCs) A. Floor on the CG Primary Balance - Definition: - CG primary balance = total revenues and grants minus primary expenditure (covers non-interest Government activities as specified in the budget). - Measured as cumulative over the fiscal year and monitored above the line. - Recording conventions: - Revenues recorded when funds are transferred to a Government revenue account; tax revenues net of tax refunds. - Tax refunds recorded when funds for repayment are transferred to the BRA from the Barbados Treasury Department. - Revenues include grants. Capital revenues exclude revenues from non-financial asset sales from divestment operations. - Central Government primary expenditure recorded on a cash basis and includes recurrent expenditures, capital spending, and transfers to SOEs. - Primary expenditures settled with bonds or other non-cash liability treated as one-off adjustments, recorded as spending above-the-line, financed with debt issuance, and affect the primary balance. - Adjustor: - Primary balance target adjusted upward (downward) by the surplus (shortfall) in disbursements of grants relative to the baseline projection. - Reporting: - Data provided to the Fund on a monthly basis with a lag of no more than four weeks from the end-of-period. B. Ceiling on Stock of Net Domestic Assets (NDA) of the Central Bank of Barbados (CBB) - Definition: - NDA = difference between the monetary base and the sum of the NIR and commercial banks’ and Part III companies’ foreign currency deposits at the CBB. - Monetary base includes currency in hands of non-bank public, vault cash, statutory cash reserve requirements, and the current account of commercial banks and non-bank financial institutions (Part III companies) comprising credit balances held at the Central Bank. - Reporting: - Data reported monthly with a lag of no more than two weeks from the end-of-period. C. Floor on Net International Reserves (NIR) - Definition: - NIR = reserve assets minus reserve liabilities with maturity of less than one year. - Reserve assets include: - CBB’s holdings of monetary gold, SDRs, foreign currency cash, foreign currency securities, deposits abroad, and the country's reserve position at the Fund. - Excluded: sinking funds’ assets; assets pledged, collateralized, or otherwise encumbered; claims on residents; claims in foreign exchange arising from derivatives vis-a-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; and illiquid assets. - Reserve liabilities include: - (1) all foreign exchange liabilities to residents and nonresidents with maturity of less than one year, including commitments to sell foreign exchange arising from derivatives; - (2) all liabilities outstanding to the IMF. - Adjustors: - NIR target adjusted upward (downward) by 75 percent of surplus (shortfall) in program loan disbursements from multilateral institutions (Caribbean Development Bank (CDB), the Interamerican Development Bank (IDB), and the Development Bank of Latin America (CAF)) relative to baseline. - NIR target adjusted upward (downward) by surplus (shortfall) in disbursements of budget support grants relative to baseline projection. - Reporting: - Data reported by the Central Bank on a daily basis, with a lag of no more than one week from the end-of-period. D. Non-accumulation of CG External Debt Arrears - Requirement: - CG will not incur new arrears in payments of its external debt obligations at any time during the program. - Definition: - External arrears = delay in payment of contractual obligations beyond the grace period set in the loan/debt contracts. - Excludes arrears resulting from nonpayment for which a clearance framework has been agreed or where Government (or institution with Government-guaranteed debt) is pursuing debt restructuring. - Application: - Performance criterion applied on a continuous basis. - Reporting: - Data on external arrears by creditors will be reported immediately. E. Ceiling on CG Transfers and Grants to Public Institutions - Definition: - Includes cash transfers and grants to entities listed in paragraph 3. - Reporting: - Measured as cumulative over the fiscal year; reported monthly with a lag of no more than four weeks from the end-of-period. F. Ceiling on the Stock of Public Debt - Definition: - Public debt = domestic and external CG debt, SOEs debt guaranteed by the CG, and domestic CG expenditure arrears. - Interest and penalties arrears resulting from non-payment of debt service on external commercial debt subject to debt restructuring are excluded. - Stock of CG and CG guaranteed debt measured on disbursement basis excluding valuation effects. - Program FX rates (Table 1) used to value debt in FX. - Adjustors: - Ceiling adjusted upwards by full amount of surplus in disbursements from multilateral institutions (CDB, IDB, CAF) relative to baseline. - Ceiling adjusted downward by amount of nominal debt forgiveness in case of debt restructuring. - Reporting: - CG debt and CG guaranteed debt data by issuer, creditor, maturity, and currency reported quarterly with a lag of no more than four weeks from the end-of-period. - Data on external and domestic arrears reported as set forth elsewhere in the TMU. ### II. Indicative Targets (ITs) A. Ceiling on the Stock of Domestic CG Expenditure Arrears - Definition (components of stock): - (a) any invoice received by a spending agency for verified goods, services, capital goods delivered and not paid within contractually agreed period (or within 60 days after due date if no grace period); - (b) non-contributory pension transfers (by CG only), wages and pensions contributions to the NIS pending for longer than 60 days; - (c) rent and loan payments to the NIS pending for longer than 60 days; - (d) arrears on refunds of PIT, RTC, CIT, and VAT. Tax refund arrears = obligations on tax refunds that remain unpaid six months after the filing date. - Reporting: - Data on CG expenditure arrears and components by creditors measured as cumulative over the fiscal year; reported by the EPOC monthly with a lag of no more than four weeks from the end-of-period. B. Floor on CG Social Spending - Scope (applies only to expenditures incurred by the CG on specified plans and programs, excluding operating expenditure): - Intended to have a positive impact on education, health, social protection, housing and community services and recreational activities. - Included programs: - Welfare Department spending including cash transfers and assistance for house rents, utilities, food, and education to the poor and vulnerable; - Child Care Board spending on protection of vulnerable children; - Youth Entrepreneurship Scheme assisting jobless youth to start own businesses; - Strengthening Human and Social Development programme targeting the unemployed and vulnerable families and youth; - Alternative Care for the Elderly programme targeting the elderly transferred to private care; - Provision of medication to HIV patients. - Reporting: - Data measured as cumulative over the fiscal year; reported quarterly with a lag of no more than four weeks from the end-of-period. C. Ceiling on the Stock of Public Institutions Expenditure Arrears - Definition: - (a) any invoice received by a spending agency for verified goods, services, capital goods delivered and not paid within contractually agreed period (or within 60 days after due date if no grace period); - (b) wages and pensions contributions to the NIS pending longer than 60 days; - (c) arrears on Tax obligations as defined by tax legislation. - Coverage: - List of public institutions as in paragraph 3 excluding University of West Indies (UWI). - Reporting: - Data on SOE expenditure arrears and components by creditors measured as cumulative over the fiscal year; reported monthly with a lag of no more than four weeks from the end-of-period. ### III. Program reporting requirements - Reporting frequencies and maximum lags summarized by measure above (monthly, quarterly, daily reporting frequencies with specified maximum lags of one week, two weeks, or four weeks as applicable). - Specific reporting lines and tables referenced: Section A, B, C, D and Tables 2 in the source document. *Source: Technical Memorandum of Understanding between the Barbados authorities and the IMF (text provided).* ### 28. Performance under the program will be monitored from data supplied to the IMF as ### 1brbea2020001 - 28. Performance under the program will be monitored from data supplied to the IMF as ### Data reporting framework and responsibilities - Financial Sector and External sector data: to be provided by the CBB. - Real and Fiscal sector data: to be provided by the MOF, in consultation with relevant agencies. - Authorities will transmit promptly to IMF staff any data revisions and other information necessary to monitor the arrangement under the EFF. ### Reporting frequencies and key items (Table 2 summary) - Reporting on a daily basis, with a lag of no more than one week of the end-of-period: - CBB NIR, as defined in section I. - CBB GIR. - Reporting on a monthly basis, with a lag of no more than two weeks of the end-of-period: - Financial Sector: - CBB NDA, as defined in section I. - CBB survey: detailed composition of NFA, NCCG, CODC, COSE, OIN, and MB. - CBB purchases and sales of foreign exchange. - Amounts offered, demanded and placed in Government auctions and primary issues, including minimum maximum and average bid rates. - Statement of use and outstanding balance of the CG deposit in the CBB. - Reporting on a monthly basis, with a lag of no more than four weeks of the end-of-period: - Real Sector: - RPI index, its components, and weights. - Fiscal Sector: - CG budgetary accounts. - Net Domestic Financing and its components. - Net External Financing and its components. - Grants and transfers to public institutions listed in paragraph 3 as defined in Section I. - Stock of CG external arrears (interest, principal, and penalty amounts separately) by creditor and its components as defined in Section I. This will be reported immediately. - Program loan disbursements from multilateral institutions, including the CDB, the IDB, and the CAF, as defined in section I. - Budget support grants as defined in section I. - Liabilities of public-private partnerships (PPPs) (if any). - Stock of CG expenditure arrears by creditor and its components as defined in Section II. - Stock of expenditure arrears of public institutions listed in paragraph 3 by creditor and its components as defined in Section II. - External Sector: - BOP trade balance data. - CBB’s Cashflow Table deriving GIR and NIR. - Reporting on a monthly basis, with a lag of no more than six weeks of the end-of-period: - Financial Sector: - ODC survey: gross items for NFA, claims on the CBB, NCCG, COSE, OIN, BM, deposits excluded from BM, and liabilities to the CBB. - DC survey: consolidation of CBB and ODC surveys showing gross items for CBB NFA, ODC NFA, ODC NCCG, COSE, OIN, and BM. - Reporting on a quarterly basis, with a lag of no more than four weeks of the end-of-period: - Real Sector: - Nominal and real GDP. - Tourism and other real sector high frequency indicators. - Fiscal Sector: - Social expenditure and its components as defined in Section II. - Financial position of public institutions listed in paragraph 3 including non-audited income statement, balance sheet and profit and loss accounts. - CG domestic debt stock data by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity). - CG external debt stock data by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity). - CG domestic guaranteed debt stock data by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity). - CG external guaranteed debt stock data by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity). - SOE domestic non CG guaranteed debt stock data by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity). - SOE external non CG guaranteed debt stock data by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity). - Quarterly LT and ST debt amortization and interest projections separately for CG domestic, CG external, CG guaranteed domestic and CG guaranteed external debt. - Copies of loan agreements for any new loan contracted, including financing involving the issue of Government paper, and of any renegotiated agreement on existing loans. - Stock of Tax Refunds and its components as defined in Section II. - Financial Sector: - CBB Balance sheet. - External Sector: - Balance of Payments accounts. - Reporting on a quarterly basis, with a lag of no more than six weeks of the end-of-period: - Financial Sector financial stability indicators by bank and by sector: - Regulatory capital - Regulatory Tier 1 capital - Risk-weighted assets - Total assets - Total liabilities - Nonperforming loans in BRB$ millions - Non-performing loans net of provisions - Gross loans - Sectoral distribution of loans to total loans - Return on assets - Return on equity - Interest margin - Gross income - Noninterest expenses - Liquid assets - Short-term liabilities - Net open position in foreign exchange - Large exposures to capital - Gross asset position in financial derivatives - Gross liability position in financial derivatives - Total income - Personnel expenses - Noninterest expenses - Spread between reference lending and deposit rates (base points) - Highest interbank rate - Lowest interbank rate - Customer deposits - Total (non-interbank) loans - Foreign-currency-denominated loans - Foreign-currency-denominated liabilities - Net open position in equities - Net profits of the banking sector - Reporting on an annual basis, within 6 weeks of the end-of-period: - Nominal and real GDP and its components from the demand and supply side (provided by the MOF). - Audited financial statements of Public Institutions listed in Paragraph 2 within 12 weeks of the end-of-period. - Summary of legislative changes pertaining to economic matters. - Notification of establishment of new Public Institutions. - Notification of change in juridical status of existing Public Institutions. - Reporting on an annual basis, within 5 months of the end-of-period: - Audited financial statements of Commercial Banks. ### Program overview and financing - Requested augmentation of access under the EFF: US$90 million. - FY2019/20: primary surplus target met at 6 percent. - FY2020/21: authorities target a primary balance of 1 percent of GDP (down from 6 percent originally planned). - Medium-term objective: public debt on track to reach the long-term anchor of 60 percent of GDP by FY2033/34. - Measures to achieve medium-term fiscal consolidation: - Phasing out crisis spending. - Containing grants to SOEs. - Improving expenditure control. - Strengthening customs and revenue administration. - Introduction of a fiscal rule by mid-2021. - Structural benchmarks: - Two out of three structural benchmarks were met. - Amendments to the Central Bank Law to meet international best practices to be introduced by end-September 2020 as part of a new structural benchmark. - Four structural benchmarks requested to be reset due to delays in Fund technical assistance missions. ### Responding to the coronavirus crisis — health and economic measures - Statement date: June 3, 2020 (Statement by Louise Levonian, Executive Director for Barbados and Jeremy Weil, Senior Advisor to Executive Director). - Public health response highlights: - National Preparedness Plan implemented within two-weeks of the first confirmed case. - Measures: self-quarantine protocols, activation of isolation and treatment centers, closure of non-essential businesses, national curfew. - As of May 28, Barbados had recorded 92 confirmed cases of COVID-19, which included 7 deaths. - Re-opening and travel: - Third phase of gradual re-opening announced on May 18. - National airport remains closed to commercial flights; authorities will not rush to re-open to tourism without necessary safety protocols. - Social and business support programs (key measures): - The Household Survivor Programme to protect vulnerable households. - The Business Cessation Benefit to support the self-employed. - The VAT Loan Fund to buttress businesses’ cash flow. - The Small Business Wage Fund to assist small businesses. - The National Tourism Refurbishment Facility to provide urgent working capital and loans to Barbadian hotels. - Central Bank of Barbados measures: - Reduced the overnight lending discount rate. - Reduced the minimum statutory holding requirement for government securities. - Coordinated with commercial banks on a six-month payment moratorium on existing loans and mortgages for persons and businesses directly impacted by COVID-19. - Institutional initiatives for recovery and adaptation: - Tourism Recovery Task Force to advise on transformations to support safe tourism reopening. - Jobs and Investment Council to mobilize and initiate new investments and jobs across sectors post-pandemic. - Efforts to cut red tape, accelerate planning applications, and digitize government processes. - Work to address deficiencies in AML/CFT framework. ### Concluding remarks and calls for international support - Near-term focus: protect lives and livelihoods. - Continued commitment to the Barbados Economic Reform and Transformation Plan to restore macroeconomic stability and create sustainable and inclusive growth. - Note on external vulnerabilities: - Official start of the 2020 hurricane season on June 1 highlighted ongoing climate vulnerability. - Authorities call for multilateral institutions to consider country vulnerability when granting access to grants and concessional financing. *Statement by Louise Levonian, Executive Director for Barbados and Jeremy Weil, Senior Advisor to Executive Director, June 3, 2020.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1brbea2020001.pdf_