## 1brbea2021002 ## Source details **Canonical URL:** [1brbea2021002](https://www.imf.org/-/media/files/publications/cr/2021/english/1brbea2021002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1brbea2021002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1brbea2021002.pdf.json) --- ### EXECUTIVE SUMMARY — Context, recent policy actions, and outlook - Context and program: - Economic Recovery and Transformation (BERT) plan announced after May 2018; four-year Extended Fund Facility (EFF) arrangement approved on October 1, 2018; five program reviews completed. - Public debt reached almost 160 percent of GDP by mid-2018; international reserves reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018. - International reserves increased to US$1.4 billion by October 2021 (8 months of import coverage) supported by IFI loans. - Revised central bank law adopted December 2020. - Next parliamentary elections due by May 2023. - Recent developments and outlook: - Economy contracted by 18 percent in 2020 owing to a near-standstill in tourism from April 2020. - Growth projected at 1.6 percent for 2021 (down from 3 percent at fifth EFF review); outlook highly uncertain and risks elevated. - Tourist arrivals about 40 percent of pre-pandemic norms in October 2021. - Unemployment remained around 16 percent in 2021; unemployment claims high in first two quarters of 2021. - Inflation projected at 3 percent for 2021 and expected to revert to just over 2 percent in the medium term. - National Vaccination Program (NVP) commenced February 2021; roughly half a million doses secured (sufficient to fully inoculate upwards of 90 percent of population); inoculations achieved a 50-60 percent penetration rate thus far. - Program implementation: - All program targets for end-June and end-September 2021 met. - Structural benchmarks for sixth review met except passage of the Fair Credit Reporting Act (delayed; expected December). - Purchase of SDR 17 million proposed as budget support upon completion of sixth review. - Article IV staff recommendations (high level): - Temporarily relax fiscal stance in FY2021/22 but resume fiscal consolidation as pandemic dissipates. - Support fiscal adjustment with structural reforms: introduction of a fiscal rule, SOE reforms, PFM strengthening. - Accelerate climate adaptation and disaster resilience investments. ### Fiscal adjustment paused; fiscal response and FY2021/22 stance - Pre-pandemic achievement and adjustment: - Primary surplus target of 6 percent of GDP achieved in FY2019/20; authorities committed to maintain through FY2022/23 pre-COVID. - Primary balance target adjusted to minus 1 percent of GDP for FY2020/21 and primary balance for FY2021/22 targeted at minus 1 percent of GDP (from zero percent at fifth EFF review). - FY2021/22 fiscal assumptions and fiscal items: - Overall fiscal deficit corresponds to 5 percent of GDP. - Health-related COVID-19 expenditures revised up by ½ percent of GDP. - Transfers to NIS to replenish unemployment benefit fund: ½ percent of GDP. - Additional allocation for rebuilding homes destroyed by Hurricane Elsa: ½ percent of GDP. - Lower than expected PIT and VAT refunds absorb roughly one third of these additional expenditures. - Additional financing to be met by using government deposits built up through IFI financing. - COVID-related budgetary items (percent of GDP): - Total Covid-related expenditure: FY20/21 = 2.5; FY21/22 = 2.6 - Health related: FY20/21 = 1.0; FY21/22 = 0.8 - Support to households: FY20/21 = 0.5; FY21/22 = 0.4 - Support to businesses: FY20/21 = 0.3; FY21/22 = 0.4 - Transfers to SOEs: FY20/21 = 0.5; FY21/22 = 0.2 - Education: FY20/21 = 0.1; FY21/22 = 0.1 - Other (includes recapitalization of the Unemployment Benefit Fund): FY20/21 = 0.0; FY21/22 = 0.6 - NIS and labor market: - Unemployment claims surged to 52,000 in 2020 (about 30 percent of the labour force). - NIS unemployment and severance outlays totaled nearly B$175 million (2 percent of GDP) in FY2020/21. - NIS outlays expected to remain elevated at around 1 percent of GDP in FY2021/22. - Government bought back central government debt equivalent to B$169 million held by the NIS in 2020; Parliament adopted a recapitalization plan envisioning B$143 million (1½ percent of GDP) over next three fiscal years; first disbursement took place in September. ### Fiscal policy strategy FY2022/23 onward - Authorities expected to resume fiscal consolidation from FY2022/23 to achieve long-term objectives and unwind temporary accommodation. - Drivers of improvement: cyclical revenue recovery, phasing out COVID-related expenditures, denominator effect from higher GDP, SOE reform, wage bill control, and expected introduction of a fiscal rule. - 6 percent of GDP primary surplus expected to be reached by FY2024/25. - Possible adjustment measures: - Broaden revenue base: enhance efficiency of land taxes and VAT regimes in real estate and tourism sectors. - Further rationalize tax expenditures. - Additional curtailing of expenditures. ### Transparency, procurement, and PFM measures - Crisis expenditures tracked via a dedicated new line in FY2021/22 budget. - Reporting to parliament required for COVID-related procurement contracts in excess of BDS$1 million. - New procurement law expected to be tabled by end-2021; beneficial ownership information of public sector contractors expected available via corporate registrar by end-2021. - PFM reform action plan highlights: - Annual fiscal strategy, multi-year expenditure ceilings, mid-year budget report by October 15 each year. - SOE monitoring dashboard extended to all 53 SOEs; MAU monitoring of 19 priority SOEs initiated. ### Structural reforms, tax administration, and customs modernization - SOE reforms and performance: - Pre-program SOE sector: 58 entities; 60 percent commercial. - Annual government subsidies to SOEs averaged 7½ percent of GDP following 2008 crisis. - Cumulative SOE debt/arrears prior to BERT: about 18 percent of GDP. - EFF target: 2 percent of GDP cumulative decrease in central government transfers to public entities; achieved reduction in FY2019/20: 1 percent of GDP. - SOE arrears fell nearly 7 percent of GDP under arrangement to below a ½ percent of GDP; FY2020/21 transfers exceeded program thresholds by about 20 percent. - Tax administration: - TAMIS adopted; BRA committed to repay newly filed refunds within six months; vetting legacy refund arrears equivalent to 4 percent of GDP. - Stock of taxpayer arrears exceeds more than 10 percent of GDP. - LTU on-time filing: FY2020/21 on-time filing 77 percent and on-time payments 87 percent; April–September 2021 approx. 86 percent and 88 percent, respectively. - Customs modernization (BCED): - BCED collects about 33 percent of the country’s tax revenue. - ASYCUDA upgrade completed with access granted to seven operational departments; Trusted Trader Program piloted with 23 large importers. - Modernized Customs Bill tabled May 2021; Harmonized Commodity Description and Coding System (2017 Edition) implemented. ### Monetary policy and central bank actions - CBB measures: - Overnight lending discount rate reduced from 7 to 2 percent. - Minimum statutory holding requirement for government securities reduced from 17½ to 5 percent of deposits. - Temporary regulatory guidance extended through October 2022 allowing banks not to classify moratoria loans as nonperforming under conditions. - CBB recapitalization plan prepared (end-June 2021 structural benchmark): - CBB remains profitable; recapitalization designed to provide balance sheet space to sterilize excess liquidity and mitigate fixed exchange rate vulnerability. - Revised CBB law allows CBB financing up to 3 percent of GDP with maximum 5-year maturity under a public emergency. - FX fee policy: - 2 percent foreign exchange fee introduced in 2017 remains in place; authorities will consider removing it as the pandemic dissipates; IMF recommended phasing it out as reserves build up. ### External sector, reserves, and financing - Balance of payments and reserves: - Current account deficit expected to widen to 11 percent of GDP in 2021 from 7 percent in 2020. - Gross international reserves increased to US$1.4 billion as of end-October 2021; about 8 months of goods and services import coverage and above 200 percent of the ARA metric. - Net international reserves increased to US$1.2 billion. - IMF SDR allocation of SDR 90.6 million (around US$130 million) occurred in August 2021. - Recent external financing since pandemic start: - IMF disbursed about US$260 million under EFF (including two augmentations). - IDB disbursed US$200 million. - CAF disbursed US$100 million. - World Bank provided budget support equivalent to US$100 million in June 2021. - IDB planning additional policy-based lending in last quarter of 2021 equivalent to US$100 million. - Medium-term external outlook: - Current account deficit projected to narrow to 5 to 7 percent of GDP over medium term as tourism recovers and goods exports diversify. - External debt share strategy favors domestic financing; by end-FY2035/36 external debt projected to be about 16 percent of GDP. - Barbados rated B- by S&P; spread on external debt of 500 bps (below high-risk threshold of 600 bps referenced in MAC DSA). - All new external debt incurred in 2020 were IFI loans with favorable terms. ### Debt sustainability, DSA findings, and risks - DSA headline findings: - Public debt temporarily increased to 156 percent of GDP in FY2020/21; projected ~142 percent in FY2021/22. - Debt anchor of 60 percent of GDP projected to be reached by FY2035/36 (target pushed out by two years). - Gross financing needs projected to stay below 15 percent of GDP except for FY2021/22. - Quantitative breakdown (FY2020/21 exact figures): - Total public debt: 6,643.3 (US$ million) — 100.0 percent total debt — 156.4 (Percent of GDP) - External debt: 2,206.9 — 33.2 (Percent total debt) — 52.0 (Percent of GDP) - Multilateral creditors: 1,408.9 — 21.2 (Percent total debt) — 33.2 (Percent of GDP) - IMF: 391.9 — 5.9 (Percent total debt) — 9.2 (Percent of GDP) - IADB: 562.2 — 8.5 (Percent total debt) — 13.2 (Percent of GDP) - Other Multilaterals: 454.8 — 6.8 (Percent total debt) — 10.7 (Percent of GDP) - o/w: CDB 261.8 — 3.9 — 6.2 - CAF 167.9 — 2.5 — 4.0 - Bonds: 552.0 — 8.3 (Percent total debt) — 13.0 (Percent of GDP) - Domestic debt: 4,436.3 — 66.8 (Percent total debt) — 104.5 (Percent of GDP) - Short-term debt (incl. T-Bills): 393.7 — 5.9 (Percent total debt) — 9.3 (Percent of GDP) - Held by: central bank 210.1 — 3.2 — 4.9 - local banks 142.6 — 2.1 — 3.4 - local non-banks 41.1 — 0.6 — 1.0 - Long-term debt (incl. Bonds): 4,042.6 — 60.9 (Percent total debt) — 95.2 (Percent of GDP) - DSA assumptions and projections: - FY2021/22 primary balance projected at minus 1 percent of GDP; primary balance projected to increase to 6 percent of GDP by FY2024/25 and remain there for several years. - Nominal GDP (In US$): FY2020/21 4,247.1; FY2021/22 4,247.1; FY2022/23 4,866.7; FY2023/24 5,362.7 - Under baseline, public debt projected to meet the 60 percent-of-GDP anchor by end-FY2035/36. - Stress-test outcomes: - Debt remains on a broadly downward trajectory under stress tests, but high debt level remains a concern over next five projection years. - Real GDP growth shock, combined macro-fiscal shock, and contingent liability shock would result in a slower debt reduction path with debt-to-GDP around 30 ppt higher than baseline at end of projection period. - Sovereign spreads: EMBIG (bp) = 499 - Public gross financing needs (selected): 2019: 36.5; 2020: 6.5; 2021: 18.9; 2022: 17.1; 2023: 11.9; 2024: 10.9; 2025: 9.6; 2026: 11.0 ### Financial sector position and stability - Credit and liquidity: - Private sector credit contracted about 2 percent in both 2020 and in August 2021 (yoy). - Loan-to-deposit ratio declined; deposits trended up; lending limited. - Implicit interest rate spread around 5.5 percent. - Bank soundness indicators (end-September 2021 exact figures): - System wide CAR at 16.1 percent. - Liquid assets to total assets at 29.1 percent. - Bank excess cash reserves about 26 percent. - System NPL ratio at 7.5 percent with provision cover about 60 percent. - Loans under moratoria equivalent to about 2 percent of outstanding bank credit to the nonfinancial private sector (about 95 percent of these to nonfinancial firms mainly in hospitality). - FX market liquidity appears adequate. - Climate risk and financial stability: - CBB currently not a member of NGFS and does not include climate change risks in its financial stability assessments; CBB considering joining NGFS. - Financial Services Commission conducting stress-testing for insurance corporations on climate change effects. - Recommended lender/regulator actions: - Ensure procedures to measure expected credit losses are robust and timely; enhance recovery plans if warranted. ### Climate change, disaster resilience, and green transition - Climate vulnerabilities: - April 2021 volcanic ashfall (St. Vincent); July 2021 Category 1 Hurricane Elsa (first hurricane to strike island in 65 years) — significant damage to physical assets and increased spending pressures. - Climate change risks: higher temperatures, sea level rise, changes in rainfall, increased frequency of powerful hurricanes. - Resilience instruments and recommendations: - Scale up parametric insurance (CCRIF); consider expanding government saving fund for frequent small events. - State-contingent bonds and Catastrophe Fund (approximate balance B$61.5 million) exist; CCRIF payout after Hurricane Elsa US$2.5 million insufficient (~1 percent of GDP costs). - Suggested complements: include natural disaster clauses in government debt; mobilize donor financing; use IFI contingent facilities. - Renewable energy and green finance: - Government target: 100 percent renewable energy by 2030. - By end-2021 government expects close to 10 percent of energy demand from installed/near-installed renewables and a further 10 percent pipeline. - Green bond market entry: WRELs 12 MWp PV funded by US$20 million green energy bond program; BDS$34 million raised so far (June 2019 and February 2020). - Proposed structural benchmarks (end-March 2022): establish licensing system for IPP renewable projects; publish guidance note for IPP investors. - Infrastructure planning: - 2021 Physical Development Plan expected adopted by end-2021 to guide resilient land use and infrastructure. - Recommendation: integrate resilient infrastructure needs into multi-year budgets; strengthen private sector engagement and donor financing. ### Program implementation, benchmarks, and mission - Structural benchmarks and program targets: - All QPCs and ITs for end-September 2021 met. - Structural benchmarks for sixth review met except passage of Fair Credit Reporting Act (delayed to December). - Staff proposes modifications to ITs for December 2021 and PCs for March 2022; adjust primary balance PC for FY2021/22 to minus 1 percent of GDP. - Authorities requested purchase of SDR 17 million for sixth review as budget support. - Mission and consultations: - Mission conducted virtually during November 1-5, 2021. - Mission met with Prime and Finance Minister Mottley, Central Bank Governor Haynes, Minister in the Ministry of Finance Straughn, and other senior officials. - Staff recommendation: - With continued strong program implementation, staff recommends completion of the sixth review of the extended arrangement under the EFF and supports authorities’ request to modify three performance criteria. ### Key macro and selected quantitative indicators (preserve exact source figures) - CY Real GDP (annual percent change): 2018: -0.6; 2019: -1.3; 2020: -18.0; 2021: 1.6; 2022: 10.1 - CPI inflation (average): 2018: 3.7; 2019: 4.1; 2020: 2.9; 2021: 3.0; 2022: 5.4 - CPI inflation (end of period): 2018: 0.6; 2019: 7.2; 2020: 1.3; 2021: 4.7; 2022: 2.7 - Central government primary balance (percent of FY GDP): 2018/19: 3.4; 2019/20: 6.2; 2020/21: -1.0; 2021/22: -1.0; 2022/23: 3.0 - Central government gross debt (percent of FY GDP): 2018/19: 126.0; 2019/20: 124.4; 2020/21: 156.4; 2021/22: 142.1; 2022/23: 128.7 - GIR (US$ million): 2018: 500; 2019: 739; 2020: 1,330; 2021: 1,394; 2022 (proj.): 1,278 - GIR in months of imports of G&S: 2018: 3.0; 2019: 4.2; 2020: 9.3; 2021: 8.0; 2022: 6.6 - Private sector credit (millions BBD): 2018: 8,227; 2019: 8,303; 2020: 8,206; 2021: 8,174; 2022: 8,288 - System wide CAR (end-September 2021): 16.1 percent - System NPL ratio (end-September 2021): 7.5 percent - EMBIG (bp): 499 *Source: IMF staff report chapter and informational annex — content unit 1brbea2021002 (November 29, 2021).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and recent policy actions - The government announced the Economic Recovery and Transformation (BERT) plan after taking office in May 2018 and requested IMF and IFI support. - A four-year Extended Fund Facility (EFF) arrangement was approved on October 1, 2018; five program reviews have been completed. - Public debt reached almost 160 percent of GDP by mid-2018; international reserves reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018. - International reserves have increased to US$1.4 billion by October 2021 (8 months of import coverage) supported by IFI loans. - Parliament adopted a revised central bank law in December 2020. - Next parliamentary elections are due by May 2023. ### Recent economic developments and outlook - Growth and output: - The economy contracted by 18 percent in 2020 owing to a near-standstill in tourism from April 2020. - Economic growth is projected at 1.6 percent for 2021 premised on a modest recovery of tourism towards the end of 2021—down from 3 percent projected at the time of the fifth EFF review. - The outlook remains highly uncertain and risks are elevated. - External shocks and disasters: - Barbados experienced volcanic ashfall from neighboring St. Vincent in April 2021 and was struck by category 1 hurricane Elsa in July 2021 (the first hurricane to strike the island in 65 years). - These natural disasters caused significant damage to physical assets and increased spending pressures. - Tourism and labor market: - Tourist arrivals were about 40 percent of pre-pandemic norms in October 2021. - Labor market conditions improved somewhat in 2021 but the unemployment rate remained around 16 percent, with high unemployment insurance claims in the first two quarters of 2021. - Inflation: - Inflation is projected at 3 percent for 2021 and expected to revert to just over 2 percent in the medium term. - COVID-19 response and vaccination: - Advance planning and proactive policies contained the initial spread; active cases were eliminated in June 2020. - Subsequent COVID-19 waves occurred, with a Delta-driven surge in August 2021 provoking a third intense wave. - The National Vaccination Program (NVP) commenced in February 2021 and has secured roughly half a million doses, sufficient to fully inoculate upwards of 90 percent of the population; inoculations have achieved a 50-60 percent penetration rate thus far. - Authorities have pursued targeted containment measures, home isolation, new treatment facilities, nightly curfews, gathering limits, and campaigns to boost vaccination uptake. ### Program implementation and fiscal stance - Program targets: - All program targets for end-June and end-September 2021 were met. - Structural benchmarks for the sixth review have been met except for the passage of the Fair Credit Reporting Act, delayed due to the recent surge in COVID-19 cases and expected to be adopted in December. - Fiscal targets and adjustments: - The primary balance for FY2021/22 is now targeted at minus 1 percent of GDP (from zero percent set at the time of the fifth EFF review) to accommodate lingering pandemic impacts and unexpected disaster-related spending needs. - Staff proposes to modify quantitative targets on primary balance, public debt, and NIR set for end-December 2021 and end-March 2022. - The authorities will have to deliver ambitious primary surpluses in subsequent years for a longer period to compensate for the temporary fiscal relaxation. - Structural reforms progress: - Authorities advanced reforms including a revised central bank law, SOE reforms, and an actuarial review of the civil service pension system. - Progress on some structural reforms delayed by the pandemic, owing to delayed IMF TA and limited opportunities for public consultation—particularly important for consensus building around pension reform. - Structural benchmarks related to tabling a revised public pension law and disseminating core FSIs for deposit takers are proposed to be reset to end-March 2022. - Fund resources and budget support: - The purchase of SDR 17 million would be made available in the form of budget support upon completion of the sixth review. ### Article IV discussion and policy recommendations - Fiscal policy: - Staff recommended temporarily relaxing the fiscal stance to accommodate lingering economic and health crises but urged resumption of fiscal adjustment as soon as the pandemic dissipates to safeguard long-term fiscal sustainability. - Fiscal adjustment should be supported by structural reforms including introduction of a fiscal rule and continued SOE reforms. - Climate and disaster resilience: - Given increased exposure to climate change and natural disasters, authorities should hasten to enhance adaptation measures including relevant infrastructure building. - Structural reform sequencing and public engagement: - Reforms (pension, SOE, PFM) require timely technical assistance and public consultation for consensus-building and effective implementation. ### Mission and consultations - The mission was conducted virtually during November 1-5, 2021. - The mission team met with Prime and Finance Minister Mottley, Central Bank Governor Haynes, Minister in the Ministry of Finance Straughn, and other senior officials. *Source: EXECUTIVE SUMMARY, Barbados—IMF, November 29, 2021.* ### 6. A successful fiscal adjustment was paused to accommodate the impact of the ### 6. A successful fiscal adjustment was paused to accommodate the impact of the ### Fiscal adjustment paused and initial outcomes - Prior to the pandemic the government achieved its primary surplus target of 6 percent of GDP in FY2019/20 by containing grants to public institutions and introducing additional levies to directly finance the operations of key SOEs. - The authorities were committed to maintain this primary surplus through FY2022/23 before the COVID-19 shock. - The primary balance target was adjusted to minus 1 percent of GDP for FY2020/21 owing to sharply reduced tax revenues and additional expenditures. ### Fiscal response to the pandemic - Main focus: supporting the health system and providing lifelines to severely impacted households and businesses. - Income support: largest source administered via the National Insurance Scheme (NIS) unemployment system. - Direct support: augmented welfare programs and cash transfers to small vendors. - Business support: program for crisis-hit tourism businesses to re-hire and train workers with grants and equity investments. - SOE support: additional transfers to SOEs in tourism and transport to cope with drastically reduced revenues. ### Revenues, expenditures, and primary balance in 2021 - Some tax performance improved April–September 2021 vs same period in 2020 (PIT and VAT), offset by lower corporate tax receipts from the international business sector. - Additional expenditures for volcanic ashfall and Hurricane Elsa plus COVID-19 impacts projected to keep the primary balance negative in FY2021/22. - For FY2021/22: - Primary balance projected at minus 1 percent of GDP (down from zero at fifth EFF review). - Overall fiscal deficit corresponds to 5 percent of GDP. - Health-related COVID-19 expenditures were revised up by ½ percent of GDP. - Transfers to NIS to replenish unemployment benefit fund: ½ percent of GDP. - Additional allocation for rebuilding homes destroyed by Hurricane Elsa: ½ percent of GDP. - Lower than expected PIT and VAT refunds absorb roughly one third of these additional expenditures. - Additional financing needs to be met by using government deposits built up through IFI financing. ### NIS and labor market impacts - Unemployment claims surged to 52,000 in 2020 (about 30 percent of the labour force), nearly five-fold increase relative to recent years. - NIS unemployment and severance outlays totaled nearly B$175 million (2 percent of GDP) in FY2020/21. - NIS outlays expected to remain elevated at around 1 percent of GDP in FY2021/22. - Government actions: - Bought back central government debt equivalent to B$169 million held by the NIS in 2020 to provide liquidity support. - Parliament adopted a recapitalization plan for the Unemployment Benefit Fund envisioning B$143 million (1½ percent of GDP) over the next three fiscal years; first disbursement took place in September. ### COVID-related budgetary items (FY20/21 and FY21/22, in percent of GDP) - Total Covid-related expenditure: FY20/21 = 2.5; FY21/22 = 2.6 - Health related: FY20/21 = 1.0; FY21/22 = 0.8 - Support to households: FY20/21 = 0.5; FY21/22 = 0.4 - Support to businesses: FY20/21 = 0.3; FY21/22 = 0.4 - Transfers to SOEs: FY20/21 = 0.5; FY21/22 = 0.2 - Education: FY20/21 = 0.1; FY21/22 = 0.1 - Other (includes recapitalization of the Unemployment Benefit Fund): FY20/21 = 0.0; FY21/22 = 0.6 ### Transparency and procurement - Crisis expenditures tracked via a dedicated new line in the FY2021/22 budget. - Reporting to parliament required for COVID-related procurement contracts in excess of BDS$1 million. - New procurement law expected to be tabled by end-2021 to strengthen fairness, integrity, and transparency; beneficial ownership information of public sector contractors expected to be available via Barbados’ corporate registrar by end of 2021. - FY2020/21 crisis expenditures are being audited as part of the Auditor General’s annual audit. ### Balance of payments and reserves - Current account deficit expected to widen to 11 percent of GDP in 2021 from 7 percent in 2020 due to sluggish tourism recovery and unfavorable commodity price developments. - Factors increasing imports in 2021: booming international oil and freight prices and increased domestic demand from reconstruction after Hurricane Elsa. - External financing since pandemic start: - IMF disbursed about US$260 million under the EFF-supported program (including two augmentations). - IDB disbursed US$200 million. - CAF disbursed US$100 million. - World Bank provided budget support equivalent to US$100 million in June 2021. - IDB planning additional policy-based lending in last quarter of 2021 equivalent to US$100 million. - Gross international reserves increased to US$1.4 billion as of end-October 2021; about 8 months of goods and services import coverage and above 200 percent of the Assessment of Reserve Adequacy (ARA) metric. - Net international reserves increased to US$1.2 billion. - IMF SDR allocation of SDR 90.6 million (around US$130 million) occurred in August 2021. ### Medium-term external outlook - Current account deficit projected to narrow to 5 to 7 percent of GDP over the medium term as tourism recovers and goods exports diversify (e.g., rum and other beverages). - Diversification of export goods recommended to boost FX-earning sources and resilience. - Private sector investment expected to partly replace declining IFI inflows; FDI into tourism and renewable projects will help but not fully compensate. - To attract FDI: accelerate structural reforms under the BERT program and resume fiscal consolidation to strengthen confidence in fiscal sustainability and macroeconomic stability. - Reserves and external debt: - Barbados rated B- by S&P with a spread on external debt of 500 bps (below the high-risk threshold of 600 bps referenced in the MAC DSA). - All new external debt incurred in 2020 were IFI loans with favorable terms. - Authorities’ strategy favors domestic financing and gradual downward trajectory of external debt share. - By end-FY2035/36, external debt projected to be about 16 percent of GDP. - Foreign reserves expected to stay above 100 percent of the ARA metric throughout the projection period. ### Financial sector position - Private sector credit contracted by about 2 percent in both 2020 and in August 2021 (yoy). - Loan-to-deposit ratio declined as deposits trended up and lending remained limited. - Implicit interest rate spread in financial intermediation around 5.5 percent. - Bank soundness indicators at end-September 2021: - System wide CAR at 16.1 percent (twice the minimum regulatory requirement). - Liquid assets to total assets at 29.1 percent. - Bank excess cash reserves about 26 percent. - System NPL ratio at 7.5 percent with provision cover about 60 percent. - Loans under moratoria equivalent to about 2 percent of outstanding bank credit to the nonfinancial private sector (about 95 percent of these to nonfinancial firms mainly in hospitality). - FX market liquidity appears adequate. ### Outlook and risks - Growth projections: - Modest growth of 1.6 percent projected for 2021 (relative to 3 percent at the time of the fifth EFF review) due to lower-than-projected tourist arrivals year-to-date. - Tourist arrivals expected to gradually recover in the last quarter of 2021 and return to normal levels around 2024. - Structural reforms and strategic public investment expected to return growth to medium-term average of about 2 percent. - Key risks (tilted to the downside): - Further deepening/lengthening of the COVID-19 crisis affecting tourism recovery (source markets include the US, the UK and Canada). - Global food and fuel price increases could push up inflation due to import dependence. - Increasing exposure to climate change risks could dampen activity. - Limited financial integration implies risks from US monetary policy are limited. ### Fiscal policy strategy from FY2022/23 onward - Authorities expected to resume fiscal consolidation from FY2022/23 to achieve long-term fiscal objectives and unwind temporary fiscal accommodation. - Drivers of improvement: cyclical revenue recovery, phasing out COVID-related expenditures, denominator effect from higher GDP, SOE reform, wage bill control, and expected introduction of a fiscal rule. - The 6 percent of GDP primary surplus is expected to be reached by FY2024/25. - Downside risk: further downward revisions to growth would require additional fiscal adjustments. - Possible adjustment measures: - Broaden the revenue base by enhancing efficiency of land taxes and VAT regimes in the real estate and tourism sectors. - Further rationalize tax expenditures. - Additional curtailing of expenditures. ### Corporate tax international developments - Global corporate tax agreement: - Pillar One likely negligible for Barbados. - Pillar Two: minimum 15 percent effective corporate income tax on companies with turnover above €750 million could affect segments of the international business sector. - Authorities evaluating expected impact; awaiting additional OECD guidance in 2022 on domestic implementation. ### Debt sustainability - Debt Sustainability Analysis (DSA) suggests the debt target of 60 percent of GDP can be reached by FY2035/36. - Fiscal policy to remain accommodative in FY2021/22 to offset pandemic and natural disaster impacts, with gradual recovery and structural reforms facilitating medium- and long-term debt reduction. - With the debt anchor target pushed out by two years in the context of the fifth EFF review, authorities expected to achieve the target through ambitious primary balances in the long term. *Source: IMF staff report chapter: "A successful fiscal adjustment was paused to accommodate the impact of the" (content unit 1brbea2021002).* ### 26. Debt continues to be assessed as sustainable but subject to high risks. Risks to debt ### 1brbea2021002 - 26. Debt continues to be assessed as sustainable but subject to high risks. Risks to debt ### Debt sustainability and market perception - Debt continues to be assessed as sustainable but subject to high risks. - Risks to debt sustainability are high but mitigated by: - Barbados’ strong track record under the EFF-supported program. - The authorities’ strong commitment to long-term fiscal adjustment. - Favorable debt service terms after the comprehensive debt restructuring. - Market perception of country risk: - Ticked up in April 2020 and then improved thereafter. - The spread of external debt to bondholders is around 500 bps. - The assessment hinges on key assumptions including the projected growth recovery and long-term fiscal consolidation. ### Structural reforms and SOE fiscal risks - Measures undertaken to alleviate fiscal risks from SOEs, but sustained reform efforts required. - Pre-pandemic reforms: - Cost reduction measures and revenue enhancement initiatives delivered a structural decrease in transfers to public entities. - Reforms to strengthen oversight frameworks to limit fiscal risks and improve SOE performance. - 2019 PFMA Act powers: - Government must approve all SOE borrowing and can sanction SOEs for noncompliance with enhanced reporting requirements. - Government and parliament required to receive regular financial reports on SOE performance. - SOE performance and vulnerabilities: - Majority of SOEs exhibit weak financial metrics reflecting longstanding inefficiencies exacerbated by COVID-19. - A health dashboard analyzing financial performance of public entities monitored by the MFEA was developed as part of the EFF to assess risks and elaborate targeted reform measures. - Early program outcomes: - Central government transfers to public entities were reduced by 1 percent of GDP in FY2019/20 (in line with program objectives). - SOE arrears fell by nearly 7 percent of GDP under the arrangement to below a ½ percent of GDP. - Central government transfers exceeded program thresholds by about 20 percent in FY2020/21 to accommodate the national COVID-19 policy response. - Pandemic-related pressures: - Unanticipated transfer needs among large SOEs (e.g., Queen Elizabeth Hospital and the National Assistance Board) where subsidies exceeded budgeted allocations by 70 percent on average. - Medium-term priorities for SOE reform: - Further rationalization of the SOE sector (remains bloated at over 50 entities). - Adjustments to cost structures and revenue frameworks to enhance financial outturns. - Focus on largest SOEs driving overall sector performance. - Enforce expectation that commercial entities be viable on commercial terms without government subsidies. ### Box 2 — Key SOE sector statistics and program targets - SOE sector size pre-program: 58 entities; 60 percent commercial. - Annual government subsidies to SOEs averaged 7½ percent of GDP in the decade following the 2008 global financial crisis. - Cumulative build-up of SOE debt and arrears prior to BERT plan: about 18 percent of GDP. - EFF-supported program target: 2 percent of GDP cumulative decrease in central government transfers to public entities. - Achieved reduction in transfers in FY2019/20: 1 percent of GDP. - SOE arrears decline under arrangement: nearly 7 percent of GDP to below a ½ percent of GDP. - FY2020/21: central government transfers exceeded program thresholds by about 20 percent. ### Financial health heatmap (SOEs monitored under the EFF) - Heatmap indicators include: Liquidity, Solvency, Profitability, Financial Performance, Government Dependence. - Sample entries (as presented): - Commercial Entities FY2019/20: Liquidity 1.80; Solvency 0.42; Profitability 8.14; Financial Performance (11.41); Government Dependence 0.20. - Commercial Entities FY2020/21: Liquidity 2.09; Solvency 0.38; Profitability (2.56); Financial Performance (28.26); Government Dependence 0.27. - Non-Commercial Entities FY2019/20: Liquidity 2.23; Solvency 0.33; Profitability 6.41; Financial Performance (65.80); Government Dependence 0.73. - Non-Commercial Entities FY2020/21: Liquidity 3.54; Solvency 0.34; Profitability 9.67; Financial Performance (49.27); Government Dependence 0.64. - Note: Heatmap based on the Health-Check Tool developed by the IMF's Fiscal Affairs Department; Risk ratings: Red = High; Orange = Medium; Green = Low. ### Fiscal rule, PFMA implementation, and fiscal framework - Authorities have started preparatory work for introduction of a fiscal rule, in line with FAD TA recommendations. - TA recommends adoption of regulations for a procedural fiscal rule (structural benchmark for end-December 2021) requiring: - Annual preparation and publication of a fiscal strategy. - Measurable fiscal objectives covering the medium-term. - Transparent reporting on implementation of the strategy. - Intermediate step: government tabled in parliament a basic fiscal framework for FY2022/23 and the two following fiscal years (structural benchmark for August 15, 2021), containing medium-term fiscal projections and discussion of fiscal policy objectives, including reaching the debt anchor of 60 percent of GDP by FY2035/36. - Procedural fiscal rule intended to enhance transparency and accountability while retaining flexibility; a numerical fiscal rule could be introduced once pandemic uncertainties resolve and PFM systems strengthened. - Implementation of the 2019 PFMA Act: - Advancing, albeit slowly. - Fiscal framework preparation is an advance in strategic budget formulation and expected to inform multi-year expenditure ceilings. - Mid-year budget report to be tabled in Parliament by October 15 each year and report on progress against the fiscal framework. - Several PFMA provisions not yet fully implemented, including those on issuance of the budget circular, disclosure of fiscal risks, and auditing of central government and SOE financial statements. ### Tax administration improvements and legacy arrears - Barbados Revenue Authority (BRA) reforms: - Adopted new Tax Administration Management Information System (TAMIS) and new organizational structure. - Increased use of third-party data to improve taxpayer base accuracy. - Established facilities for electronic filing and payment of taxes. - New Large Taxpayer Unit (LTU) established in 2018 has stepped up audit activity and works to raise “on-time” filing and payments compliance rates. - Refunds and arrears: - BRA committed to timely payment of newly filed refunds within six months after the filing date. - BRA vetting a sizeable stock of old tax refund arrears equivalent to 4 percent of GDP found in legacy IT systems. - Stock of taxpayer arrears to government exceeds more than 10 percent of GDP. - As part of a two-year program to address legacy claims (structural benchmark for end-September 2021), BRA committed to completing analysis of the net refund versus payable position by March 2022. ### Customs modernization (BCED) — Box 3 highlights - BCED collects about 33 percent of the country’s tax revenue. - Reforms and modernization (Strategic Plan 2020-2023) with IMF resident advisor support: - Governance and management improvements: organizational overhaul; strengthened Internal Audit Division; KPIs developed; ASYCUDA upgrade completed and access granted to seven operational departments plus Central Bank, BRA, Ministry of Finance, Statistics Department; modernized Customs Bill tabled May 2021; Harmonized Commodity Description and Coding System (2017 Edition) implemented; integrity and professionalism training provided; Customs Code of Conduct and Ethics under approval. - Core functions and compliance: holistic risk management; standardized cargo processing; post-clearance audit procedures; creation and staffing of compliance units; introduction of Taxpayer Identification Numbers commenced; movement toward paperless processes; Steering Committee to oversee Strategic Plan implementation; Pandemic Recovery Plan devised. - Trade facilitation and stakeholder engagement: Trusted Trader Program piloted with 23 large importers; new Customs Bill includes provisions for transparency, compliance, appeal, and advance ruling. - Planned further reforms: improve human resource management, risk management, trade flow, and enhanced coordination and information exchange between BCED and BRA. ### Pandemic delays to structural benchmarks - LTU target of ‘on-time’ filing of returns of at least 90 percent for core taxes (VAT, CIT, PAYE) could not be met by end-March 2021 (structural benchmark for the fifth review). - Despite this, on-time filing and payment rates improved: for FY2020/21 on-time filing 77 percent and on-time payments 87 percent; for April–September 2021 (six months) approximately 86 percent and 88 percent, respectively. - Fiscal rule originally expected by end-2020 replaced by procedural fiscal rule to be met by end-December 2021 due to disruptions from COVID-19. - Structural benchmark on tabling a revised public pension law originally expected by end-September 2020 reset to end-March 2022 owing to insufficient opportunities for essential public consultations amid COVID-19 outbreaks and natural disasters. ### Monetary policy and financial sector measures - Central Bank of Barbados (CBB) credit support measures maintained during the pandemic: - Overnight lending discount rate reduced from 7 to 2 percent. - Minimum statutory holding requirement for government securities reduced from 17½ to 5 percent of deposits. - Staff view continuation of measures and monetary policy stance as appropriate. - April 2020 commercial bank voluntary debt service moratorium of 6-months announced; still in place on a limited, case-by-case basis. - CBB extended temporary regulatory guidance through October 2022 allowing banks not to classify moratoria loans as nonperforming, provided loans were previously in good standing and borrowers impacted by the pandemic. - Authorities agree unwinding measures should be carefully managed and contingent on financial position of borrowers and lenders to avoid adverse macro-financial feedback loops. - Recommendations to lenders/regulators: - Ensure procedures to measure expected credit losses are robust and timely. - If warranted, lenders should enhance recovery plans. ### CBB recapitalization plan and monetary operations - Authorities developed a plan for gradual recapitalization of the CBB (end-June 2021 structural benchmark). - Plan balances magnitude of capital shortfall and limited fiscal space; draws on recent MCM TA recommendations. - CBB remains profitable; recapitalization will provide balance sheet space to engage in operations to help sterilize excess systemic liquidity and mitigate vulnerability to the fixed exchange rate regime. - CBB should consider upgrading its monetary operations toolkit, which currently relies on the reserve requirement. ### Climate change and financial stability risks - Climate change constitutes risks to the stability of Barbados’ financial system; building risk assessment capacity is a first step to enhance resilience (see Annex IV). - Banks are exposed to climate change sensitive sectors. - CBB is currently not a member of the Network for Greening the Financial System (NGFS) and does not include climate change risks in its financial stability assessments at present. - CBB is considering joining the NGFS to develop capacity to monitor climate change risks in line with best practice. - Financial Services Commission is conducting a stress-testing exercise for insurance corporations on climate change effects. ### Foreign exchange fee policy - Authorities will consider removing the foreign exchange fee as the pandemic dissipates. - The 2 percent fee introduced in 2017 remains in place. - IMF assessed this fee as a capital flow measure and recommended phasing it out as reserves build up. - Authorities plan to maintain the fee until alternative revenue sources, including through economic and revenue recovery, can compensate for potential losses from discontinuation. - Staff emphasized that foreign exchange fees should not substitute for fiscal and other macroeconomic policies to improve the fiscal position. *Source: IMF staff report excerpts from 1brbea2021002.* ### 37. Barbados was removed from the EU list of non-corporative jurisdictions for tax ### 37. Barbados was removed from the EU list of non-corporative jurisdictions for tax ### AML/CFT status and priorities - Barbados was removed from the EU list of non-corporative jurisdictions for tax purposes in February 2021 but remains on the Financial Action Task Force (FATF) list of jurisdictions under increased monitoring. - The authorities made a high-level political commitment to work with the FATF and the Caribbean Financial Action Task Force (CFATF) to strengthen the effectiveness of its AML/CFT regime. - Staff priority actions include: - Continue strengthening the AML/CFT framework in close cooperation with the FATF and its enhanced follow-up process. - Reduce the backlog of court cases involving AML/CFT, which have built up due to the pandemic and challenges of scheduling jury trials. - Demonstrate the effectiveness of confiscation measures. - Apply effective sanctions. ### Enhancing growth and resilience to climate change - Structural reform and investment priorities to unlock growth once the pandemic recedes: - Build on improvements to the business climate: easing trading across borders; opening the electricity sector to independent power producers (IPPs); introducing a more reliable payment and digital identity system; enhancing financial access for small businesses. - Implement additional reforms to improve business facilitation and competitiveness (MEFP ¶40-43, ¶46). - Recent Corporate Act, 2021 amendments aim to digitalize the corporate registry (electronic incorporation; online registration of business names; eliminate company seal requirement; online fee payment; electronic database to search company records). - Introduction of the ASYCUDA electronic single window system (agreement with UNCTAD, October 2021) expected to increase competitiveness by easing trading across borders. - Continued reforms needed: business-friendly regulatory framework for IPPs, facilitate further digitalization, promote financial accessibility for SMEs. - Climate resilience and renewable energy targets: - Climate change impacts: higher temperatures, increasing sea level, potential changes in rainfall patterns, and increased frequency of most powerful hurricanes. - Investments to strengthen infrastructure resiliency and draining systems to improve water security should be accelerated. - Continued engagement with regional initiatives such as the Caribbean Catastrophe Risk Insurance Facility to boost financial resilience. - Target: decarbonize the economy and fully transition to renewable energies by 2030 — requires stepped-up implementation of supporting policies and reforms. - Proposed new structural benchmarks to support the target: - Establish a licensing system for IPP renewable energy projects, including co-investment in agriculture and renewable energy production on agricultural lands (proposed new structural benchmark). - Ministry of Energy, Small Business and Entrepreneurship to publish guidance on licensing and approval process for renewable energy projects (proposed new structural benchmark). - Accelerated renewable energy transition expected to reduce macroeconomic vulnerabilities by making Barbados less susceptible to international oil price volatility. ### Data issues - A Canada-funded project coordinated by STA to upgrade national accounts is ongoing; expected to enable BSS to compile GDP statistics based on 2016 prices (rebased from 2010) and prepare them quarterly from both supply and expenditure sides. - In March 2021, Barbados implemented the IMF’s Enhanced General Data Dissemination Standard (e-GDDS) with the launch of the National Summary Data Page to enhance data transparency. ### Program issues, financing, and benchmarks - The authorities met all QPCs and ITs targets set for end-September 2021. - Staff proposes modifications: - Modify ITs for December 2021 and PCs for March 2022 (see Table 2 of Attachment). - Adjust the PC on the primary balance for FY2021/22 to minus 1 percent of GDP, from zero percent at the time of the fifth EFF review, to accommodate lingering pandemic impacts and additional spending needs (Hurricane Elsa damages and ashfall cleanup). - Revise PCs on public debt and NIR upwards reflecting the SDR allocation and its use for budget financing. - Authorities requested purchase of SDR 17 million for the sixth review to be made available as budget support to provide buffer against external shocks and increased financing needs. - The purchase would help maintain sufficient reserves and catalyze IFI financing given uncertainty surrounding the tourism sector. - Use of the EFF disbursement for budget support is appropriate given limited alternative financing sources after the 2018-19 comprehensive debt restructuring. - With the proposed IMF disbursement and support from other IFIs, the program is fully financed. - Consideration of using the SDR allocation for budget support: - SDR allocation currently held at the CBB; authorities considering on-lending or SDR-related monetary financing in local currency, in line with recently revised CBB law. - Staff would in principle support using SDRs as they are the cheapest form of financing currently available to Barbados. - Modalities being explored: CBB to provide financing to central government approximately equivalent to the SDR allocation, with the government issuing a pandemic bond to the CBB and acquiring additional deposits at the CBB. - As government deposits are spent, net credit to government from the CBB would increase and partly translate into higher FX demand which could be met by selling SDR holdings. - The revised CBB law allows for CBB financing up to 3 percent of GDP with a maximum 5-year maturity under a public emergency like the COVID-19 pandemic. When the pandemic bond is issued, gross central government debt increases, but net debt is unchanged. The primary balance is unaffected by this bond issuance. The issuance of a pandemic bond is assumed to take place towards end of 2021 under the macro framework and DSA. ### Structural reform implementation and proposed benchmarks - Steady progress in structural reform agenda; all structural benchmarks for the sixth review successfully met with one exception (see Table 1 of Attachment). - Met benchmarks included: plans to recapitalize the CBB and address NIS financial challenges; Minister of Finance tabling a fiscal framework covering the three-year period; BRA establishing a program to address pre-TAMIS debt for a two-year period; Supreme Court Registry launching its e-Filing system; BCED improving performance management. - Passage of the Fair Credit Reporting Act (end-Oct 2021 structural benchmark) modestly delayed due to COVID-19 legislative delays; expected adoption in December. - Staff proposes two new structural benchmarks to support climate resilience and clean energy and to reset test dates for two existing benchmarks: - New benchmarks: (i) establish streamlined approvals and licensing process for IPP renewable projects; (ii) publish guidance note to IPP investors on navigating this process. - Reset end-December 2021 benchmark to table a revised pension law in parliament due to limited public consultation opportunities after natural disasters and pandemic. - Reset end-December benchmark for CBB to compile and disseminate a first set of quarterly core FSIs for deposit takers due to modest lag in integrating Fund technical advice. ### Reserves, capacity to repay, and central bank safeguards - Barbados’ capacity to repay the Fund is assessed to be adequate (Table 10). - Debt service to the IMF projected to remain below 2 percent of exports and 1 percent of GDP throughout the projection period. - Gross reserves projected to remain above 100 percent of ARA over the projection period. - CBB progress on safeguards: - New CBB law adopted in December 2020 significantly strengthens provisions on central bank autonomy, accountability, and governance. - Steps taken to strengthen internal audit and risk management. - Agreement with government for a two-stage gradual recapitalization drawing on IMF TA recommendations. - Foregoing dividend distributions while CBB remains profitable will provide resources until government can initiate gradual replenishment of authorized capital. ### Authorities' views - Authorities broadly agreed with staff views on macroeconomic policies and projections. - They concur that temporary fiscal accommodation was critical during the crisis and agree that Barbados should resume fiscal consolidation to achieve long-term debt target of 60 percent of GDP as soon as the pandemic dissipates. - Emphasized need to balance fiscal consolidation with social cohesion and support for the needy and the green transformation. - Priority on strengthening disaster resilience and transition to greener economy: - Aim to boost green investment and mobilize private investment, including under the ‘Roofs to Reefs’ program. - Exploring insurance and state-contingent instruments such as CCRIF. - Called for international concessional support to small island states and revisiting eligibility criteria for concessional financing. - Looking forward to the creation of the new Resilience and Sustainability Trust. - Emphasized commitment to PFM reforms, particularly public procurement, to enhance donor confidence. - Authorities see scope to boost growth via structural reforms: digitizing government services; improving regulatory environment for private investors including IPPs; promoting financial inclusion for SMEs; deeper SOE reform. ### Staff appraisal and risks - Staff view: good progress implementing the BERT plan; all QPCs and ITs for sixth review met; all structural benchmarks met except one delayed due to COVID-19 legislative delays. - Fiscal stance and debt sustainability: - Short-term fiscal accommodation should be compensated as soon as crisis wanes to preserve and strengthen debt sustainability. - Debt anchor target of 60 percent of GDP pushed out two years to FY2035/36; achieving target requires ambitious primary surpluses in the long term. - Staff views public debt as sustainable but subject to high risks. - Need to continue structural reforms to secure higher primary surpluses and fiscal space. - Further reforms recommended: adoption of a procedural fiscal rule, passing a new procurement law, tabling a revised public pension law. - Accelerate SOE reforms once the pandemic wanes through: (i) phasing out COVID-related transfers; (ii) stronger SOE oversight and reporting via SOE dashboard; (iii) cost adjustments and revenue enhancements including increased user fees; (iv) mergers and divestment. - Climate and resilience: accelerating structural reforms is essential to mobilize private sector resources and international support for climate investments; scope exists to improve business environment for IPPs. - Risks to the program remain elevated: - Key risks: (i) a more prolonged negative impact of the global coronavirus pandemic; (ii) slower normalization in source countries for tourism (UK, US, and Canada); (iii) inflation pressures from global food and fuel price increases; (iv) intensifying natural disasters. - Implementation risks: ambitious structural reform agenda challenged by limited administrative capacity and constrained opportunities for public consultation. - Mitigating factors: authorities’ track record under the program, strong commitment to reform, widespread IFI support, and broad public support for stabilization and reform. *Source: IMF country document (Barbados) — content unit 1brbea2021002.* ### 59. With continued strong program implementation, staff recommends completion of the ### 1brbea2021002 - 59. ### Key finding - With continued strong program implementation, staff recommends completion of the sixth review of the extended arrangement under the Extended Fund Facility. ### Staff decision / recommendation - Staff supports the authorities’ request to modify three performance criteria. *Source: 1brbea2021002 - 59.* ### 60. Staff proposes that the next Article IV consultation take place on a 24-month ### 1brbea2021002 - 60. Staff proposes that the next Article IV consultation take place on a 24-month ### Real sector developments - Tourism is the largest sector and Barbados remains heavily reliant on tourism; the halt of tourism caused a sharp contraction in 2020 and continues to weigh on the growth outlook for 2021. - Tourist arrivals froze with the COVID-19 pandemic from early 2020 onwards; tourist arrival growth had already been weaker before the freeze. - Unemployment at about 21 percent in 2020. - CY Real GDP (annual percent change): - 2018: -0.6 - 2019: -1.3 - 2020: -18.0 - 2021: 1.6 - 2022: 10.1 - CPI inflation (average): - 2018: 3.7 - 2019: 4.1 - 2020: 2.9 - 2021: 3.0 - 2022: 5.4 - CPI inflation (end of period): - 2018: 0.6 - 2019: 7.2 - 2020: 1.3 - 2021: 4.7 - 2022: 2.7 ### Fiscal sector developments - After trending down since the debt restructuring in FY18/19, expenditure ratios have risen due to lower GDP and emergency Covid- and disaster-related spending, reversing steady improvement in the fiscal balance since FY15/16. - A one-off corporate tax windfall offset negative pandemic impacts on other tax revenues in FY20/21. - The use of short-term debt instruments fell drastically following the debt restructuring and remains low, but public debt ratio increased significantly due to higher deficits and lower GDP; debt service costs and gross financing needs have risen. - Central government fiscal indicators (selected; percent of FY GDP): - Total revenue: 2018/19: 29.1; 2019/20: 31.0; 2020/21: 31.8; 2021/22 (est.): 28.4; 2022/23 (proj. program): 29.0 - Total expenditure: 2018/19: 29.4; 2019/20: 27.2; 2020/21: 36.9; 2021/22 (est.): 32.5; 2022/23 (proj. program): 34.1 - CG Fiscal balance: 2018/19: -0.3; 2019/20: 3.8; 2020/21: -5.1; 2021/22 (est.): -5.1; 2022/23 (proj. program): -1.7 - Interest Expenditure (percent of FY GDP): 2018/19: 3.7; 2019/20: 2.5; 2020/21: 4.0; 2021/22: 4.1; 2022/23: 4.7 - CG Primary balance: 2018/19: 3.4; 2019/20: 6.2; 2020/21: -1.0; 2021/22: -1.0; 2022/23: 3.0 - Central government gross debt (BDS$ millions; memorandum): 2018/19: 12,949; 2019/20: 12,674; 2020/21: 13,287; 2021/22: 13,831; 2022/23: 13,808 - CG gross debt (percent of FY GDP): 2018/19: 126.0; 2019/20: 124.4; 2020/21: 156.4; 2021/22: 142.1; 2022/23: 128.7 ### External sector developments - The current account deficit doubled relative to 2019 due to the collapse of the tourism sector, with lower imports driven by lower services debit and lower intermediate imported goods (oil). - Capital inflows’ declining trend was reversed owing to large inflows from IFI loans, contributing to a turnaround in international reserves. - Balance of payments (US$ millions, selected): - Current account balance: 2018: -201; 2019: -162; 2020: -323; 2021: -506; 2022 (proj.): -464 - Exports of goods and services (US$ millions): 2018: 2,098; 2019: 2,265; 2020: 1,377; 2021: 1,789; 2022: 2,136 - Imports of goods and services (US$ millions): 2018: 2,020; 2019: 2,098; 2020: 1,719; 2021: 2,079; 2022: 2,333 - Gross International Reserves (GIR, US$ million): 2018: 500; 2019: 739; 2020: 1,330; 2021: 1,394; 2022 (proj.): 1,278 - GIR in months of imports of G&S: 2018: 3.0; 2019: 4.2; 2020: 9.3; 2021: 8.0; 2022: 6.6 - Oil Price (WTI, US$ per barrel): 2018: 64.8; 2019: 57.0; 2020: 39.4; 2021: 64.6; 2022 (proj.): 63.1 ### Monetary sector developments - Central Bank of Barbados (CBB) claims on Government declined after the domestic debt restructuring. - CBB international reserves increased sharply while commercial banks’ reserves at the CBB continue to increase. - Country risk premium peaked before the debt restructuring but market perception is improving since. - T-bill rate declined after the debt restructuring; deposit rate remained very low. - Private sector credit growth has remained weak, with excess liquidity parked at the CBB. - Monetary aggregates and credit (selected, percent change / levels): - Broad money (M2, liabilities to the private sector): 2018: 11,315 (millions BBD); 2019: 11,655; 2020: 12,501; 2021: 13,792; 2022 (proj.): 13,820 - Credit to the private sector (millions BBD): 2018: 8,227; 2019: 8,303; 2020: 8,206; 2021: 8,174; 2022: 8,288 - Monetary base (millions BBD): 2018: 2,659; 2019: 2,955; 2020: 3,552; 2021: 4,126; 2022: 4,040 ### Financial sector developments - Capital relative to risk-weighted assets is adequate; profitability slightly increased in 2020. - Commercial banks’ nonperforming loans (NPLs) remained flat while credit unions’ NPLs increased. - Mortgages remained flat since 2018; banks maintained exposure to the Government after maturity lengthening due to debt restructuring. - With negative loan growth, banks’ liquid assets to total assets increased over the last two years. - Financial indicators (selected): - Capital Adequacy Ratio (CAR) for commercial banks: 2015: 15.8; 2016: 17.0; 2017: 17.0; 2018: 13.9; 2019: 13.5; 2020: 16.0 - Loans and advances (year-on-year growth rate, commercial banks): 2015: -0.8; 2016: -0.5; 2017: 2.0; 2018: 0.7; 2019: -0.5; 2020: -2.1 - Non-performing loans ratio (commercial banks): 2015: 10.6; 2016: 8.9; 2017: 7.9; 2018: 7.4; 2019: 6.6; 2020: 7.3 - Liquid assets to total assets (commercial banks): 2015: 25.3; 2016: 27.4; 2017: 26.7; 2018: 21.1; 2019: 22.9; 2020: 25.1 ### Social development and competitiveness - Social spending declined pre-pandemic a little as a share of GDP but remains broadly in line with peers given the income level. - Barbados has higher life expectancy and higher development outcomes relative to regional peers. - Real effective exchange rate has depreciated recently. - Travel and Tourism competitiveness: Barbados’ Tourism Competitiveness Index is below other tourism-intensive Latin American economies. - Selected social/demographic indicators: - Population (2020 est., thousand): 287.9 - Adult literacy rate (2014): 99.6 - Per capita GDP (2020 est., US$ thousand): 15.6 - Poverty rate (individual, 2010): 19.3 - Life expectancy at birth (2019): 79.2 - Gini coefficient (2010): 47.0 - Rank in UNDP Development Index (2019): 58 - Unemployment rate (2020): 21.3 - Main products, services and exports: tourism, financial services, rum, sugar, and chemicals. ### Regional context and medium-term outlook - Barbados is among the hardest-hit economies in the region; growth is relatively lower but less volatile; external imbalances follow the regional pattern. - The fiscal stance is temporarily worsening; reserves are still lower than those of some peers, while debt remains highest in the region. - Medium-term macro framework (selected): - CY Real GDP (annual percent change, projection range): - 2023: 4.2 - 2024–2025: 2.9–2.6 (presented as 2.9, 2.6 in source) - 2026: 2.5 - Nominal GDP (annual percent change): 2020: -15.3; 2021: 4.4; 2022: 11.9; 2023: 5.7; 2024: 4.4; 2025: 4.5; 2026: 4.5 - Central government gross debt (percent of FY GDP): 2023: 121.4; 2024: 114.6; 2025: 107.8; 2026: 101.1 *Source: 1brbea2021002 - 60. Staff proposes that the next Article IV consultation take place on a 24-month* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Risk Assessment Framework - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. - Likelihood categories (staff’s subjective assessment): - “low” = probability below 10 percent - “medium” = probability between 10 and 30 percent - “high” = probability between 30 and 50 percent - Conjunctural shocks and scenario: risks that may materialize over a shorter horizon (between 12 to 18 months). - Structural risks: likely to remain salient over a longer horizon. - Non-mutually exclusive risks may interact and materialize jointly. ### Global Risks - Global resurgence of the Covid-19 pandemic - Likelihood: Medium - Impact: High - Key description: Local outbreaks lead to a global resurgence of the pandemic (possibly due to vaccine-resistant variants), requiring costly containment efforts and prompting persistent behavioral changes rendering many activities unviable. - Policy response: - Continue making progress in a vaccination program (about 50 percent of the population have been fully vaccinated so far). - Enhance capacity of viral testing, contact tracing, and treating infected people. - Higher frequency and severity of natural disasters related to climate change - Likelihood: Medium - Impact: High - Key description: Severe economic damage to smaller economies susceptible to disruptions, accelerated emigration, reduced global GDP if large economies are hit, higher commodity price levels and volatility if key infrastructure or trade disrupted. - Policy response: - Invest in climate resilient infrastructure including under the “Roofs to Reefs” program. - Include natural disaster clauses in government debt. - Ensure adequate insurance, including under CCRIF. - Make use of IFI contingent credit facilities. - Rising commodity prices amid bouts of volatility - Likelihood: Medium - Impact: Medium - Key description: Commodity prices increase by more than expected against a weaker U.S. dollar, post-pandemic pent-up demand and supply disruptions, and accelerated plans for renewable energy adoption; uncertainty leads to bouts of volatility, especially in oil prices. - Policy response: - Implement structural measures to rely less on commodity imports, including through investment in renewable energy. - Increase domestic supply capacity of food. ### Country-specific Risks (Barbados) - Slower path of fiscal adjustment owing to delayed recovery from ongoing global pandemic - Likelihood: Medium - Impact: High - Policy response: - Adhere to a fiscal consolidation strategy under the program and resume fiscal consolidation as soon as the pandemic dissipates. - Delays in structural reforms owing to the ongoing global pandemic - Likelihood: Medium - Impact: High - Policy response: - Deliver the structural reform agenda and policy commitments under the program, including SOE reforms, an improvement in tax and custom administrations, and the introduction of a fiscal rule. - Changes of tourist behavior in a post-COVID era - Likelihood: Medium - Impact: High - Key description: Delays in infrastructure investment and retooling human capital to transform the tourism sector to meet tourists’ demands in a post-COVID era could divert the economy from an expected recovery path. - Policy response: - Implement structural measures to improve the competitiveness of the tourism sector and boost attractiveness to tourists in a post-COVID era. --- ### Annex II. Debt Sustainability Analysis (selected findings included in same content unit) ### Summary Findings - Public debt remains sustainable but subject to high risks. - Debt-to-GDP ratio projections: - Temporary increase to 156 percent of GDP in FY2020/21. - Decline to about 142 percent of GDP in FY2021/22 (also described as about 140 percent in a related passage). - Debt anchor: - The 60 percent-of-GDP debt anchor is projected to be reached by FY2035/36 (target pushed back by two years in context of the fifth review). - Over the medium term: - Debt remains above the 70 percent of GDP risk assessment threshold used in the MAC DSA. - Gross financing needs (GFNs) are projected to stay below the 15 percent of GDP threshold except for FY2021/22. ### Recent Developments and Public Debt Structure - Public debt dynamics: - Pre-pandemic: public debt reduced to 124 percent of GDP by end-FY2019/20, from 158 percent of GDP in FY2017/18. - FY2020/21: sharp increase to 156 percent of GDP owing mainly to a sharp decrease in nominal GDP by around 17 percent and a small primary deficit of 1 percent of GDP. - FY2021/22: projected compression of debt-to-GDP to around 142 percent of GDP from 156 percent in FY2020/21. - Drivers of improvement: - 2018-2019 debt restructuring provided debt reduction of about 30 percent of GDP, converted short-term CG debt to longer-term debt, and improved the debt service schedule. - Clearance of domestic expenditure arrears contributed to reduction in domestic debt. - Debt profile features: - Restructured external debt has a 5-year grace period; principal payments associated with restructured external debt will resume only from 2025 onwards. - Around half of gross financing needs is represented by short term debt with no rollover risk as commercial banks have agreed to rollover the full stock of their short-term claims for the next 10 years; the rest of the short-term debt is held by the CBB. ### Key Quantitative Breakdown (as presented) - Total public debt (FY2020/21): 6,643.3 (In US$ million) — 100.0 percent total debt — 156.4 (Percent of GDP) - External debt (FY2020/21): 2,206.9 — 33.2 (Percent total debt) — 52.0 (Percent of GDP) - Multilateral creditors (FY2020/21): 1,408.9 — 21.2 (Percent total debt) — 33.2 (Percent of GDP) - IMF: 391.9 — 5.9 (Percent total debt) — 9.2 (Percent of GDP) - IADB: 562.2 — 8.5 (Percent total debt) — 13.2 (Percent of GDP) - Other Multilaterals: 454.8 — 6.8 (Percent total debt) — 10.7 (Percent of GDP) - o/w: CDB 261.8 — 3.9 — 6.2 - CAF 167.9 — 2.5 — 4.0 - Bonds (FY2020/21): 552.0 — 8.3 (Percent total debt) — 13.0 (Percent of GDP) - Domestic debt (FY2020/21): 4,436.3 — 66.8 (Percent total debt) — 104.5 (Percent of GDP) - Short-term debt (incl. T-Bills) (FY2020/21): 393.7 — 5.9 (Percent total debt) — 9.3 (Percent of GDP) - Held by: central bank 210.1 — 3.2 — 4.9 - local banks 142.6 — 2.1 — 3.4 - local non-banks 41.1 — 0.6 — 1.0 - Long-term debt (incl. Bonds) (FY2020/21): 4,042.6 — 60.9 (Percent total debt) — 95.2 (Percent of GDP) - Held by: central bank 207.2 — 3.1 — 4.9 - local banks 1,025.1 — 15.4 — 24.1 - local non-banks 2,810.3 — 42.3 — 66.2 - Contingent liabilities (FY2020/21): 228.4 — 3.4 (Percent total debt) — 5.4 (Percent of GDP) - o/w: Public guarantees 228.4 — 3.4 — 5.4 - Nominal GDP (In US$): FY2020/21 4,247.1; FY2021/22 4,247.1; FY2022/23 4,866.7; FY2023/24 5,362.7 ### Public Debt Sustainability Analysis Assumptions - Growth and Inflation: - Projected economic growth for 2021 is lowered to around 2 percent from 3 percent at the time of the fifth review. - Growth premised on modest recovery of tourism in second half of 2021 and steady implementation of vaccination programs. - Over the medium term, growth expected to return to the pre-crisis level (2019 real GDP level) around 2024, eventually stabilizing at long-term average of around 2 percent. - Average inflation projected to return to around 2½ percent from 2022 onwards. - Fiscal multiplier is conservatively set at 0.3. - Primary Balance: - FY2021/22 primary balance projected at minus 1 percent of GDP (decreased from zero percent at time of fifth review). - Primary balance projected to gradually increase to 6 percent of GDP by FY2024/25 and remain there for several years. - Primary surplus could be slightly decreased subsequently to accommodate long-term developmental needs provided long-term debt anchor of 60 percent of GDP by end-FY2035/36 is respected. - Arrears: - Domestic expenditure arrears are gradually repaid and fully extinguished by end-FY2022/23. ### Baseline Projections and Risks - Under the current baseline: - Public debt projected to meet long-term anchor of 60 percent of GDP by end-FY2035/36. - Debt-to-GDP ratio expected to be brought back onto a downward trajectory in FY2021/22 but remains around 40ppt of GDP above pre-COVID debt trajectory; expected to return to pre-COVID level of 124 percent of GDP in FY2023/24. - Effective real interest rate roughly equal to long-run real growth rate, generating favorable declining debt dynamics. - Projected primary balances are much larger than estimated debt-stabilizing primary balances (debt-stabilizing primary balances estimated to be around zero percent of GDP over the projection period). - Debt management strategy: - Temporary larger financing needs could be financed by large financial support from IFIs and use of SDR allocation from the Fund. - Long-term strategy aims to reduce short-term debt below 5 percent of GDP and use long-term domestic debt to a maximum extent possible. - External market access assumed to be re-established in the medium term (Barbados currently rated as B- by S&P). - Strategy assumes rolling-over of commercial external debt coming due, including recently restructured external debt. - By end-FY2035/36, external and domestic debt projected to be about 16 and 42 percent of GDP, respectively. - Key downside risks: - Significant deviation from gradual recovery path (e.g., repeated emergence of new COVID variants delaying tourist arrivals) could impair ability to resume fiscal consolidation. - Delays in structural reforms that generate high primary balances in the long run. - Mitigating factors: - Strong track record under the EFF-supported program. - Favorable debt service schedule and improved market perceptions following the comprehensive 2018-19 debt restructuring. - In June 2021, authorities prepared plans to recapitalize the CBB and provide capital to the NIS to restore financial soundness. ### Stress Tests (Selected Outcomes) - Overall: - Debt would stay broadly on a steady downward trajectory under stress tests, but high debt level remains a concern in the next 5 projection years. - Planned fiscal adjustment and cautious borrowing strategy support downward trajectory. - Sensitivities: - Debt trajectory not meaningfully affected by either primary balance or interest rate shocks. - Real GDP growth shock, combined macro-fiscal shock, and contingent liability shock would result in a slower debt reduction path with the debt-to-GDP ratio projected to be around 30 ppt higher than under the baseline at the end of the projection period. - GFNs projected to stay below the 15 percent risk assessment threshold except for FY2021/22 under the baseline. - GFNs are susceptible to real GDP, contingent liability, and combined shocks; GFNs to GDP ratio projected to stay below the threshold under other stress tests from FY2022/23 onwards. - Low debt service stemming from restructured debt and high primary surplus assumed maintain manageable liquidity risks. *Source: Annex I. Risk Assessment Matrix and Annex II. Debt Sustainability Analysis (selected passages).* ### 9. The debt profiles vulnerabilities analysis points to low or moderate risks. The spread on ### 1brbea2021002 - 9. The debt profiles vulnerabilities analysis points to low or moderate risks. The spread on ### Debt-profile vulnerabilities and market perception - Spread on external debt is currently around 500 bps, which is below the high-risk threshold of 600 basis points. - External debt characteristics suggesting moderate risk: - External debt held by non-residents: 33 percent (indicator shown in risk table). - Foreign currency-denominated debt: 12 percent (indicator shown in risk table). - External financing requirement: 11 percent of GDP (indicator shown in risk table). - Short-term debt risk: - Short-term debt continues pointing to a low risk with an annual decrease by 1.2 percentage points. - New external debt in 2020: - All new external debt incurred in 2020 was provided by multilateral IFIs with favorable lending terms, posing limited risk to future debt service. - Authorities’ debt management strategy: - Favors domestic and cheaper external financing sources; share of external debt is expected to decrease over time. ### Stress tests, fan charts, and risk bands - Stress tests produce narrow confidence intervals. - Fan charts produce narrow but slightly wider confidence intervals and bands compared with the previous DSAs prior to the pandemic due to unprecedented volatility of macroeconomic indicators observed in 2020. - Stress-test finding: - Under any of the stress tests considered, external debt is not projected to be higher than about 40 percent of GDP by FY2026/27. ### Public debt sustainability (E. Public Debt) - Overall assessment: - On balance Barbados’ debt is assessed as sustainable. - Recent trajectory and projections: - Public debt remains on a gradual downward trajectory under the current baseline projections after a temporary hike in FY2020/21 due to the COVID-19 shocks. - Public debt is projected to decrease to around 100 percent of GDP towards the end of the 5-year DSA projection period. - Public debt is projected to achieve the 60 percent-to-GDP debt target in FY2035/36 through higher primary surpluses under the baseline projections. - Even with the debt target pushed back by two years to FY2035/36 at the time of the fifth review, maintaining high primary balances over an extended period remains a challenge and key risk to debt sustainability. - Mitigating factors and risks: - No roll-over risks associated with short-term debt. - Favorable external debt service schedule due to debt restructuring and recent IFI borrowing, suggesting relatively low near-term liquidity risks as evidenced by stress tests for GFNs. - Authorities’ strong commitment to long-term fiscal consolidation and cautious debt management strategy supports sustainability. - Risks to debt sustainability remain elevated: growth and macro-fiscal shocks would jeopardize debt sustainability. - High vulnerability to a contingent liability shock scenario confirms the need to increase resiliency to natural disasters and strengthen SOEs’ financial viability. - Recommendation: Broader use and strengthening of state-contingent financial instruments is encouraged to further increase resilience against natural disasters. ### External debt sustainability (F. External Debt Sustainability Analysis) - Current levels and changes: - In FY2020/21, external debt temporarily increased to 52 percent of GDP from 34 percent in FY2019/20 due to strong support from IFIs and a collapse in nominal GDP. - External debt is projected to gradually decrease to about 34 percent of GDP by FY2026/27. - Scenario sensitivity: - A worsening in the current account deficit due to the prolonged pandemic, along with a delay in economic recovery, is projected to slightly raise the external debt to GDP ratio by around 1 percentage points throughout the projection period compared with the previous external DSA. - Strategy and risk reduction: - Public debt management strategy aims to limit expensive financing from the external capital market and rely on multilaterals and/or domestic sources of financing. - Risks associated with external debt are reduced by debt restructuring with smoother and lower debt service and the increased share of IFIs among non-resident creditors. - Coverage note: - Private external debt is not included in the analysis due to the limited data availability. ### Key quantitative findings and baseline indicators (selected exact figures) - Sovereign spreads: - EMBIG (bp): 499 - Public gross financing needs: - 2019: 36.5 - 2020: 6.5 - 2021: 18.9 - 2022: 17.1 - 2023: 11.9 - 2024: 10.9 - 2025: 9.6 - 2026: 11.0 - Nominal gross public debt (selected years, percent of FY-GDP): - 2019: 133.3 - 2020: 124.4 - 2021: 156.4 - 2026 (projection): 101.1 - FY Real GDP growth (in percent): - 2019: 0.0 - 2020: -5.4 - 2021: -21.7 - 2022: 12.1 - 2023: 8.6 - 2024: 3.9 - 2025: 2.8 - 2026: 2.3 - Inflation (FY GDP deflator, in percent): - 2019: 1.5 - 2020: 4.8 - 2021: 6.5 - 2026 (projection): 2.0 - Effective interest rate (in percent): - 2019: 6.3 - 2020: 2.0 - 2021: 2.8 - 2026 (projection): 4.4 - Change in gross public sector debt (cumulative, percent of GDP): -55.3 (projection period cumulative) - Identified debt-creating flows (cumulative): -50.7 - Primary (noninterest) revenue and grants (cumulative): 176.8 (percent of GDP over projection period) - Primary (noninterest) expenditure (cumulative): 151.8 (percent of GDP over projection period) - Primary deficit (selected years, percent of GDP): - 2019: 0.1 - 2020: -6.2 - 2021: 1.0 - 2022: 1.0 - 2023–2026 (annual baseline): -3.0, -5.0, -6.0, -6.0, -6.0 - Composition of public debt and public gross financing needs shown across 2019–2026 in figures (by maturity and by currency). - External debt key metrics (Table 1 excerpts): - Baseline: External debt series (percent of FY-GDP): 2016: 31.3; 2017: 28.5; 2018: 33.4; 2019: 33.8; 2020: 52.0; 2021: 50.3; 2022: 47.1; 2023: 45.1; 2024: 42.3; 2025: 38.1; 2026: 33.6. - Change in external debt (selected years): 2016: -3.1; 2017: -2.8; 2018: 4.9; 2019: 0.4; 2020: 18.1; 2021: -1.7; 2022: -3.2; 2023: -2.0; 2024: -2.8; 2025: -4.2; 2026: -4.6. - Gross external financing need (in percent of FY GDP, selected): 2016: 6.5; 2017: 6.6; 2018: 5.6; 2019: 4.4; 2020: 9.8; 2021: 12.0; 2022: 10.4; 2023: 8.9; 2024: 7.8; 2025: 8.7; 2026: 7.6. - External debt-to-exports ratio (in percent, selected): 2016: 73.1; 2017: 67.9; 2018: 81.9; 2019: 76.1; 2020: 160.3; 2021: 136.7; 2026 projection: 79.3. - Stress-test scenarios and sample parameter outcomes (Figure 5 underlying assumptions include): - Baseline real GDP growth series: 12.1, 8.6, 3.9, 2.8, 2.6, 2.3 (2021–2026). - Example shocks: - Real GDP Growth Shock baseline series: 12.1, 1.6, -3.2, 2.8, 2.6, 2.3. - Contingent Liability Shock primary balance for 2022: -2.2 (under that scenario). *Source: IMF staff (as presented in the provided content).* ### Annex III. External Sector Assessment ### Annex III. External Sector Assessment ### The External Sustainability and Current Account Developments - Current account deficit widened to 7 percent of GDP in 2020 from 3 percent in 2019. - Drivers in 2020: - Sharp decline in tourism due to lockdowns in key source markets. - Partially offset by favorably low oil prices and low demands of imported goods and services. - Financing of the 2020 deficit: - Significant inflows in the financial account, led by larger than expected flows of official sector assistance. - Public external debt increased by around 20 percentage points of GDP in 2020. - Outlook for 2021 and beyond: - Current account deficit expected to continue widening in 2021 given slow recovery in tourism arrivals and increasing imports of goods and services. - Projected end-year current account deficit of 10.8 percent of GDP for 2021. - Tourist arrivals forecast to remain well below normal levels in 2021 despite staged reopenings and modest recovery toward end-2021. - Imports of intermediate goods recovered to pre-pandemic level, driven by booming commodity prices and freight costs and domestic demand from reconstruction after Hurricane Elsa. - Goods exports increased marginally in the first two quarters of 2021, partly due to increases in exports of rums and electronic components linked to export diversification efforts. - Current account expected to slowly narrow in coming years as tourist arrivals return to normal and business environment improvements unlock growth in renewable energy, medical, and high-tech sectors. ### Financing, Capital Flows, and Policy Implications - Composition of financing: - Official capital inflows amounted to around 11 percent of GDP in 2020 and projected to be around of 7 percent of GDP in 2021; all with favorable borrowing terms. - FDI inflows stayed around 5 percent of GDP in 2020; projected to increase as major tourism-related development projects are realized. - Major outlays in 2020 and 2021 are repayments to outstanding official debt. - Private capital outflows remain limited given limited capital mobility in the region. - Overall, long term FDI and official inflows remain the key composition of the financial account. - Policy recommendations: - Consider policy measures to continue attracting long term investment and other portfolio investments as official inflows may deaccelerate. - Authorities should consider gradually phasing out the current capital flow measure, i.e., the 2 percent foreign exchange fee, as the pandemic dissipates and reserves build up. ### EBA-lite Assessment and External Position Metrics - EBA-lite current account (CA) model estimates: - COVID-19 adjusted and cyclically-adjusted current account balance estimated at minus 5.9 percent of GDP in 2020. - Multilaterally consistent cyclically adjusted CA Norm is minus 5.7 percent of GDP. - Implied small current account gap of minus 0.3 percent of GDP. - Using estimated current account elasticities, implies a small overvaluation of the REER (by 0.9 percentage points). - REER approach: - REER approach suggests an overvaluation by about 24 percent. - Staff view: REER model is less reliable than the CA model due to short sample span for fixed effects and data substitutions; CA model better captures evolving external position. - Summary Table – key reported values (preserved exactly as in source): - CA-Actual -7.4% - Cyclical contributions (-) 2.3% - COVID-19 adjustor (+) 3.8% - Adjusted CA -5.9% - CA-Norm -3.7% - Cyclically adjusted CA Norm -6.0% - Multilaterally Consistent Cyclically adjusted CA Norm -5.7% - CA-Gap -0.3% - Natural Disasters and Conflicts 0.1% (of/which Policy gap 8.4%) - Policy Gap 6% - CA-Fitted 4.7% - Elasticity -0.30 - Ln (REER) Actual 4.87 - Ln (REER) Fitted 4.68 - Ln (REER) Norm 4.63 - Residual 0.19 - REER Gap 24.4% - REER Gap 0.9% - Residual -12.1% - Natural Disaster and Conflict 0.0% - Notes cited in assessment: - COVID-19 adjustors: oil and tourism contribute by 0.47 percent and 3.29 percent of GDP respectively. - The positive policy gap of 8.4 percent of GDP is mostly driven by large reserve accumulation of 9.5 percent of GDP in 2020 relative to 2019 owing to significant official inflows of IFI loans during the pandemic; this policy gap is expected to shrink in the medium term as reserve accumulation slows. ### Reserves Position and External Buffers - Reserve coverage: - Reserves in 2020 covered 9 months of imports of goods and services. - By end-August 2021, international reserves increased to more than US$1.4 billion, equivalent to around 8.3 months of imports of goods and services coverage, and above 200 percent of the ARA metric. - Recent IFI financing and SDRs: - World Bank provided budget support equivalent to US$100 million in June 2021. - IDB expected to disburse US$80 million in policy loans by December 2021. - IMF SDR allocation of SDR 90.6 million took place in August 2021. - Staff analysis and recommendations: - Despite strong reserves, given uncertainties from COVID-19 and intensifying climate-change related natural disasters, Barbados needs to maintain adequate foreign exchange buffers to buttress credibility in its exchange rate peg against the US dollar. - Staff analysis indicates gross reserves will gradually decline as IFI financing tapers but will remain above 200 percent of the ARA metric through the end of the program. *Source: IMF staff estimates.* ### 10. Embracing opportunities to improve the disaster resilience of construction under the ### 10. Embracing opportunities to improve the disaster resilience of construction under the ### Resilient infrastructure investments and planning - The 2021 Physical Development Plan (expected to be adopted by end-2021) provides a vision for sustainable growth regarding land use, settlement patterns, food production, infrastructure, mobility and environmental management, and informs public and private sectors on the nature, scope and location of development and protection areas for core assets. - Resilient infrastructure investments have substantial long-run benefits, but large upfront costs impose short-term burdens on public finances given limited fiscal space after the prolonged pandemic and slower-than-expected tourism recovery compounded by damages from Hurricane Elsa and the volcanic eruptions at St. Vincent and the Grenadines. - Financing and implementation recommendations: - Increase donor financing to climate-related projects. - Strengthen private sector engagement through technical support, financial incentives, and access to affordable financial services. - Integrate resilient infrastructure investment needs into multi-year budget cycles and sectoral plans to enable gains in spending efficiency, identify financing gaps, and catalyze green financing. - Note on agricultural land use and renewables (from footnote): Streamline process to reclassify agricultural lands for solar PV panels and consider IPP partnerships with farmers to dedicate a portion of land to renewable energy generation to generate supplemental income and advance food security objectives. ### Financial resilience: insurance, contingent instruments, and green finance - Barbados’ public financial resilience framework includes three dimensions: - Parametric insurance via the Caribbean Catastrophe Risk Insurance Facility (CCRIF). - State-contingent bonds issued during the 2018-19 debt restructuring that include natural disaster clauses allowing capitalization of interest and deferral of scheduled amortization for a two-year period following a major natural disaster. For new domestic bonds, the trigger is a CCRIF payout above US$5 million. - A Catastrophe Fund with an approximate balance of B$61.5 million, financed by the NIS, to assist homeowners with uninsurable timber houses. - Suggested complements: - Expand the government saving fund to cover post-natural-disaster liquidity needs for small but more frequent events once fiscal space allows. - Scale up access to parametric insurance under CCRIF — Hurricane Elsa illustrated that current access is desirable to increase (the US$2.5 million CCRIF payout after Hurricane Elsa was insufficient to cover costs equivalent to around 1 percent of GDP and did not trigger the debt service suspension under the natural disaster clause). - Access to contingent liquidity: - Barbados has access to contingent lines or rapid credit facilities from international financial organizations and continued engagement with regional integration initiatives and IFI contingent support mechanisms (examples noted: CCRIF and the IDB’s contingent credit facility) will bolster financial resiliency to climate shocks. - Green bond market and green financing: - Barbados entered the green bond market (first Caribbean country to do so). In June 2019 Williams Renewable Energy Limited (WRELs) deployed 12 MWp of PV solar funded by a US$20 million green energy bond program. - WRELs bonds received the first Certification from Climate Bonds Standard in the Caribbean region. - A total of BDS$34 million was raised so far (June 2019 and February 2020) with the rest expected to be raised later in 2021 to fund the remaining 8.7 MW of PV solar. - Green financing can help reduce fossil fuel dependency, reduce carbon footprint, mobilize private sector financing, alleviate budgetary pressures, and support Barbados’ 2030 sustainable development agenda. ### Financial sector climate risk monitoring - Financial institutions in Barbados are exposed to climate change via: - (i) Physical risks from asset exposure to weather-related disasters and climate-sensitive sectors (notably tourism). - (ii) Transition risks from decarbonization that may cause capital reallocations and potential defaults in “dirty” sectors, affecting loan claims and equity holdings. - (iii) Asset price volatility resulting from climate-triggered conflicts and migrations. - Current gap: The Central Bank of Barbados (CBB) does not yet include climate change risks in their financial stability assessments, including stress testing based on potential scenarios. - Recommendation: Build capacity to monitor and assess climate change-related risks to the financial system to enhance financial sector resilience and safeguard financial stability. ### Post-disaster response, safety nets, and procurement - Response and recovery frameworks and social safety nets are relatively well developed, enabling quick humanitarian response after natural disasters subject to available fiscal space. Recent events (Hurricane Elsa, volcanic ash, COVID-19) show relatively efficient institutions for damage assessment, response, and reconstruction planning. - Constraint: Severely limited fiscal space restricts the ability to expand social safety net coverage following sudden climate shocks. - Strong procurement practices are essential for effective natural disaster response: - Weak procurement systems can deter donor support and reduce expenditure efficiency. - Government efforts to strengthen procurement— including revision of the public procurement law—are positive steps to improve disaster response speed, efficiency, and fiscal transparency. ### Implementation of prior IMF advice and fiscal context relevant to resilience - Key prior recommendations (from last Article IV) included strengthening fiscal sustainability, SOE oversight, central bank autonomy, business climate, and improving resilience to natural disasters and climate change (including state-contingent instruments and infrastructure under “Roofs to Reefs”). - Progress and fiscal figures: - Fiscal balance improved from minus 4 percent of GDP in FY2017/18 to 4 percent of GDP in FY2019/20, with the primary balance reaching 6 percent of GDP as committed under the EFF program. The pandemic prevented maintaining high primary balances in FY2020/21 and FY2021/22. - Higher primary balances consistent with achieving a 60 percent-of-GDP debt target (pushed out by two years) are expected to resume as the pandemic dissipates. - Transfers to SOEs fell by 1 percent of GDP (to 6.6 percent of GDP) prior to the pandemic in FY2019/20, but increased in FY2020/21 to accommodate COVID-19 responses; transfers are expected to remain somewhat elevated in FY2021/22 and then decrease as reforms and monitoring (including a newly-introduced risk dashboard for SOEs) take effect. - Structural and institutional reforms supportive of resilience and recovery: - Customs administration reforms: strategic plan, ASYCUDA World IT upgrade, in-house IT unit staffing, strengthened exemption monitoring and post-clearance audit units, trusted trader program, and tabling of a modernized Customs Bill. - Tax administration: operationalized Large Taxpayer Unit compliance improvement plan and scaled up audit activity. - Pension reform steps: actuarial review of civil service pension system completed in November 2020; preparing to table revised public sector pension law. - Procedural fiscal rule: a three-year fiscal framework (FY2022/23-FY2024/25) was tabled in August 2021 as a precursor to adoption of a procedural fiscal rule by end-December; deliberations over a numerical rule will resume when pandemic uncertainties resolve and PFM systems are strengthened. - Central bank law: a new law adopted by parliament in December 2020 to strengthen autonomy and limit central bank financing to short-term advances repayable within any single fiscal year. - Growth-enhancing measures: Commercial Court establishment, UNITRAL-compliant arbitration legislation, expanded online services and a digital ID program. - Green recovery measures: ‘Roofs to Reefs’ program, Feed-in-Tariffs program for renewable energy projects, and the Home Ownership Providing Energy program to construct energy efficient and solar powered houses. _Italic: Source: 1brbea2021002 - 10. Embracing opportunities to improve the disaster resilience of construction under the (IMF PDF content)._ ### 1. Barbados has embarked on a comprehensive Economic Recovery and Transformation ### 1. Barbados has embarked on a comprehensive Economic Recovery and Transformation ### BERT objectives and IMF EFF support - BERT aims at restoring fiscal and debt sustainability, addressing falling reserves, and increasing growth; goal to make Barbados "green, climate resilient, and ... fossil-fuel free" and a "smart, technological nation". - Target: reduce debt-to-GDP ratio to 60 percent by FY2035/36. - IMF Executive Board approved a four-year Extended Fund Facility (EFF) on October 1, 2018; reviews conducted at regular 6-month intervals with the fifth review completed in June 2021. - By September 2021: international reserves recovered to about US$1.4 billion and restructuring of public debt concluded. - Debt restructuring outcomes: significantly reduced Government interest bill, creating fiscal space for social spending and infrastructure investment. ### Fiscal performance, targets, and program compliance - All structural benchmarks (SBs) targeted for completion during the review were met apart from the passage of the Fair Credit Reporting Act due to a surge in COVID-19 cases. - All quantitative program targets for end-June and end-September 2021 were achieved. - Government remains fully committed to the September 2018 MEFP and subsequent Supplementary MEFPs (June and November 2019; May and November 2020; May 2021). - Quantitative targets proposed to be updated; programme structural benchmarks and updated quantitative targets presented in Tables (referenced in source). ### Economic impact of COVID-19, natural disasters, and fiscal outcomes - Economic contraction in 2020: 18 percent. - Primary balance target FY2020/21 revised from a surplus of 6 percent of GDP (original BERT Plan) to a deficit of 1 percent of GDP. - New primary balance target for FY2021/22: minus one percent of GDP (down from a zero primary balance at time of fifth review). - Additional outlays of about 1½ percent of GDP to address surge in domestic COVID-19 cases, fallout from volcanic ashfall (St. Vincent) and hurricane Elsa, and an initial disbursement to recapitalize the NIS unemployment benefit fund more than offset a ½ percent of GDP net improvement in revenues. - Direct COVID-19 related expenditures in FY2020/21 amounted to roughly 2½ percent of GDP. - Continued pandemic-related expenditures anticipated for FY2021/22: another 2½ percent of GDP. ### Targeted fiscal and social responses - Phased pandemic response: investments in health equipment and quarantine facilities; expanded welfare payments via Household Survival Program; monitoring compliance in schools, commercial enterprises, and communities. - Liquidity support to NIS via repurchase of government bonds and a capital injection of B$143 million—to be spread over three to five years—to accommodate unemployment benefit and severance claims. - Tourism support: Barbados Employment and Sustainable Transformation (BEST) plan. - Affordable housing programme (HOPE) launched using renewable energy technology. - A 12-month COVID relief jobs program rolled out to generate contractual employment and boost food production. - Targeted cash transfers to small businesses and vendors affected by second national pause in February 2021. ### Tax policy reforms and international tax developments - Corporate Income Tax (CIT) reformed: unified treatment of domestic and international companies; single converged scale of tax rates applies to all companies. - 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 a foreign currency earnings allowance, abolished. - Barbados joined the political agreement within the OECD Inclusive Framework on a new tax framework with implementation date of 2023. - Pillar One would formulaically reallocate more than US$125 billion of profits from (initially) around 100 of the world’s largest MNEs to "market jurisdictions"—likely little impact on Barbados’s tax revenues. - Pillar Two establishes a 15 percent minimum corporate tax rate that may apply to some Barbados Constituent Entities of foreign owned MNEs. - Personal Income Tax (PIT) top rate reduced to 28.5 percent as of January 1, 2020. - Revenue measures to compensate PIT reduction: broadened VAT base; increased land taxes and tourism room rate levies; new gaming taxes and online taxes. ### Tax administration modernization and large taxpayer compliance - All taxpayers able to file and pay taxes online. - Barbados Revenue Authority (BRA) implemented a new Tax Administration Management Information System (TAMIS) and established a program to address pre-TAMIS taxpayer refunds and debt using a dedicated task force for a two-year period (structural benchmark for end-September 2021). - BRA will complete vetting and finalize a tally of legitimate arrears by end March 2022 and undertake phased clearance of legacy tax arrears, prioritizing VAT claims. - BRA committed to repay outstanding tax refunds and implement system to pay refunds within six months after the filing date. - Large Taxpayer Unit (LTU) objective: improve 'on-time' filing for large taxpayers to over 90 percent for VAT, CIT, PAYE (structural benchmark for end-March 2021). - Planned audits for FY2021/2022: 54 issue, 30 desk, 4 specific and 2 comprehensive audits = total 90 audits; estimated 80-90 audits per year (about one-third of total population). ### Customs modernization (BCED) and trade facilitation - BCED reforms initiated in 2018 addressing traceability, cargo targeting, clearance, post-clearance audit, risk assessment, and special regimes controls. - IMF customs administration capacity development project ongoing until July 2022. - Achieved milestones (structural benchmarks): - Establishment of a trusted trader program (end-March 2020). - Transition to ASYCUDA World (end-June 2020). - Measures to strengthen BCED verifications and audit processes (end-August 2020). - BECD strategic plan submitted to Cabinet in November 2021; MoU between BRA and BCED to enhance information sharing established March 2021. - Information and Technology Division within BCED established and staffed in March 2021 (structural benchmark for end-March 2021). - Planned reforms and milestones: - Improve BCED performance management (structural benchmark for end October 2021) including harmonizing KPIs with ASYCUDA, implementing ASYPM, PRDS, automating dashboards, weekly unit-level population, and monthly senior management summary. - Enhance trade facilitation and risk management (structural benchmark for end December 2021): define benefits for Trusted Trader Program, streamline cargo import process in marine mode, improve shipment traceability. - Update legislative framework governing customs operations: draft legislation tabled in May 2021 and expected to be passed by end-December 2021. ### Fiscal strategy going forward and expenditure controls - Fiscal policy must remain flexible given COVID-19 uncertainty while keeping EFF objectives. - Commitment reiterated to reduce debt-to-GDP to 60 percent by FY2035/36 via sustained higher primary surpluses, policies to bolster growth, and improved revenue and expenditure efficiency. - Possible revenue-base broadening measures under consideration: - Enhance efficiency of Land Taxes and VAT regimes in real estate and tourism sectors. - Further rationalize tax preferences. - Expenditure-side measures: improve SOE performance to structurally reduce central government transfers and adopt measures to curtail expenditure growth as needed. ### IMF support, SDR allocation, and use of resources - EFF augmented during third and fourth reviews by SDR 66 million and SDR 48 million respectively, made available for budget support. - IMF general allocation of SDRs (equivalent to US$650 billion ≈ SDR 456 billion) provided global liquidity; Barbados exploring use of its allocation of about US$129 million (2¾ percent of GDP). - Use of SDR resources to adhere to institutional arrangements, including amended Central Bank Law; will be fully communicated. ### Fiscal rule design and implementation path - Government intends to introduce a fiscal rule to enhance fiscal transparency and lock in consolidation gains. - Interim procedural fiscal rule: Minister of Finance to issue regulations by end 2021 (structural benchmark for end December 2021). - Procedural rule commitments: - Annually prepare a monitorable fiscal strategy/framework over the medium term. - Regularly publish outcomes against this strategy. - Take remedial action when required. - Minister tabled first version of the fiscal framework in Parliament on August 10, 2021 (structural benchmark for August 15, 2021) including projections for FY2022-23 and two following fiscal years; mid-year review report tabled in October 2021. - Future numerical fiscal rule elements to be designed after pandemic uncertainty recedes, drawing on IMF FAD TA: - Limit annual budgeted overall fiscal deficits of the public sector to achieve public debt no more than 60 percent of GDP by FY2035/36. - Coverage to include all fiscal activities of the public sector, including SOEs and fiscal implications of PPPs (actual or contingent liabilities and risks). - Establish automatic correction mechanism triggered by substantial cumulative deviations from the annual overall balance target; require additional fiscal adjustment when deviations exceed pre-specified threshold. - Include an escape clause limited to major adverse shocks triggered only with Parliamentary approval or ratification, with a pre-defined list of events and measurable trigger conditions. - Consider institutional arrangements and legal options to strengthen sanctions and transparency: independent assessment of macro projections, disclosure of budget execution vis-à-vis the fiscal rule, Parliamentary hearings; Minister required to explain deviations in a mid-term budget review and outline corrective steps. *Italic: Source: 1brbea2021002 - 1. Barbados has embarked on a comprehensive Economic Recovery and Transformation* ### 18. We have adopted an action plan for public financial management reform to ### 1brbea2021002 - 18. We have adopted an action plan for public financial management reform to ### Public Financial Management (PFM) reform action plan - Strengthen the strategic phase of the budget formulation process: - Annual update of the government’s fiscal strategy based on backward-looking expenditure and revenue reviews and forward-looking targets on revenue, expenditure and debt in line with the Government’s clearly articulated current and medium-term priorities (see structural benchmark for August 15, 2021). - Setting of multi-year expenditure ceilings in accordance with the updated fiscal strategy, as a guide to the allocation process. - Provision of clear instructions by Cabinet for budget submissions based on a comprehensive discussion of the needs and priorities of each Ministry and program, including on spending ceilings. - Ensure: i) the budget calendar is aligned to the requirements of the new FMA Act; and ii) the budget circular is issued soon after the fiscal framework has been tabled in Parliament. - The budget circular will be accompanied by expenditure ceilings approved by Cabinet for each financial year covered by the medium-term budget planning horizon. - Reform the Budget Documentation: - Annual Budget Documentation (Budget Estimates) provides a comprehensive narrative describing the public finances. - Starting with the FY2022/23 budget, it will include an assessment of the alignment between the budget and the fiscal objective(s) established by the fiscal framework, and a comprehensive description of all revenue and expenditure measures taken. - A mid-year budget review report will be tabled in Parliament by October 15th of every year to report outturns against the annual budget, signal likely deviations from fiscal objectives, and identify remedial actions to ensure compliance with the fiscal framework. - Establish monitoring processes to enhance fiscal risk management: - Ministries and Extra Budgetary Units (EBUs) are now expected to produce annual and quarterly reports in line with PFM Act requirements. - MAU developed a monitoring dashboard analyzing financial performance of the government’s 19 priority oversight SOEs according to key metrics related to liquidity, solvency, profitability, financial performance, and financial dependency as input to quarterly progress updates to Cabinet (structural benchmark for end-March 2021). - Dashboard extended to cover all 53 SOEs monitored by the MAU. - Government exploring scope for MAU to regularly review and report on the financial performance of the NIS. - NIS committed to clear its backlog of financial statements and submit all outstanding financial statements (2010 to 2020) for audit by the Auditor General by end-March 2022 (structural benchmark). - Government seeking to transition the NIS from a Government Department to an independent statutory corporation by end-March 2022. - Increase efficiency and quality of public procurement: - Created separate sub-programmes to track COVID-19 related expenditures in the budget and lays in parliament all contracts awarded for BDS$1 million or more. - New procurement law to be tabled in parliament by December 2021; expected to be passed by no later than March 2022. - Beneficial owners database currently being established and expected to be completed by end-December 2021. - Enhancing governance frameworks: - Submit a revised Integrity in Public Life Bill to parliament in November 2021 to establish an Integrity Commission with powers to verify asset declarations and investigate alleged contraventions. - Government laid in parliament in September 2021: (i) a revised Prevention of Corruption Bill (passed in both Houses in October 2021); and (ii) a Deferred Prosecutions Bill. - Cabinet approved a Whistle-blower Protection bill in October 2021 to be laid in Parliament in November 2021. - Review legal and regulatory framework for Public-Private Partnerships (PPPs): - Objectives include clear definition of PPPs, full integration into investment strategy and medium-term fiscal framework, safeguarding public finances against PPP fiscal costs and risks, ensuring transparent competitive processes, and designing transparent reporting and auditing procedures in line with international standards. ### Debt Restructuring and reduction - Comprehensive debt restructuring addressed debt sustainability concerns but impaired the CBB’s balance sheet through a significant haircut. - Key chronology and outcomes: - October 15, 2018: Government announced agreement with an overwhelming majority of domestic creditors, including commercial banks, general and life insurers, the NIS, the CBB, and smaller creditors. - November 2019: Agreement with the External Creditor Committee on terms for restructuring US dollar-denominated commercial debt, including a natural disaster clause. - Recapitalization and remediation plans: - Recapitalization of the CBB will initially grow capital through profit retention (current status quo) with the aim to transition (in approximately seven years) to a gradual predetermined payment plan until authorised capital is fully paid-up. - Recapitalization of the NIS to proceed in two phases, with an initial focus on restoring the Unemployment Benefit Account through an infusion of B$143 million from the Consolidated Fund over a three to five-year period. A first disbursement of B$50 million was transferred in August 2021. - Assessment of recapitalization needs of the National Insurance Fund (NIF) is ongoing; government intends to present a detailed recapitalization plan for the NIF by end-March 2022 (structural benchmark for end-June 2021 referenced). - Debt-to-GDP target timeline adjustments: - Target date for bringing the debt-to-GDP ratio below 60 percent was pushed back to FY2035/36 from FY2033/34 to accommodate fallout from the ongoing health pandemic. - Updated medium- and long-term macroeconomic framework suggests Barbados will reach its medium-term target of 80 percent debt/GDP ratio by 2031/32, and 60 percent by FY2035/36, implying a two-year delay from the original target date. - Government remains committed to generate needed primary surpluses to achieve the debt target of 60 percent of GDP once the COVID-19 crisis dissipates. - Strengthening debt management: - Established a Debt Management Committee and will develop and implement a medium-term debt management strategy (MTDS) with an objective to meet financing needs at the lowest possible cost over the medium to long-term, consistent with a prudent degree of risk. - Will publish medium-term debt strategy and borrowing plan with the budget on an annual basis. - Will undertake a review of debt management practices, including assessment of auction mechanism for long-term debt. - Domestic expenditure arrears: - Domestic expenditure arrears are gradually being reduced and resolved. - Government commits not to run new expenditure arrears. - Introduced legislation so that all borrowing by SOEs receives approval of the Minister of Finance. - Loans by SOEs will be guaranteed by Central Government if the SOE is not a commercial entity and is dependent on Central Government for its financial operations, or if the borrowing purpose is not commercial. - A target for non-accumulation of new SOE arrears is included in the program. ### Public sector reform and SOE restructuring - Objectives and approach: - Commit to modernising and improving efficiency, quality, and cost effectiveness of the public sector. - Ongoing analysis to identify essential, highly desirable, optional functions and potential for delivery elsewhere; includes adjustment and rationalisation of SOEs and some Government Departments. - Retooling, empowering, retraining, and enfranchising public sector workers to improve effectiveness. - Reviewing public sector labour laws to enhance flexibility; two studies underway; introduced an interim, COVID-related flexible and remote work policy. - FMA Act implementation: - New PFM Act adopted by Parliament in January 2019 confers greater autonomy to the Ministry of Finance to oversee SOEs, ensures compliance with law for prior approval of all borrowings and other assumptions of liabilities, and establishes tighter reporting requirements and sanctions for noncompliance. - Advanced implementation via the SOE monitoring dashboard (structural benchmark for end-March 2021). - SOE reform measures: - Developed a framework to restructure and transform SOEs emphasizing retooling, empowering, retraining, and enfranchisement. - Conducted comprehensive review of all SOEs to identify efficiency gains, cost recoveries, and enfranchisement through divestment. - Example: finalizing a compact with private operators in the transport sector to improve accountability and service quality while reducing costs to SOEs. - SOEs listed in the TMU submitted standardized quarterly financial reports (according to international acceptable standards). - Implemented revenue adjustments: increased bus fares, adjusted water rates, introduced an interim health levy, airline & travel development fee, and a garbage and sewage contribution levy. - SOE monitoring dashboard used to identify key deficiencies and elaborate targeted reform measures to enhance performance and reduce government dependence. - Mitigating adverse effects on vulnerable groups: - Measures include worker enfranchisement models, preferential access to public procurement and agricultural lands for those displaced, and enhanced severance packages. - Household Survival Programme managed by a Household Mitigation Unit tracks and supports affected workers, and provides support and training opportunities for self-employed and newly unemployed. - Minimum wage increase established on April 1, 2021 (last minimum wage set in 2012). - Civil service pension reform: - Priority to ensure long-run sustainability of the civil service pension scheme. - Will table in Parliament a revised public pension law informed by the actuarial review completed in November 2020 and costed different pension systems for new entrants. - Completed a pension reform white paper for Cabinet consideration. - Structural benchmark for this reform has been proposed to be pushed back until end-March 2022 (proposed reset structural benchmark) due to COVID-19 constraints. - Reform considerations include earliest age of eligibility for new employees and rate of benefit accrual for each year of service for new employees. - Enhancing economic and social statistics: - Two-year project to upgrade national accounts data with IMF technical assistance to rebase GDP from 2010 to constant 2016 prices and update quarterly estimates. - Four additional statisticians hired by the BSS for the project and to enhance capacity. - Government committed to implement IMF’s Enhanced General Data Dissemination Standard (e-GDDS); NSDP and Advance Release Calendar launched on-line in March 2021. - BSS commenced publication of a calendar of key economic statistical releases on its revamped website (structural benchmark for end-March 2021). ### Monetary and financial sector policies - Exchange rate policy: - Barbados’ exchange rate peg to the US dollar has been maintained since 1975 and is viewed as a key anchor for macroeconomic stability. - Strong commitment among all Social Partners and stakeholders to maintain the exchange peg and implement fiscal and structural policies necessary to support it and rebuild international reserves. - Central Bank governance and safeguards: - Submitted to parliament an amended Central Bank Law to enhance its autonomy, mandate, and decision-making structures (structural benchmark for end-September 2020 and prior action for fourth review). - Amended law passed and effective since December 14, 2020 (structural benchmark for end-December 2020). - Legislation benefited from IMF technical assistance and the IMF completed its Safeguards Assessment of the Central Bank of Barbados; Government will continue to ensure all outstanding recommendations from the Safeguards Assessment are implemented. *Source: Extracted from the provided IMF chapter/section content unit.* ### 31. We have started a gradual relaxation of exchange controls. Our approach is both ### Exchange controls, financial-sector oversight, and growth-enhancing reforms ### Exchange controls and foreign exchange liberalization - Gradual and targeted relaxation of exchange controls aimed at increasing investors’ confidence without jeopardizing reserve accumulation. - Effective August 1st, 2019: - All Barbadians allowed to open foreign currency denominated accounts. - Foreign currency proceeds from the sale of assets may be repatriated in foreign currency or kept locally in a foreign currency account. - The surrender requirement of 70 percent of foreign exchange brought into Barbados was eliminated. - Select foreign exchange limits were increased (e.g., limit on personal travel facilities). - Increased delegated authority to foreign exchange dealers to approve foreign exchange transactions without reference to the Central Bank. ### Financial sector monitoring, regulation, and reporting - The amended Central Bank Law: - Establishes the promotion of financial stability as a secondary objective for the CBB. - Attributes formal macroprudential powers to the CBB to monitor financial stability and manage and control risks to the financial system. - Financial system oversight is shared by: - CBB (Central Bank of Barbados) - Financial Services Commission (regulates and supervises nonbanks) - Barbados Deposit Insurance Corporation - These authorities participate in the Financial Oversight Management Committee (FOMC), which manages the production of the annual Financial Stability Report and collaborates in monitoring the financial system. - Regulatory and reporting frameworks: - Effective banking regulatory framework: Basel II; banks follow standardized approaches in calculation of risk-weighted assets and prepare financial statements according to IFRS 9. - CBB designs reporting forms and schedules for banks, Part III companies (trust and finance companies and merchant banks), and credit unions. - FSC monitors insurance corporations, pension funds, and mutual funds; working on revising reporting forms and increasing reporting frequency. - CBB and FSC release a Financial Stability Report and health check reports for sub-sectors annually. - Strengthening monitoring capacities: - CBB aims to compile and disseminate a first set of quarterly core indicators for financial stability indicators (FSIs) for deposit takers (excluding credit unions) in line with IMF TA in 2019. - Given challenges in compiling this information, the CBB proposes to push back this structural benchmark until end-March 2022 (proposed reset structural benchmark). ### COVID-19 response and liquidity/credit measures - March 2020 measures by central bank and commercial banks to support the 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. - 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. - Post-moratorium: banks review customers on a case-by-case basis to determine extensions or restructurings. - Outcome on deferred loans: - Loans under deferred payments have declined sharply to about 5 percent of the peak value in May, representing less than 2 percent of the outstanding credit to the nonfinancial private sector. - System liquidity: financial system described as very liquid, though individual institutions’ liquidity may fluctuate, particularly in strained conditions. ### Climate change and financial stability - Climate change presents risks to the stability of Barbados’ financial system; banks are exposed to climate change–sensitive sectors. - Priority actions: - Integrate climate change risks into CBB’s financial stability assessments, including stress testing based on potential scenarios. - Build capacity to monitor and assess climate change–related risks in line with best practices. - CBB intends to join the Network for Greening the Financial System (NGFS) by March 2022. ### AML/CFT commitment - Continued efforts to strengthen the AML/CFT framework in keeping with the action plan agreed with the FATF to promptly exit the FATF’s International Review Group process. ### Growth-enhancing reforms — strategic pillars - Barbados Economic Recovery and Transformation Plan rests on pillars: - (i) investing in a high-skilled, productive, and knowledge-based economy (skills training and education); - (ii) better mobilizing private domestic savings for local investment, particularly in critical, climate-resilient infrastructure; - (iii) making Government an enabler of growth by improving ease of doing business, accelerating government licensing, and increasing predictability of the fiscal and regulatory environment; - (iv) diversifying the economy into renewable energy, medicinal cannabis, high-value agricultural goods, high-tech and software development, and reinvigorating traditional services sectors; - (v) strengthening resilience to natural disasters and climate change. ### Education, skills, and knowledge-economy initiatives - Large commitment to retooling and retraining Barbadians over the next 4 years across all sectors and levels. - Barbados Youth Advance Corps: will cater to 1,000 students per year for a 2-year programme. - Partnership with Coursera under the National Transformation Initiative: free training through over thousands of courses; as of April 2021, roughly 5,700 courses have been completed by individuals. - Reintroduction of free tertiary education at vocational, technical, and undergraduate levels. - Plans to integrate Barbados Community College, Samuel Jackson Polytechnic, and Erdiston Teacher Training College to improve offerings. - Reforms to secondary schooling and efficiency improvements in post-secondary and tertiary institutions, with savings ploughed back into enhanced offerings. ### Judiciary, dispute resolution, and legal reforms - Strengthening the judiciary and reducing time for court hearings and redress: - A Commercial Court has been established; Commercial Judges appointed. - New legislation compliant with UNCITRAL to address arbitration and alternate dispute resolution mechanisms to be introduced. - Five additional judges appointed to criminal courts (three temporary) to address backlog; additional Criminal Courts intended to ensure serious cases can be dealt with within six to nine months. - Plan to establish a specialized Family Court, decentralized across the island. - Supreme Court Registry launched its e-Filing system on September 15, 2021 (structural benchmark for end-September) to enhance efficiency. ### Gender inclusion and labour participation - Measures to increase women’s participation in the labour force: - Facilitate opening of day care facilities in industrial parks and key Government office buildings over the next two years. - Developing paternity leave legislation. - Incorporating a training programme for women in construction trades (electrical wiring, painting, tiling) as part of the new Home Ownership Providing Energy (HOPE) housing programme. ### Digital government, payments, and identity - Government facilitating a range of services online (drivers’ licenses, professional license renewals, Welcome Stamp fees, police certificates of character, planning and development applications, Customs clearance, passports). - E-service to be launched on one portal for access to all Government agencies. - New digital ID program beginning May 2021 to re-register the population with a single, digital identity. - National Insurance Department phasing out printing of cheques for short-term benefits. - Public Sector Modernization Programme: digitalization initiated across seven priority departments; IDB-funded programme to be scaled up in current fiscal year with private-sector partnership. - Digitization progress: - A building is being refurbished to accommodate roughly 200 personnel for digitization work. - To date more than 400,000 government records have been digitized. - Need for critical investments to strengthen cybersecurity. ### Business climate, payments law, and credit infrastructure - Actions to improve business climate: - World Bank Doing Business Reform Note lists measures; a Doing Business Sub-Committee of Cabinet and Private Sector Committee established to execute and monitor reforms. - Improvements already observed in time to receive planning decisions and FSC registrations. - Legislation submitted to Parliament: - National Payments Systems Act (February 2021) to provide a safe, efficient, resilient, and competitive payment system. - National Identity Management System Act (January 2021) to facilitate the Digital Identity System and National ID Card Replacement Project; provides user authentication for online transactions and facilitates electronic signing and secure electronic transfer of information. - Credit reporting and collateral reforms: - Fair Credit Reporting Act (structural benchmark for end-October 2021) to promote accuracy, fairness, and privacy in credit reporting; expected to transform credit adjudication and unlock credit access for small businesses. - Plans to establish a web-based collateral registry of movable assets and broaden types of eligible collateral to facilitate access to credit. ### Financial literacy and disaster resilience - Financial Literacy Bureau established: - Objectives: improve money management skills, build foundation for financial decisions, and create intergenerational wealth. - Serves as training hub for start-ups, MSMEs, large enterprises, households, and schools from primary to tertiary level. - First phase of six-week training conducted in November 2020. - Disaster risk financing and resilience: - Natural disaster risks insured through the Caribbean Catastrophe Risk Insurance Facility (CCRIF). - Natural disaster clauses introduced into new domestic and external bonds permitting capitalization of interest and deferral of scheduled amortization for two years following a major natural disaster. - Secured an IDB contingent credit facility that would allow Barbados to borrow up to almost 2 percent of GDP in case of a natural disaster. - Structural and post-disaster resilience improvements (e.g., ‘roofs to reefs’ program, strengthening public procurement). - Incentives provided to individuals and corporates to invest in renewable energy, water conservation, and building resilience. *Source: IMF staff report excerpt for Barbados, content unit 1brbea2021002.* ### 46. The Government remains committed to reaching its 100 percent renewable energy ### 46. The Government remains committed to reaching its 100 percent renewable energy target by 2030. ### Renewable energy commitments and recent actions - Government target: 100 percent renewable energy by 2030. - Market liberalisation: Government has further liberalised the market for power generation. - Feed-in tariffs (FITs): The independent Fair Trade Commission has published Feed-in tariffs (FITs) for independent power producers for a range of renewable energy technologies. The tariffs support the shift to renewables, reduction in energy costs, and foreign exchange demand and support smaller projects and technologies that bring substantial environmental benefits. - Green Energy Park: A 30 MW Green Energy Park is slated for final approval in 2021. It removes the need for costly new waste landfills and puts solar PV on top of rehabilitated landfill sites. - Private project interest: In response to the FITs, demand for small primarily solar PV projects has been strong. - Short-term penetration: By the end-2021 the Government expects close to 10 percent of energy demand will be coming from installed or close to be installed renewables and applications accounting for a further 10 percent of demand would be in the pipeline, keeping the Government on track to hit or be close to the 2030 target. - FIT reviews: The FTC regularly reviews its FITs and in 2021 issued its third review. - MDB collaboration: The Government is working with its development partners in MDBs to develop competitive tendering processes for more extensive projects to expand supply into technologies with greater economies of scale, such as wind power, bringing the benefits of lower costs and diversification. ### Policy measures and implementation milestones for IPP renewable projects - Government commitments to nurture private IPP interest: - i) establishing a streamlined approvals and licensing process for independent power producer (IPP) renewable energy projects; and - ii) publishing a guidance note for IPP investors navigating this process. - Status and timing: Both items above are described as proposed new structural benchmarks for end-March 2022. - Explicit proposed structural benchmarks (text verbatim from Table 1): - 38) Establish a licensing system for IPP renewable energy projects, including the process for co-investment in agriculture and renewable energy production on agricultural lands. End-March 2022 Proposed new structural benchmark - 39) A guidance note outlining how the licensing and approval process for renewable energy projects works and steps for investors to follow will be prepared and published on the website of the Ministry of Energy, Small Business and Entrepreneurship. End-March 2022 Proposed new structural benchmark ### Expected benefits and rationale - FITs and tendering aim to: - Support the shift to renewables. - Reduce energy costs. - Reduce foreign exchange demand. - Support smaller projects and technologies with substantial environmental benefits. - Facilitate expansion into technologies with greater economies of scale (example given: wind power), delivering lower costs and diversification. *Source: 1brbea2021002 - 46. The Government remains committed to reaching its 100 percent renewable energy* ### 4. The CG primary balance is defined as total revenues and grants minus primary ### 1brbea2021002 - 4. The CG primary balance is defined as total revenues and grants minus primary ### Definition and measurement of the Central Government (CG) primary balance - The CG primary balance is defined as total revenues and grants minus primary expenditure and covers non-interest Government activities as specified in the budget. - The CG primary balance will be measured as cumulative over the fiscal year and it will be monitored from above the line. - Revenues recording rules: - Revenues are recorded when the funds are transferred to a Government revenue account. - Tax revenues are recorded as net of tax refunds. - Tax refunds are recorded when the funds for repayment are transferred to the BRA from the Barbados Treasury Department. - Revenues will also include grants. - Capital revenues will not include any revenues from non-financial asset sales proceeding from divestment operations. - Primary expenditure recording rules: - Central Government primary expenditure is recorded on a cash basis and includes recurrent expenditures and capital spending. - Primary expenditure also includes transfers to State-Owned Enterprises (SOEs). - All primary expenditures directly settled with bonds or any other form of non-cash liability will be treated as one-off adjustments and recorded as spending above-the-line, financed with debt issuance, and will therefore affect the primary balance. - Monitoring frequency: data will be provided to the Fund on a monthly basis with a lag of no more than four weeks from the end-of-period (Section C, Table 2). ### Adjustors affecting the primary balance - The primary balance target will be adjusted upward (downward) by the surplus (shortfall) in disbursements of grants relative to the baseline projection. ### Net Domestic Assets (NDA) of the Central Bank of Barbados (CBB) - NDA definition (per CBB survey): 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 components: currency in the hands of the non-bank public plus vault cash held in the banking system, 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. - Monitoring frequency: reported on a monthly basis, with a lag of no more than two weeks from the end-of-period (Section B, Table 2). ### Net International Reserves (NIR) and related definitions - NIR of the CBB are defined as the difference between reserve assets and reserve liabilities with a maturity of less than one year. - Reserve assets include: monetary gold, SDRs, foreign currency cash, foreign currency securities, deposits abroad, and the country's reserve position at the Fund. - Excluded from reserve assets: sinking funds’ assets and any assets that are pledged, collateralized, or otherwise encumbered, claims on residents, claims in foreign exchange arising from derivatives in foreign currencies vis-a-vis domestic currency, precious metals other than gold, assets in nonconvertible currencies, and illiquid assets. - Footnote: "These funds are held on behalf of the Government to service the central Government debt falling due. The assets are thus earmarked for such purpose and are not assets of the CBB." - Reserve liabilities are: (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 for NIR target: - Upward (downward) adjustment by 75 percent of the amount of the surplus (shortfall) in program loan disbursements from multilateral institutions (CDB, IDB, CAF, IBRD) relative to the baseline projection. Program loan disbursements are defined as external loan disbursements from official creditors that are usable for the financing of the CG. - Upward (downward) adjustment by the surplus (shortfall) in disbursements of budget support grants relative to the baseline projection. - Monitoring frequency: data reported by the Central Bank on a daily basis, with a lag of no more than one week from the end-of-period (Section A, Table 2). ### Non-accumulation of CG external debt arrears - The CG will not incur new arrears in the payments of its external debt obligations at any time during the program. - External arrears definition: a delay in the payment of contractual obligations beyond the grace period set in the respective loan or debt contracts. - Exclusions: arrears resulting from nonpayment of debt service for which a clearance framework has been agreed or for which the Government or the institution with Government-guaranteed debt is pursuing a debt restructuring. - The performance criterion will be applied on a continuous basis under the program. - Monitoring: data on external arrears by creditors will be reported immediately. ### Ceiling on CG transfers and grants to public institutions - CG Transfers and Grants to Public Institutions include cash transfers and grants to entities listed in paragraph 3 above. - Monitoring: measured as cumulative over the fiscal year and reported on a monthly basis, with a lag of no more than four weeks from the end-of-period (Section C, Table 2). ### Ceiling on the stock of public debt - Public debt definition: domestic and external CG debt, SOEs debt guaranteed by the CG, and domestic CG expenditure arrears. - Exclusions: interest and penalties arrears resulting from non-payment of debt service on external commercial debt subject to debt restructuring. - Measurement: stock of CG and CG guaranteed debt is measured under the disbursement basis excluding valuation effects. Program FX rates defined in Table 1 will be used to value debt in FX. - Adjustors: - Ceiling adjusted upwards by the full amount of the surplus in disbursements from multilateral institutions (CDB, IDB, CAF, IBRD) relative to the baseline projection. - Ceiling adjusted downward by the amount of nominal debt forgiveness in the case of debt restructuring. - Monitoring frequency: CG debt and CG guaranteed debt data by issuer, creditor, maturity, and currency reported to the Fund on a quarterly basis, with a lag of no more than four weeks from the end-of-period (Section D, Table 2). Data on external and domestic arrears reported as set forth elsewhere in this TMU. ### Indicative targets: CG and public institutions arrears and social spending - Ceiling on the stock of domestic CG expenditure arrears: - Definition components: - (a) invoices received and verified for goods, services, and capital goods not paid within the contractually agreed period or, absent a grace period, within 60 days after the due date; - (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 are obligations on tax refunds in accordance with tax legislation that remain unpaid six months after the filing date. - Monitoring: measured as cumulative over the fiscal year and reported by the EPOC on a monthly basis, with a lag of no more than four weeks from the end-of-period (Section D, Table 2). - Floor on CG social spending: - Applies 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, including: - 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. - Monitoring: measured as cumulative over the fiscal year and reported on a quarterly basis, with a lag of no more than four weeks from the end-of-period (Section D, Table 2). - Ceiling on the stock of public institutions expenditure arrears: - Definition components mirror CG arrears: (a) invoices unpaid within contractually agreed period or within 60 days; (b) wages and pensions contributions to the NIS pending for longer than 60 days; (c) arrears on Tax obligations as defined by tax legislation. - Coverage: list of public institutions covered is listed in paragraph 3 excluding University of West Indies (UWI). - Monitoring: measured as cumulative over the fiscal year and reported on a monthly basis, with a lag of no more than four weeks from the end-of-period (Section D, Table 2). ### Program reporting requirements and summary of data to be reported to the IMF (Table 2) - General: Financial Sector and External sector data to be provided by the CBB; Real and Fiscal sector data by the MOF, in consultation with relevant agencies. - 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 showing detailed composition of NFA, NCCG, CODC, COSE, OIN, 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 and Fiscal Sector): - RPI index, its components, and weights. - 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 (reported immediately). - Program loan disbursements from multilateral institutions, including the CDB, the IDB, the CAF, and the IBRD 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): - Other Depository Corporations (ODC) survey showing gross items for NFA, claims on the CBB, NCCG, COSE, OIN, deposits included in broad money (BM), deposits excluded from BM, and liabilities to the CBB. - Depository Corporations (DC) survey as 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 separate 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, including 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. *Source: STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION, SIXTH REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY, AND REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA—INFORMATIONAL ANNEX (November 29, 2021).* ### 1. General: Data provision is deemed to be broadly adequate for surveillance. There has ### 1brbea2021002 - 1. General: Data provision is deemed to be broadly adequate for surveillance. There has ### General findings - Data provision is deemed to be broadly adequate for surveillance. - Some progress in addressing shortcomings in: GDP at constant and current prices, consumer prices, financial reporting by public enterprises (statutory bodies), labor force statistics, and discrepancies in and timeliness of external sector data (net foreign assets), including international investment position (IIP). - Shortcomings are due to weak capacity, which hampers provision and/or reliability of certain data. - IMF experts, mainly from CARTAC, continue to provide TA to help improve Barbados’ statistical capacity. ### National Accounts - The Barbados Statistical Services (BSS) produces annual and quarterly GDP at current and constant 2010 prices. - Quarterly GDP at constant prices are not yet publicly available. - The Central Bank of Barbados (CBB) publishes flash estimates of quarterly GDP at a highly-aggregated level with partial data and an outdated 1974 base year. - Recommendation: Once the BSS has established credible and timely quarterly data, the CBB should cease producing quarterly GDP and shift to producing a monthly indicator of economic activity from the range of available monthly indicators. - Approval from the Ministry of Finance, Economic Affairs and Investment is currently required for the BSS to publish statistics. - A two-year project funded by Canada commenced in May 2019 to maximize capacity building on real sector statistics, in collaboration with other TA providers including CARTAC. ### Price Statistics - Consumer (retail) price index weight reference period and basket: 1998/1999. - Producer price index (PPI) weights and sample: 2009. - The basket and weights for both indices are outdated and do not provide a good representation of the current economy. - Plans to revise the consumer price index and PPI have been delayed. - The new base year would use updated weights from the 2016/2017 Survey of Living Conditions and updated list of establishments that reported VAT data in 2014 respectively. - BSS is working towards a new index of industrial production with base year 2014. - Potential misalignments in real estate prices are not addressed due to the absence of a systematic index of property prices. ### Government Finance Statistics (GFS) - Relatively comprehensive and up-to-date above-the-line data are available for central government operations (revenues, expenditures, and net lending), and public debt on the recently established National Summary Data Page. - Government transfers are reported with a lag. - Reporting to the STA Annual GFS Database is irregular; the most recent year provided is 2016 (fiscal year 2016/17). - Incomplete coverage of off-budget transactions creates discrepancies between overall balance and financing data in some years. - Information on central government arrears has improved under the program, but a more comprehensive measure is needed that includes general government and the Barbados Revenue Agency. - Financial sector data on public sector net domestic borrowing usually cannot be fully reconciled with above-the-line fiscal data, partly because of limited availability of nonbank financial sector information (including contracting of liabilities by PEs). - Data on guaranteed public debt improved with the EFF program. - The authorities introduced accrual accounting of public finance in April 2007; reforms are reflected in data reported to STA, although further refinements are needed. Reconciling accrual and cash basis remains challenging. - Public sector debt availability has greatly improved, but creditors–issuers reconciliation remains a challenge and public availability of disaggregated debt stock and profile is limited. - Debt coverage includes central government domestic and external debt; central government domestic and external arrears; and domestic and external SOE debt guaranteed by the central government. - Debt Management Unit (DMU) prepares debt data by issuer which differs from data by creditor provided by CBB due to timing of recording, use of different sources (such as domestic loan data), and difficulty tracking limited secondary market activity. - For debt service and amortization projections, staff uses Ministry of Finance data. - Coordination between the CBB and the DMU improved during the EFF program but challenges remain reconciling debt by issuer with debt by creditor data. - The database of the stock disaggregated by issuers and creditors and the amortization and interest profiles is not published on a quarterly basis. ### External Sector Statistics - A CARTAC TA mission assisted authorities during March 2021 on the review of 2017 BOP statistics; further enhancements are needed to finalize and report the data. - ESS compilation and dissemination need to be enhanced by employing alternative sources and estimation methods. - A CARTAC TA mission during September 2021 will continue to assist authorities with data collection issues, compilation techniques and timeliness in the context of the COVID-19 pandemic. - Most recent data reported to: Coordinated Direct Investment Survey — 2013; Coordinated Portfolio Investment Survey — 2015. ### Monetary and Financial Statistics - The CBB reestablished compilation and reporting of monetary data to IMF’s IFS database on central bank and other depository corporations (ODCs) using IMF’s standardized reporting forms (SRFs) since April 2019. - In recent times, there have been some delays in reporting this data. - Coverage of ODCs expanded to include all commercial banks, Part III companies (trust and finance companies, and merchant banks), and credit unions. - CBB does not compile monetary data for other financial corporations (OFCs), which dominate the financial sector in Barbados (OFCs include international (offshore) banks, insurance corporations, pension funds, and mutual funds). ### Financial Sector Surveillance - CBB compiles five core and four encouraged FSIs calculated separately for two subsectors (commercial banks and Part III companies), but not on a consolidated basis for deposit-takers (DTs) as a whole. - Dissemination of FSIs is limited to inclusion in CBB’s annual financial stability reports and quarterly press releases; no FSIs are disseminated regularly on CBB’s website or reported to STA for publication on IMF’s website. - An FSIs mission is expected to start in September 2021 to assist the CBB in compilation of FSIs in line with the 2019 FSIs Guide. - CBB reports some key series and indicators of the Financial Access Survey (FAS), including two indicators adopted by the UN to monitor Target 8.10 of the SDGs: commercial bank branches per 100,000 adults and ATMs per 100,000 adults. ### Data Standards and Quality - Barbados has participated in the General Data Dissemination System (GDDS) since May 2000. - In March 2021, Barbados implemented the IMF Enhanced General Data Dissemination Standard (e-GDDS), moving from publishing metadata only (under the GDDS) to publishing data by launching the National Summary Data Page. ### Table of Common Indicators Required for Surveillance — selected entries (preserve original dates and frequencies) - Exchange Rates: Date of latest observation 07/2020; Date received 08/2020; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 07/2020; Date received 08/2020; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Reserve/Base Money: 07/2020; 08/2020; M; M; M. - Broad Money: 06/2020; 08/2020; M; M; M. - Central Bank Balance Sheet: 07/2020; 08/2020; M; M; M. - Consolidated Balance Sheet of the Banking System: 06/2020; 08/2020; M; M; M. - Interest Rates: 06/2019; 08/2019; M; M; M. - Consumer Price Index: 12/2020; 04/2021; M; M; M. - Revenue, Expenditure, Balance and Composition of Financing – Central Government: 09/2017; 11/2017; Q; Q; Q. - Stocks of Central Government and Central Government-Guaranteed Debt: 09/2017; 11/2017; Q; Q; Q. - External Current Account Balance: 09/2017; 11/2017; Q; Q; Q. - Exports and Imports of Goods and Services: 09/2017; 11/2017; Q; Q; Q. - GDP/GNP: 2019; 01/2021; A; A; A. - Gross External Debt: 2016; 11/2017; A; A; A. - International Investment Position: 2016; 11/2017; A; I; I. *Source: IMF staff report content (1brbea2021002).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1brbea2021002.pdf_