## 1brbea2022002 — Executive Summary

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### Context and recent progress
- Barbados implemented the Economic Recovery and Transformation (BERT) plan since May 2018, restoring macroeconomic stability through sovereign debt restructuring, fiscal consolidation, and structural reforms.
- International reserves increased to US$1.4 billion by end-September 2022 from a historical low of US$220 million in 2018.
- Public debt put back on a downward path starting in FY2021/22 after interruptions from the COVID-19 pandemic.
- Under the 2018–22 EFF, seven reviews were successfully completed despite shocks including the COVID-19 pandemic, ashfall from Saint Vincent (April 2021), and Hurricane Elsa (July 2021).

### Recent real activity, labor market, and inflation
- GDP and labor:
  - GDP contracted by 14 percent in 2020; grew by around 1 percent in 2021.
  - Economic growth projected at 10 percent in 2022 as tourism strengthens to about 60 percent of pre-pandemic average.
  - Unemployment fell from over 20 percent to an estimated 10 percent in 2022.
- Inflation and fiscal measures:
  - Annual average inflation projected at about 9 percent for 2022; expected to revert to just over 2 percent in the medium term.
  - Public wages nominally constant since 2018; real wages declined significantly, especially in 2022.
  - March 2022: temporary caps on VAT on oil products (consistent with WTI crude oil price of US$85 per barrel) at a projected cost (foregone revenue) of 0.3 percent of GDP in FY2022/23.
  - August 2022: temporary caps on pump prices for gasoline and diesel set at US$8.5 and US$7.5 per gallon respectively (in place until January 2023).
  - July 2022: VAT on a basic amount of electricity reduced from 17 percent to 7.5 percent; expansion of VAT-exempt food products for an initial 6 months at a projected cost of 0.1 percent of GDP in FY2022/23.

### External sector and reserves
- Current account and reserves:
  - Current account deficit increased to 11 percent of GDP in 2021, from 6 percent in 2020.
  - Gross international reserves: US$1.4 billion in September 2022, around 9 months of imports, supported by IFI loans.
  - Reserves projected to gradually decline while remaining above 100 percent of ARA in the medium term.
- External vulnerability drivers:
  - Slower tourism recovery, higher imports of equipment for a green transition, and global commodity price pressures (including from the war in Ukraine).

### Program objectives and modalities (EFF and RSF)
- EFF (Extended Fund Facility):
  - Duration: 36-month arrangement.
  - Proposed access: 90 percent of quota (SDR 85.05 million, or around US$110 million).
  - Objectives:
    - Maintain and strengthen macroeconomic stability.
    - Advance structural reforms to secure fiscal sustainability, build policy capacity, and foster potential growth.
    - Keep public debt on a clear downward trajectory toward the long-term debt target of 60 percent of GDP by FY2035/36 while accommodating adequate capital expenditure and social spending.
  - Key elements: gradual and sustained increase of primary surpluses; strengthen tax and customs administration, PFM, pension reform, SOE rationalization, refine monetary toolkit, and growth-enhancing measures.
- RSF (Resilience and Sustainability Facility):
  - Purpose: finance additional BOP needs from resilience-enhancing infrastructure and transition to a fully renewable-based economy by 2030.
  - Proposed access: 150 percent of quota (SDR 141.75 million or about US$180 million), above the norm of 75 percent of quota.
  - Justification: breadth of reforms, BOP need created by selected reform measures (RMs), and capacity to repay.
  - RSF RMs include mainstreaming climate change in the budget, introducing ‘green PFM’, and measures to incentivize investment into renewable projects.
  - Disbursement design: RSF disbursements equally split over five consecutive EFF program reviews starting with the first EFF review (30 percent of quota, or SDR 28.35 million each), conditional on completion of corresponding RMs.

### Fiscal stance, targets, and medium-term fiscal projections
- FY2022/23 and medium-term targets:
  - Authorities aim to generate a primary surplus of 2 percent of GDP for FY2022/23, up from minus 1 percent of GDP in FY2020/21 and FY2021/22.
  - Barbados ran a primary surplus of about 2 percent of annual GDP in the first five months of the fiscal year (April-August 2022).
  - COVID-related spending declining and projected at just under 1 percent of GDP in FY2022/23.
  - Contingency fiscal measures could include reforming the VAT regime in tourism, tax rate increases, or cuts in current or capital spending.
- Medium-term projection:
  - Primary surplus expected to gradually increase to 5 percent of GDP in FY2025/26—slightly below the 6 percent of GDP reached in FY2019/20.
  - Unwinding of COVID-related expenditures, emergency housing support, and temporary VAT caps estimated to yield an improvement of the primary balance by 3 percent of GDP over the medium term.
  - SOE financial viability improvements expected to save around 1 percentage point of GDP relative to pre-COVID level.

### Key fiscal and macro figures (selected, percent of FY GDP and BDS$ millions)
- Central Government operations (percent of FY GDP, 2019/2020–2027/28 series):
  - Total revenue: 30.6; 28.4; 28.9; 29.3; 28.9; 29.1; 29.6; 29.7; 29.7
  - Tax revenue: 28.6; 26.6; 27.1; 27.5; 27.2; 27.3; 27.8; 27.8; 27.8
  - Nontax revenue: 2.1; 1.8; 1.7; 1.8; 1.7; 1.8; 1.8; 1.8; 1.8
  - Total primary expenditure: 24.5; 29.3; 29.8; 27.3; 25.4; 25.1; 24.6; 24.7; 24.7
  - CG Fiscal balance: 3.7; -4.5; -4.8; -2.2; -0.9; -0.5; 0.7; 0.9; 1.0
  - CG Primary balance: 6.2; -0.9; -0.9; 2.0; 3.5; 4.0; 5.0; 5.0; 5.0
  - Nominal GDP, FY (BDS$ millions): 10285; 9037; 10173; 11958; 11958; 11958; 11958; 11958; 11958

### Public debt outlook, DSA findings, and risks
- Debt target and trajectory:
  - Debt target of 60 percent of GDP achievable by FY2035/36 premised on proposed medium- and long-term primary balance path.
  - Public debt estimated at about 135 percent of GDP in FY2021/22, down from 140 percent in FY2020/21 and reduced to 123 percent of GDP by end-FY2019/20 earlier.
- DSA assessments:
  - Overall risk of sovereign stress: moderate.
  - Debt fanchart index score: 2.2 (slightly above high-risk threshold of 2.1), attributed to large volatility of key indicators.
  - GFN financeability index score: 8.3 (below high-risk threshold 17.9; above low-risk threshold 7.6) — moderate risk.
  - Stress tests: natural disaster stress test uses default magnitude 4.5 percent of GDP; results do not warrant modification of mechanical signal.
- Key risks:
  - Slower-than-expected recovery in tourism, delays in reforms to generate primary surpluses, and more frequent/intense natural disasters.
- Mitigating factors:
  - Authorities’ track record under previous EFF, commitment to long-term fiscal adjustment, favorable debt service terms after comprehensive debt restructuring, and strong IFI support.

### Pension, NIS, and social safety net issues
- Unemployment insurance:
  - Unemployment insurance claims nearly five-fold increase in 2020 totaled about 2 percent of GDP in FY2020/21; returned to pre-pandemic levels thereafter.
- Unemployment Benefit Fund recapitalization:
  - Envisions an infusion of B$143 million (1½ percent of GDP) during FY2021/22-FY2023/24 and is underway.
- National Insurance Fund (NIF):
  - Actuarial review: NIF not viable in the long run without pension reforms.
  - Structural benchmarks: develop recapitalization and reform plan restoring NIF sustainability by end-2022 (SB5); table revised public pension law by end-March 2023 (SB4) including lengthening of service for new public servants and requiring contributions for earnings above established NIS ceilings.

### Monetary and financial sector indicators and policies
- Banking sector metrics (as reported):
  - Commercial bank outstanding loans to nonfinancial private sector trended down by 0.7 percent in June 2022 (yoy).
  - CBB system-wide CAR as of end June 2022: 17.8 percent.
  - Liquid assets to total assets: 31 percent.
  - Bank excess cash reserves: about 22.2 percent.
  - System NPL ratio: 6.8 percent with provision coverage of about 58.4 percent.
  - Credit unions NPL ratio: rose to 14.1 percent during the pandemic and stood at 12.6 percent in June 2022.
- Policy settings:
  - CBB removed regulatory guidance allowing non-classification of moratoria loans by end-October 2022; moratoria loans represent 0.01 percent of outstanding bank credit to the non-financial private sector.
  - CBB’s overnight lending discount rate lowered to 2 percent from 7 percent during the pandemic and will be maintained for now.
  - Strict capital controls remain in place, delinking domestic interest rates from global interest rate developments.
  - Authorities intend to review the CBB’s balance sheet capacity and market operations toolkit (SB12) with MCM TA support.

### Transition to renewable energy and climate-resilient investment (RSF pillars and RMs)
- National targets and progress:
  - Target: transition to 100 percent renewable energy by 2030; renewable share rose from less than 1 percent in 2014 to 11 percent in 2021.
  - Installed renewable capacity by end-2020: 49 MW (39 MW distributed, 10 MW utility scale), about 68 GWh; saved an estimated 114,412 barrels of oil or BBD$9.2 million in foreign exchange.
- RSF three pillars and selected reform measures (with deadlines):
  - Pillar 1 — Imminent adaptation and resilience building:
    - Approve National Comprehensive Disaster Risk Management Policy (RM3 for end-September 2023).
    - Approve Planning and Development Act and water reuse measures (RM1 for end-March 2023).
    - Improve stormwater management (RM4 for end-March 2024).
    - Fund National Environmental and Conservation Trust (RM1 for end-March 2023).
    - Approve Procurement Act Regulations to support green procurement and include fiscal risk statement for FY2023/24 budget (RM2 for end-March 2023).
  - Pillar 2 — Reduce GHG emissions and energy transition:
    - Lower import taxes for electric vehicles (RM6 for end-September 2023).
    - Approve Energy Efficiency and Conservation policy framework (RM7 for end-March 2024).
    - Issue regulation to incentivize battery storage and enhance competition (RM6 for end-September 2023).
    - Adopt New Electricity Supply Act to enhance competition and local participation (RM8 for end-September 2024).
  - Pillar 3 — Reduce transition risks to the financial sector:
    - Adopt strategy to build capacity to monitor/assess climate risks and join Network for Greening the Financial System (RM9 for end-September 2024).
    - Include climate risks in bank stress testing exercise (RM10 for end-March 2025).
- Expected additional import needs for ambitious investment plans: could range from 0.5 to 1 percentage of GDP annually (preliminary estimate).
- Catalytic financing prospects:
  - World Bank: advanced negotiation on Green and Resilience Development Policy loan equivalent to US$100 million.
  - Inter-American Development Bank: potential to increase support up to US$300 million over next three years.
  - Anticipated mobilization from other regional institutions and private sector given reforms and risk-mitigation.

### Debt-for-nature swap (Box 1 factual details)
- September 2022 transaction:
  - Contracted new debt equivalent to US$150 million (about 3 percent of GDP) with partial guarantees from IDB and The Nature Conservancy (TNC).
  - Proceeds used to buy back part of outstanding Eurobonds (6.5 percent note due 2029) and domestic bonds (8 percent bonds held by the National Insurance Scheme).
  - Guarantees from AAA/AA- rated entities generate savings of around US$40 million over time; savings will flow into a conservation fund for marine protection.
  - Government obliged to contribute US$2.5 million (about 0.05 percent of GDP) for 15 years to finance initiatives.
  - New debt includes natural disaster and pandemic clauses with specified CCRIF-based trigger thresholds (US$5 million for earthquake/rainfall; US$7.5 million for tropical cyclone) and pandemic activation conditions involving WHO and Government declarations plus economic contraction or increased government spending thresholds.

### Program financing, Fund access, and safeguards
- EFF purchases schedule (SDR million, percent of quota):
  - Approval (December 7, 2022): 14.175 SDR million, 15.0 percent of quota.
  - Five subsequent reviews/purchases of 14.175 SDR million each on May/November 2023–2025.
  - Total Access: 85.050 SDR million, 90 percent of quota.
- RSF access and disbursement:
  - Total RSF access 141.751 SDR million, 150 percent of quota.
  - Individual disbursements of 14.175 SDR million (15.0 percent of quota) tied to completion of RSF review of specific RMs across May/November 2023–2025.
- Fund credit dynamics (selected SDR million and percent of quota):
  - Quota: 94.5 SDR million.
  - Stock of existing and prospective Fund credit (SDR million): 2022: 412.5; 2023: 471.6; 2024: 467.6.
  - Fund credit outstanding in percent of Quota: 2021: 355.7; 2022: 436.5; 2023: 499.1.
- Safeguards:
  - First safeguards assessment of the CBB completed December 2018; all recommendations but one implemented.
  - Update of safeguards assessment to be completed by time of first EFF/RSF review.
  - Memorandum of understanding between CBB and Ministry of Finance to clarify responsibilities for servicing Fund obligations.

### Key monitoring, reporting, and structural benchmarks (selection)
- Program monitored via quantitative performance criteria, indicative targets, structural benchmarks and RMs (TMU tables define modalities).
- Selected timing highlights:
  - End-December 2022: adopt new procedures for duty and tax exemptions.
  - End-March 2023: data matching project between BRA and BCED; table revised public pension law; include fiscal risk statement focusing on climate in FY2023/24 budget.
  - End-June 2023: establish Fiscal Risk Unit; amalgamate RDC and UDC and reform NHC.
  - End-September 2023: lower import taxes for electric vehicles.
  - End-September 2024: CBB adopt strategy with time-bound guideposts for monitoring climate risks and join Network for Greening the Financial System.
  - End-March 2025: include climate risk in bank stress testing exercise.

### Climate vulnerability, adaptation needs, and fiscal implications
- Physical climate projections and exposure:
  - Median annual mean temperatures expected to rise by 1.03°C under SSP3-7.0 by 2040-2050.
  - Under SSP3-7.0, annual precipitation expected to decline by approximately 9 percent by mid-century.
  - Tourism directly accounts for an estimated 35 percent of GDP.
  - Historical disasters: Hurricane Janet (1955) damages = 14 percent of GDP; Hurricane Elsa (2021) damages = about 1 percent of GDP.
- Climate policy priorities:
  - Invest in climate-resilient infrastructure (physical flood defenses, seawalls, stormwater management).
  - Accelerate Roofs 2 Reefs and HOPE housing programs to enhance resilience and distributed clean energy.
  - Strengthen green PFM: include climate priorities across budget preparation, execution, fiscal reporting, oversight and auditing; adopt green tagging and fiscal risk statements.
- Financial resilience instruments:
  - Parametric insurance (CCRIF) with rapid disbursement; state-contingent bond clauses; Catastrophe Fund (approximate balance B$30 million).
  - Recommended enhancements: expand CCRIF coverage, scale government saving fund for post-disaster liquidity, and leverage RSF and MDB financing to reduce long-run fiscal volatility.

### Staff appraisal and program risks
- Staff appraisal:
  - Authorities made good progress under BERT; macro stability restored in 2018–2019 enabling countercyclical response in 2020–2021.
  - Starting FY2022/23, steady improvement in primary balance required to preserve debt sustainability and meet 60 percent-of-GDP target by FY2035/36 while maintaining capital and social spending.
  - Staff assesses public debt remains sustainable under baseline with continued reforms.
- Program risks (elevated and tilted to the downside):
  - Emergence of more infectious COVID-19 variants.
  - Economic slowdown in UK, US, Canada and US dollar appreciation given the peg.
  - Continued inflation pressures from global supply disruptions and Russia’s war in Ukraine.
  - More frequent and intensified natural disasters.
  - Implementation risks: achieving and sustaining ambitious structural reform agenda.
- Mitigants:
  - Authorities’ track record under previous program, strong reform commitment, continued IFI support, and broad public backing for stabilization and reform.

*Source: EXECUTIVE SUMMARY (1brbea2022002) — IMF PDF chapter.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and recent progress
- Barbados implemented the Economic Recovery and Transformation (BERT) plan since May 2018, restoring macroeconomic stability through sovereign debt restructuring, fiscal consolidation, and structural reforms.
- International reserves increased to US$1.4 billion by end-September 2022 from a historical low of US$220 million in 2018.
- Public debt was put back on a downward path starting in FY2021/22 after interruptions from the COVID-19 pandemic.
- Under the 2018–22 EFF, seven reviews were successfully completed despite shocks including the COVID-19 pandemic, ashfall from Saint Vincent (April 2021), and Hurricane Elsa (July 2021).

### Recent developments
- Real activity and labor market:
  - GDP contracted by 14 percent in 2020; grew by around 1 percent in 2021.
  - Economic growth is projected at 10 percent in 2022 as tourism strengthens to about 60 percent of pre-pandemic average.
  - Unemployment fell from over 20 percent to an estimated 10 percent in 2022.
- Inflation and fiscal measures:
  - Annual average inflation projected at about 9 percent for 2022; expected to revert to just over 2 percent in the medium term.
  - Public wages have been kept constant in nominal terms since 2018; real wages declined significantly, especially in 2022.
  - March 2022: temporary caps on VAT on oil products (consistent with WTI crude oil price of US$85 per barrel) at a projected cost (foregone revenue) of 0.3 percent of GDP in FY2022/23.
  - August 2022: temporary caps on pump prices for gasoline and diesel set at US$8.5 and US$7.5 per gallon respectively (in place until January 2023).
  - July 2022: VAT rate on a basic amount of electricity reduced from 17 percent to 7.5 percent; expansion of VAT-exempt food products for an initial 6 months at a projected cost of 0.1 percent of GDP in FY2022/23.
- External sector:
  - Current account deficit increased to 11 percent of GDP in 2021, from 6 percent in 2020.
  - Gross international reserves: US$1.4 billion in September 2022, around 9 months of imports, supported by IFI loans.
  - Reserves projected to gradually decline while remaining above 100 percent of ARA in the medium term.
- Risks:
  - High and tilted to the downside: pandemic disruptions, fragile tourism recovery, intensification of the war in Ukraine, US dollar appreciation given the peg, and climate change exposure.
  - Barbados’ limited integration into global financial markets reduces some risks from tightening global financial conditions; strict capital controls limit pass-through from US interest rate increases.

### Program Objectives and modalities
- EFF (Extended Fund Facility):
  - Duration: 36-month arrangement.
  - Proposed access: 90 percent of quota (SDR 85.05 million, or around US$110 million).
  - Objectives:
    - Maintain and strengthen macroeconomic stability.
    - Promote unfinished structural reform agenda to secure fiscal sustainability, build policy capacity, and foster potential growth.
    - Keep public debt on a clear downward trajectory towards the long-term debt target of 60 percent of GDP by FY2035/36 while accommodating adequate capital expenditure and social spending.
  - Key program elements:
    - Gradual and sustained increase of primary surpluses.
    - Ambitious structural reforms: strengthen tax and customs administration, Public Financial Management (PFM), adopt and implement pension reform, rationalize and consolidate SOEs, refine the monetary policy toolkit, and implement growth-enhancing measures including improving the business climate.
    - Restore access to market financing in the medium term, both domestically and externally.
- RSF (Resilience and Sustainability Facility):
  - Purpose: provide financing for additional BOP needs created by resilience-enhancing infrastructure and the transition to a fully renewable-based economy by 2030.
  - Proposed access: 150 percent of quota (SDR 141.75 million or about US$180 million), above the norm of 75 percent of quota.
  - Justification for higher access: strength and breadth of proposed reforms, BOP need created by select reform measures (RMs), and sound capacity to repay the Fund.
  - RMs under the RSF include mainstreaming climate change in the budget, introducing ‘green PFM’, and measures to incentivize investment into renewable projects.
  - Expected catalytic role: IMF RSF and proposed RMs expected to catalyze financing from other IFIs (including the World Bank) and the private sector.

### Outlook and medium-term framework
- Growth and tourism:
  - Tourist arrivals expected to gradually return to normal levels by 2024 as global shocks dissipate.
  - Structural reforms and strategic public investment projected to return growth to its medium-term average of about 2 percent.
- Fiscal and reserve management:
  - Continued careful fiscal and reserve management needed in a volatile global environment.
  - Accelerated green transition could raise imports of equipment and intermediate goods, increasing BOP financing needs in the medium and long term.
- Structural reform priorities:
  - SOE reforms to reduce large subsidies.
  - Tax and customs administration improvements.
  - Public Financial Management (PFM) strengthening.
  - Pension reform.
  - Measures to improve the business climate.

### Mission and procedural details
- Mission conducted during September 20–29, 2022 in Bridgetown, Barbados.
- Mission team: Bert van Selm (head), Keiichi Nakatani, Diane C. Kostroch (WHD), Johanna Tiedemann (FAD), Peter Mugisa (MCM); assisted by Chris Faircloth and Ann Marie Wickham (Resident Representative Office). Mitchell Villeneuve (OED) joined the mission.
- Approved by James Morsink (WHD) and Andrea Schaechter (SPR).
- Board date: December 7, 2022.

*Source: EXECUTIVE SUMMARY (1brbea2022002) — IMF PDF chapter.*

### 10.      The RSF aims to address Barbados’ prospective BOP needs and support its ambitious

### 10.      The RSF aims to address Barbados’ prospective BOP needs and support its ambitious

### RSF and climate-resilient investment
- The RSF would substitute for more expensive external financing, generating fiscal space and catalyzing financing from other IFIs as well as the private sector to support climate change-related projects and reforms.
- Reform measures under the RSF have been identified in close consultation with the World Bank.
- Public and private investment are needed to increase resiliency to climate change and unlock growth potential in light of higher temperatures, sea-level rise, and possible changes in precipitation.
- The authorities will need to increase capital expenditure while maintaining fiscal sustainability and keeping public debt on a downward trajectory.
- Continued engagement with regional integration initiatives (such as the Caribbean Catastrophe Risk Insurance Facility) will be key to mitigating Barbados’ financial risks to intensifying natural disasters.

### Fiscal policy stance and targets
- The authorities aim to generate a primary surplus of 2 percent of GDP for FY2022/23, up from minus 1 percent of GDP recorded in both FY2020/21 and FY2021/22.
- Barbados ran a primary surplus of about 2 percent of annual GDP in the first five months of the fiscal year (April-August 2022).
- COVID-related spending is declining and projected at just under 1 percent of GDP in FY2022/23.
- Revenue projections are premised on a gradual recovery in tourism and reflect temporary tax measures introduced in FY2022/23.
- Contingency fiscal measures to support performance could include reforming the VAT regime in tourism sector, tax rate increases, or cuts in current or capital spending.

### Medium-term fiscal projections and drivers
- The primary surplus is expected to gradually increase to 5 percent of GDP in FY2025/26—slightly below the 6 percent of GDP reached in FY2019/20.
- The unwinding of COVID-related expenditures, emergency support for low-income housing, and temporary VAT caps is estimated to yield an improvement of the primary balance by 3 percent of GDP over the medium term.
- Structural reforms expected to provide additional savings include enhancing the financial viability of SOEs (saving around 1 percentage point of GDP relative to the pre-COVID level) and public pension reform.
- Measures to improve tax and customs administration, and to revise and strengthen the framework for granting duty and tax exemptions, are expected to support fiscal consolidation.

### Key fiscal and macro figures (selected from Central Government operations table)
- Total revenue: 30.6; 28.4; 28.9; 29.3; 28.9; 29.1; 29.6; 29.7; 29.7 (In percent of FY GDP for 2019/2020–2027/28)
- Tax revenue: 28.6; 26.6; 27.1; 27.5; 27.2; 27.3; 27.8; 27.8; 27.8
- Nontax revenue: 2.1; 1.8; 1.7; 1.8; 1.7; 1.8; 1.8; 1.8; 1.8
- Total primary expenditure: 24.5; 29.3; 29.8; 27.3; 25.4; 25.1; 24.6; 24.7; 24.7
- Current primary expenditure: 22.6; 26.4; 25.6; 23.9; 22.4; 22.0; 21.5; 21.4; 21.4
- Capital expenditure and net lending: 1.9; 2.9; 4.2; 3.4; 3.0; 3.1; 3.1; 3.2; 3.3
- CG Fiscal balance: 3.7; -4.5; -4.8; -2.2; -0.9; -0.5; 0.7; 0.9; 1.0
- CG Primary balance: 6.2; -0.9; -0.9; 2.0; 3.5; 4.0; 5.0; 5.0; 5.0
- Nominal GDP, FY (BDS$ millions): 10285; 9037; 10173; 11958; 11958; 11958; 11958; 11958; 11958

### Public debt outlook and risks
- The debt target of 60 percent of GDP can be achieved by FY2035/36 premised on the proposed medium and long-term primary balance path.
- Main risks include a slower-than-expected economic recovery and delays in economic and fiscal reforms to generate primary surpluses.
- Mitigating factors include Barbados’ track record under the previous EFF-supported program, authorities’ commitment to long-term fiscal adjustment, and favorable debt service terms after the comprehensive debt restructuring.
- Market spread: external bonds over the US treasury debt currently below 500 bps (text chart).
- The Sovereign Risk and Debt Sustainability Framework (SRDSF) suggests Barbados’ overall risk of sovereign stress is moderate and confirms that debt is sustainable.

### Pension and NIS issues
- Unemployment insurance claims nearly five-fold increase in 2020 totaled about 2 percent of GDP in FY2020/21; these have returned to pre-pandemic levels.
- The Unemployment Benefit Fund recapitalization program envisions an infusion of B$143 million (1½ percent of GDP) during FY2021/22-FY2023/24 and is underway.
- The National Insurance Fund (NIF or Pension Fund) is not viable in the long run without pension reforms according to actuarial review findings.
- Program structural benchmarks: Government to develop a recapitalization and reform plan that restores and safeguards NIF sustainability by end-2022 (SB5); table a revised public pension law by end-March 2023 (SB4) including lengthening of service for new public servants and requiring contributions for earnings above established NIS ceilings.

### Monetary and financial sector policy settings
- Commercial bank outstanding loans to the nonfinancial private sector trended down by 0.7 percent in June 2022 (yoy).
- CBB system-wide capital adequacy ratio (CAR) as of end June 2022: 17.8 percent.
- Liquid assets to total assets: 31 percent.
- Bank excess cash reserves: about 22.2 percent.
- System NPL ratio: 6.8 percent with provision coverage of about 58.4 percent.
- Credit unions NPL ratio: rose to 14.1 percent during the pandemic and stood at 12.6 percent in June 2022.
- CBB removed regulatory guidance allowing non-classification of moratoria loans by end-October 2022; moratoria loans represent 0.01 percent of the outstanding bank credit to the non-financial private sector.
- CBB’s overnight lending discount rate was lowered to 2 percent from 7 percent during the pandemic and will be maintained for now.
- Strict capital controls remain in place and delink interest rates in Barbados from global interest rate developments.
- The authorities intend to review the CBB’s balance sheet capacity and toolkit for market operations (SB12) with MCM TA support.

### Financial integrity and FATF
- Barbados has made progress on FATF Action Plan items including implementing a risk based supervisory regime for Designated Non-Financial Businesses and Professions, establishing a mechanism for timely access to beneficial ownership information, and building Financial Intelligence Unit capacity.
- Remaining work: establish effective mechanisms to ensure beneficial ownership information is accurate and up to date; ensure appropriate sanctions are applied; conduct further outreach and guidance to reporting entities to improve reporting levels; intensify investigatory and confiscation efforts and demonstrate greater use of international assistance for cross border repatriation or sharing of assets.

### Structural reform agenda (selected priorities and SBs)
- SOE reform: past reforms contributed to a 1¼ ppt of GDP decrease in transfers to SOEs in FY2019/20 to 6.7 percent of GDP; program includes reorganizations in agriculture, housing, and development sector SOEs by end-June 2023 (SB9; SB10) and a comprehensive stocktaking of SOE financial performance (SB11).
- Tax and customs administration: strengthen BRA and BCED coordination and information exchange to improve taxpayer compliance (SB2).
- Duty and tax exemptions: centralize analysis in Ministry of Finance and introduce exemption thresholds (SB1; SB3); monitor tax exemptions and foregone revenue per ministry and agency, preferably with monthly reporting.
- PFM: implement elements of the 2019 PFM Act; program benchmarks include establishing a fiscal risk unit (SB6), audit of outstanding NIS financial statements (SB7), and establishing a cash management unit within the Treasury (SB8).
- Business climate: stocktaking of policy reforms by end-March 2023 (SB13); benchmarks to advance digitization initiative (SB14; SB15); intention to modernize the Companies Act.

### Climate change challenges and policy implications
- Barbados is becoming highly sensitive to climate change risks; higher temperatures, sea-level rise, and possible changes in precipitation are expected to increase physical risks, potentially reducing agricultural production, water availability and quality, biodiversity, and health outcomes.
- Adaptation priorities: accelerate investments in climate resilient infrastructure, including physical flood defenses (e.g., seawalls) and restoration of environmental barriers.
- Financial risks: natural disasters can cause demand and supply shocks to BOP stability, lead to lower growth and employment, subdued capital accumulation, slower poverty reduction, and increase post-disaster public spending that threatens fiscal and financial stability.

*Source: 1brbea2022002 (IMF staff report content unit).*

### 27.      Higher fuel import bills and inflation following the war in Ukraine highlight the need

### 27.      Higher fuel import bills and inflation following the war in Ukraine highlight the need

### Transition to renewable energy: progress and priorities
- Steps taken:
  - Established a licensing system for Independent Power Producers (IPP) renewable energy projects accompanied by a guidance note on the licensing and approval process for investors.
  - Amended the Feed-in-Tariffs (FIT) mechanism to cover renewable energy from 1MW to 10MW.
- Priority actions to accelerate implementation and private investment:
  - Expeditiously implement clarified licensing and expanded FIT.
  - Close remaining regulatory gaps in the Feed-in-Tariff mechanism to promote renewable energy storage technologies.
  - Establish a corresponding licensing policy and approvals framework to increase investments into battery storage technologies.
  - Reduce import taxes for electric vehicles.
  - Expand the share of electric buses in the government-owned fleet.

### Transition risks and financial-sector preparedness
- Transition risk channels:
  - Direct domestic measures: near-term diversion of resources to renewables could slow economic growth.
  - Indirect global changes: mitigation policies abroad may increase costs (e.g., air travel) or change tourism source-market preferences.
- Financial stability actions:
  - Building capacity to monitor and assess climate change risks to the financial sector, including through bank stress testing.
  - The Central Bank of Barbados (CBB) has applied to join the Network for Greening the Financial System to increase capacity to conduct stress tests.
  - The Financial Services Commission is piloting a stress-testing exercise for insurance corporations to climate change effects.

### Climate commitments, green PFM, and risk assessments
- National commitments and focus:
  - Barbados committed to ambitious mitigation and adaptation targets in its most recent NDC and is ranked high among regional peers in both mitigation and adaptation.
  - Main mitigation focus: transitioning to renewable energy; adaptation focus: improving structural, financial, and post-disaster resilience.
- Public financial management (PFM) and risk assessment priorities:
  - Adopt green PFM practices to include climate priorities across budget preparation, execution, fiscal reporting, oversight, and auditing (RM5 for end-March 2025).
  - Conduct risk assessments to quantify macroeconomic and fiscal impacts of climate risks and identify green PFM reform priorities (RM2 for end-March 2023).
  - Regularly monitor and assess conducted risk assessments in the budget and budget outturns according to internationally accepted standards.

### Mobilizing private climate financing — authorities’ three-pronged plan (next three years)
- Planned focus areas to overcome barriers to scaling up private climate financing (see RM deadlines):
  - (i) Collecting and disseminating climate risk and vulnerability data and embedding climate risks in capital investment planning and procurement (RM2 for end-March 2023 and RM9 end-September 2024).
  - (ii) Approving Barbados’ National Comprehensive Disaster Risk Management Policy to clarify capital investment gaps and institutional arrangements (RM3 for end-September 2023).
  - (iii) Reviewing financial instruments for appropriate risk sharing and starting stakeholder dialogue to increase financial incentives and reduce risks for private participation.
- Immediate actions:
  - Organize a round table discussion in early 2023 with private sector participants and multilateral development banks to find solutions to eliminate barriers, form views on upcoming reform measures, and conduct a comprehensive stocktaking of Barbados’ business environment.

### Innovative financing instruments and existing initiatives
- Ongoing and proposed instruments/approaches:
  - Seek more concessional longer-term financing from development partners.
  - Issue sustainability-linked debt instruments (such as green bonds).
  - Engage in a comprehensive insurance framework providing liquidity in natural disaster events (CCRIF).
  - Issue state-contingent instruments with natural disaster clauses.
  - Recent debt-for-nature swap (see Box 1).
- Additional options to scale up financing:
  - Equity funds focused on ESG investments.
  - Participation in international carbon credit schemes to complement decarbonization by 2030.
  - Blended public and private sector finance for risk sharing and credit enhancement.
  - Additional insurance frameworks providing liquidity in natural disaster events.

### Box 1 — Debt for Nature Swap: factual details
- September 2022 transaction:
  - Contracted new debt equivalent to US$150 million (about 3 percent of GDP) with partial guarantees from the Inter-American Development Bank (IDB) and The Nature Conservancy (TNC).
  - Proceeds were immediately used to buy back part of outstanding Eurobonds (6.5 percent note due 2029) and domestic bonds (8 percent bonds held by the National Insurance Scheme).
  - With guarantees provided by AAA/AA- rated entities, the new loan generates savings amounting to around US$40 million over time. These savings will flow into a conservation fund for marine protection.
- Institutional and fiscal commitments:
  - Agreement milestones include developing a Marine Spatial Plan, approving legislation and regulations to declare marine protection zones, and adopting a long-term ocean management plan.
  - Government obliged to contribute US$2.5 million (about 0.05 percent of GDP) for 15 years to finance these initiatives.
- Debt instrument clauses and triggers:
  - Newly issued debt includes a natural disaster clause and a pandemic clause.
  - Natural disaster triggers: entitlement to defer all principal repayments coming due in a two-year period following specified natural disaster events; trigger thresholds are US$5 million for an earthquake or rainfall event and US$7.5 million for a tropical cyclone event (based on CCRIF insurance payments).
  - Pandemic clause activation conditions: a public health emergency declared by both the WHO and the Government of Barbados, combined with either an economic contraction of at least 5 percent for consecutive two quarters or an increase in government spending of at least US$19 million.
  - The 2022 issuance is the first use of these natural disaster and pandemic clauses in new debt.

### Data improvements
- Recent technical assistance and improvements:
  - Fund TA supported by Canada and CARTAC helped the Barbados Statistical Service (BSS) compile constant 2016 price estimates of GDP (rebased from 2010) and update quarterly estimates of activity-based GDP.
  - STA will continue support for improved expenditure-based GDP estimates and a Tourism and Culture Satellite Account.
  - In March 2021, Barbados implemented IMF’s Enhanced General Data Dissemination Standard (e-GDDS) with the launch of a National Summary Data Page.

### Program modalities: EFF and RSF support to catalyze climate and resilience investment
- EFF (Extended Fund Facility):
  - Proposed term: 36-month EFF arrangement.
  - Rationale: need for structural reform to correct fiscal and external imbalances and resume reforms delayed by the pandemic.
  - Support amount: 90 percent of quota (SDR 85.05 million, or around US$110 million).
  - Purchases and reviews: program reviews semiannually based on end-March and end-September QPCs, with purchases distributed over program approval and successive five reviews (15 percent of quota or SDR 14.175 million each).
  - QPCs and ITs: set and monitored under semiannual reviews; same set as previous EFF-supported program.
- RSF (Resilience and Sustainability Facility):
  - Purpose: address additional balance-of-payments needs from resilience-enhancing infrastructure and transition to renewables.
  - Estimated additional import needs associated with ambitious investment plans: could range from 0.5 to 1 percentage of GDP annually based on preliminary estimates.
  - Support amount: 150 percent of quota (SDR 141.75 million, or about US$180 million).
    - This is the proposed RSF access at the maximum level of 150 percent of quota (higher than the norm of 75 percent), justified by strength and breadth of reforms, BOP need, and capacity to repay.
  - Disbursement design: equally split over five consecutive EFF program reviews starting with the first EFF review (30 percent of quota, or SDR 28.35 million each). A disbursement is conditional on successful completion of the corresponding reform measures and the EFF review.
  - Long-run rationale: financing resilience investments helps save post-disaster fiscal spending and volatile fuel import bills, enhancing fiscal and external sustainability; meeting targets requires commitment to climate strategies, enhanced implementation capacity supported by CD from IFIs, and significantly larger financing from donors and the private sector.

### RSF reform measures to address climate vulnerabilities — three pillars and key RMs
- Reform measures aligned with transition to 100 percent renewable energy by 2030 and NDC targets:
- Pillar 1 — Imminent adaptation and resilience building (six RMs):
  - (i) Approve a National Comprehensive Disaster Risk Management Policy (RM3 for end-September 2023).
  - (ii) Upgrade infrastructure by approving the Planning and Development Act to improve climate resilience of roads through improved drainage (RM1 for end-March 2023).
  - (iii) Improve stormwater management (RM4 for end-March 2024).
  - (iv) Enhance water availability via water reuse (RM1 for end-March 2023).
  - (v) Fund the National Environmental and Conservation Trust for marine protection projects (RM1 for end-March 2023).
  - (vi) Approve the Procurement Act Regulations to support green procurement and include a fiscal risk statement focusing on climate change risks in the budget for FY2023/24 (RM2 for end-March 2023).
- Pillar 2 — Reduce greenhouse gas (GHG) emissions and energy transition:
  - (i) Lower import taxes for electric vehicles (RM6 for end-September 2023).
  - (ii) Increase energy efficiency by approving the Energy Efficiency and conservation policy framework for government agencies and public lighting (RM7 for end-March 2024).
  - (iii) Issue supportive regulation to incentivize investments into battery storage technologies and enhance competition in the electricity market (RM6 for end-September 2023).
  - (iv) Adopt the New Electricity Supply Act to enhance competition and introduce local participation in renewable energy investment (RM8 for end-September 2024).
- Pillar 3 — Reduce transition risks to the financial sector:
  - (i) Adopt a strategy for building capacity to monitor and assess climate change risks to the financial sector, including data collection mechanisms and joining the Network for Greening the Financial System (RM9 for end-September 2024).
  - (ii) Include climate change risks in a bank stress testing exercise (RM10 for end-March 2025).

### Expected catalytic effects and external financing prospects
- Anticipated official and private financing mobilization:
  - World Bank: advanced negotiation on a Green and Resilience Development Policy loan equivalent to US$100 million to complement EFF/RSF structural reforms.
  - Inter-American Development Bank: indicated potential to increase financial support up to US$300 million over the next three years.
  - Other regional financial institutions are considering increased support.
  - Continued efforts to attract private sector financing through reforms and risk-mitigation measures.

*IMF staff report excerpt (chapter content).*

### 41.      Staff supports a request for the use of Fund resources (both under EFF and RSF) for

### 1brbea2022002 - 41.      Staff supports a request for the use of Fund resources (both under EFF and RSF) for

### Use of Fund resources and safeguards
- Staff supports a request for the use of Fund resources (both under EFF and RSF) for budget support.
- Rationale: alternative financing sources are limited at present due to subdued private demand for government debt in the aftermath of the relatively recent comprehensive debt restructuring.
- A memorandum of understanding between the CBB and the Ministry of Finance detailing their respective roles and responsibilities for servicing the financial obligations to the Fund will be put in place, providing additional safeguards for the use of Fund resources for budget support.
- Note: "The exceptional access frameworks that apply to GRA and PRGT credit do not apply to the RST framework."

### Debt outlook and capacity to repay
- Barbados’ capacity to repay the Fund is assessed to be adequate (Table 11).
- Debt projections in the aftermath of the 2018-22 EFF:
  - Credit outstanding reaching around 500 percent of quota (380 percent of quota excluding the RSF12) or about 10 percent of GDP in 2024.
- Risks are mitigated by:
  - the authorities’ strong commitment to reforms and economic stability,
  - projected fiscal adjustment through structural adjustment,
  - international reserves remaining above 1 00 percent of ARA throughout the projection period.
- The EFF/RSF-supported program is fully financed over the next 12 months with good prospects for the remainder of the program period.
- Safeguards:
  - The first safeguards assessment of the central bank was completed in December 2018, and all recommendations but one have been implemented.
  - An update of the safeguards assessment of the Central Bank of Barbados will be completed by the time of the first EFF/RSF review.

### Staff appraisal — macroeconomic results and fiscal outlook
- Progress and past actions:
  - The Barbadian authorities have made good progress in implementing their comprehensive Economic Recovery and Transformation (BERT) plan.
  - Macroeconomic stability was restored in 2018 and 2019 with fiscal consolidation, comprehensive debt restructuring, and structural reforms to support growth.
  - This created space for a countercyclical policy response to the COVID-19 pandemic in 2020 and 2021.
- Fiscal trajectory:
  - While the temporary fiscal relaxation during the pandemic was appropriate, it needs to be compensated going forward.
  - Starting in FY2022/23, a steady improvement in the primary balance will preserve and strengthen debt sustainability and enable the authorities to meet the long-term debt target of 60 percent of GDP by FY2035/36, while also maintaining adequate capital and social spending.
  - Staff’s assessment is that Barbados’ public debt remains sustainable.

### Structural reform priorities and SOE reform
- Structural fiscal reforms under the proposed EFF/RSF-supported program include:
  - strengthening of tax and customs administration,
  - Public Financial Management (PFM) reform,
  - adoption and implementation of pension reform,
  - rationalization and consolidation of SOEs.
- Pension reform:
  - A meaningful consultation process of public pension reform is now well underway.
  - The tabling of this legislation and operationalization of the NIF reform and recapitalization plan should be completed as a matter of priority to enhance long-term pension sustainability.
- SOE reform priorities and measures:
  - Authorities are committed to revitalizing and accelerating the SOE reform agenda by prioritizing the agricultural, housing, and development sectors.
  - Initial steps include:
    - merging the Rural and Urban Development Commissions and reforming the National Housing Corporation;
    - scaling back the subsidies and services to the Barbados Agriculture Management Corporation (BAMC).
  - Further measures required to structurally reduce SOE transfers:
    - fully phasing out of temporary COVID-related transfers;
    - stronger oversight, supported by improved reporting and analysis (e.g. SOE health dashboard) to help identify and prioritize policy interventions;
    - adjustments to cost structures and revenue frameworks, including an increase in user fees;
    - additional mergers and divestment, particularly for unprofitable commercial SOEs.

### Structural reforms to boost growth and green transition
- Continued structural reforms are needed to unlock Barbados’ growth potential.
- Priorities to improve the business climate and attract private investment:
  - completing the digitization of government services and modernization of the customs framework;
  - reforms to streamline bureaucratic processes;
  - fully elaborate regulatory frameworks to support green investment;
  - enhance flexibility in labour and product markets.
- Program includes benchmarks to advance the authorities’ digitization initiative.
- Climate and resilience:
  - Improving resilience to natural disasters and climate change and facilitating a transition to renewable energy will be critically important to reduce BOP and price volatility.
  - Restoring fiscal space for climate investment through continued structural reforms and steady implementation of the climate agenda is key to catalyzing private sector resources and meeting large financing needs for investment.

### Risks to the program
- Risks are elevated and include:
  - (i) the emergence of more infectious COVID-19 variants;
  - (ii) an economic slowdown in the main source countries for the tourism sector (UK, US, and Canada) and an erosion of purchasing power due to the appreciation of US dollar;
  - (iii) continued inflation pressures created by the disruptions in the global supply chain and Russia’s war in Ukraine;
  - (iv) more frequent and intensified natural disasters.
- Implementation challenges:
  - Implementing the ambitious structural reform agenda to achieve and maintain primary surpluses on a sustained basis could be challenging.
- Mitigating factors:
  - the authorities’ excellent track record under the previous program,
  - their strong commitment to the reform process,
  - continued strong support from IFIs,
  - broad public support for economic stabilization and the reform process.

*Source: IMF staff appraisal and program documentation as provided in the content unit.*

### 50.      In view of Barbados’ balance of payments needs and the comprehensive package of

### 1brbea2022002 - 50. In view of Barbados’ balance of payments needs and the comprehensive package of

### Program approval and institutional support
- Staff supports the authorities’ request for a 36-month extended arrangement under the Extended Fund Facility (EFF) in the amount of 90 percent of quota.
- Staff supports the request for a Resilience and Sustainability Facility (RSF) at 150 percent of quota to address macro-critical risks associated with climate issues.
- Staff recommends that Barbados remains on a 24-month cycle for Article IV Consultations (Decision No. 14747 – (10/96)).

### Real sector developments and outlook
- Tourism dependence and COVID-19 impact:
  - Due to heavy reliance on tourism, the economy was among the hardest hit in the region after the COVID-19 pandemic, with tourism collapsing and causing a sharp contraction in 2020.
  - Recovery of tourist arrivals in 2021 and 2022 is leading to economic growth and improving labor market conditions.
- Calendar-year Real GDP (CY Real GDP):
  - 2019: -1.3
  - 2020: -13.7
  - 2021: 1.1
  - 2022: 10.0
  - 2023 (proj.): 4.8
- Inflation:
  - CPI inflation (average): 2019: 4.1; 2020: 2.9; 2021: 3.1; 2022: 9.4; 2023 (proj.): 5.8
  - CPI inflation (end of period): 2019: 7.2; 2020: 1.3; 2021: 5.2; 2022: 8.4; 2023 (proj.): 4.3
- External trade volumes (value):
  - Exports of goods and services: 2019: 6.9; 2020: -37.8; 2021: 7.2; 2022: 25.6; 2023 (proj.): 11.9
  - Imports of goods and services: 2019: 2.8; 2020: -18.2; 2021: 15.4; 2022: 20.2; 2023 (proj.): 5.4
- Labor market (selected indicators):
  - Unemployment rate (2021): 14.1 (from Table 1 header)

### Fiscal sector developments, projections, and policy stance
- Fiscal year definitions: Fiscal year is from April to March.
- Central Government (CG) fiscal aggregates (percent of FY GDP, selected years):
  - Total revenue: 2019: 30.6; 2020: 28.4; 2021: 28.9; 2022: 29.3; 2023 (est.): 28.9
  - Total expenditure: 2019: 26.9; 2020: 32.9; 2021: 33.7; 2022: 31.5; 2023 (est.): 29.8
  - CG Fiscal balance: 2019: 3.7; 2020: -4.5; 2021: -4.8; 2022: -2.2; 2023 (est.): -0.9
  - Interest Expenditure: 2019: 2.4; 2020: 3.6; 2021: 3.9; 2022: 4.2; 2023 (est.): 4.4
  - Primary Balance: 2019: 6.2; 2020: -0.9; 2021: -0.9; 2022: 2.0; 2023 (est.): 3.5
- Central Government nominal figures (BDS$ millions, selected years):
  - Total revenue: 2019/20: 3,156; 2020/21: 2,702; 2021/22: 2,942; 2022/23: 3,464; 2023/24 (proj.): 3,663
  - Total expenditure: 2019/20: 2,772; 2020/21: 3,132; 2021/22: 3,433; 2022/23: 3,725; 2023/24 (proj.): 3,779
- Public debt dynamics:
  - Central government gross debt (percent of FY GDP): 2019/20: 123.0; 2020/21: 139.8; 2021/22: 135.1; 2022/23: 122.5; 2023/24 (proj.): 114.6
  - Public Debt (Table 3, BDS$ millions): 2019/20: 12,674; 2020/21: 13,287; 2021/22: 13,773; 2022/23: 14,473; 2023/24 (proj.): 14,529
  - External public debt (percent of FY GDP): 2019/20: 33.5; 2020/21: 46.4; 2021/22: 48.6; 2022/23: 46.1; 2023/24 (proj.): 46.2
- Fiscal note: Expenditure ratios rose due to emergency spending associated with the Covid-19 pandemic and natural disasters, reversing steady fiscal balance improvements since FY15/16; tax collections declined due to pandemic-induced reduction in economic activity.

### External sector, reserves, and balance of payments
- Current account and external financing:
  - Current account balance (US$ millions, calendar year): 2019: -147; 2020: -278; 2021: -528; 2022: -582; 2023 (proj.): -558
  - Current account balance (percent of CY GDP): 2019: -2.8; 2020: -5.9; 2021: -10.9; 2022: -10.1; 2023 (proj.): -8.9
  - Capital and financial account (percent of CY GDP): 2019: 7.3; 2020: 17.6; 2021: 12.6; 2022: 8.3; 2023 (proj.): 10.3
- Trade and services:
  - Exports of goods and services (US$ millions): 2019: 2,242; 2020: 1,395; 2021: 1,495; 2022: 1,878; 2023 (proj.): 2,101
  - Imports of goods and services (US$ millions): 2019: 2,076; 2020: 1,699; 2021: 1,960; 2022: 2,357; 2023 (proj.): 2,485
  - Services balance (US$ millions): 2019: 905; 2020: 499; 2021: 476; 2022: 668; 2023 (proj.): 829
  - Travel (credit) (US$ millions): 2019: 1,250; 2020: 577; 2021: 627; 2022: 860; 2023 (proj.): 1,040
- Reserves and vulnerability metrics:
  - Gross international reserves (US$ million): 2019: 740.5; 2020: 1,330.3; 2021: 1,529.4; 2022: 1,426.2; 2023 (proj.): 1,510.7
  - GIR (months of imports of G&S): 2019: 4.3; 2020: 9.4; 2021: 9.4; 2022: 7.3; 2023 (proj.): 7.3
  - GIR (percent of ARA): 2019: 142.8; 2020: 259.1; 2021: 288.2; 2022: 244.3; 2023 (proj.): 246.6
- Drivers of current account deterioration:
  - Slow recovery in tourism and rising imports, mainly driven by increased intermediate goods imports from high global oil price, contributed to the widening current account deficit to 10.9 percent of GDP (2021).

### Monetary sector and financial conditions
- Central Bank (CBB) balance sheet and liquidity:
  - CBB’s claims on the Government declined after the domestic debt restructuring.
  - CBB’s international reserves increased sharply while commercial banks’ reserves at the CBB continue to increase.
  - Monetary base (BDS$ millions): 2019: 2,939; 2020: 3,552; 2021: 4,133; 2022: 4,492; 2023 (proj.): 4,670
- Interest rates and market perceptions:
  - Country risk premium peaked before the debt restructuring; market perception improving since.
  - T-bill rate declined after the debt restructuring, while the deposit rate remained very low with a recent uptick.
- Credit and banking sector:
  - Private sector credit growth remained weak; excess liquidity is parked at the CBB.
  - Monetary survey – Credit to the private sector (BDS$ millions): 2019: 8,303; 2020: 8,206; 2021: 8,109; 2022: 8,173; 2023 (proj.): 8,337
- Financial sector indicators (Table 7, selected):
  - Commercial Banks Capital Adequacy Ratio (CAR): 2016: 17.0; 2017: 17.0; 2018: 13.9; 2019: 13.5; 2020: 16.0; 2021: 16.8
  - Non-performing loans ratio (Commercial Banks): 2016: 7.6; 2017: 7.8; 2018: 8.9; 2019: 9.6; 2020: 13.1; 2021: 14.1
  - Return on Assets (ROA, Commercial Banks): 2016: 0.8; 2017: 0.9; 2018: 0.7; 2019: 0.7; 2020: 0.5; 2021: 0.2

### Debt-servicing, Fund access, and program financing
- Proposed IMF access and disbursement schedules:
  - EFF: 36-month Arrangement under the EFF at 90 percent of quota. Table 9 EFF Purchases schedule (SDR million, Percent of Quota):
    - December 7, 2022 Approval of 3-year Arrangement under the EFF: 14.175 SDR million, 15.0 percent of quota
    - May 15, 2023 1st Review: 14.175 SDR million, 15.0 percent of quota
    - November 15, 2023 2nd Review: 14.175 SDR million, 15.0 percent of quota
    - May 15, 2024 3rd Review: 14.175 SDR million, 15.0 percent of quota
    - November 15, 2024 4th Review: 14.175 SDR million, 15.0 percent of quota
    - May 15, 2025 5th Review: 14.175 SDR million, 15.0 percent of quota
    - Total Access: 85.050 SDR million, 90 percent of quota
  - RSF: RSF total access 141.751 SDR million, 150 percent of quota (Table 10). Individual disbursements of 14.175 SDR million (15.0 percent of quota) tied to completion of RSF review of specific reform measures across May/November 2023–2025.
- Program monitoring and indicators of Fund credit (Table 11, selected dynamics and metrics):
  - Quota: 94.5 SDR million.
  - Stock of existing and prospective Fund credit (SDR million) – selected entries:
    - 2022: 412.5
    - 2023: 471.6
    - 2024: 467.6
  - Fund credit outstanding in percent of Quota (selected): 2021: 355.7; 2022: 436.5; 2023: 499.1; (longer-term projections provided in Table 11).
  - Fund obligations (repurchases and charges) in percent of Quota (selected): 2022: 27.2; 2023: 48.6
  - Fund obligations as percent of Government revenue (selected): 2022: 3.1; 2023: 3.4
- Program financing and gross financing needs (Table 8, selected):
  - Gross Financing Requirements (US$ millions): 2019: 214; 2020: 364; 2021: 612; 2022: 679; 2023 (proj.): 670
  - Sources of Financing (US$ millions): Public sector inflows and other IFIs; FDI and long-term debt (net) in 2021: 244; 2022: 380; 2023: 259
  - Memorandum: GIR (percent of ARA) across projections: 143; 259; 288; 244; 247; 235; 202; 165; 143

### Key vulnerabilities, drivers, and policy implications highlighted
- Vulnerabilities and drivers:
  - Heavy tourism dependence amplified the COVID-19 shock; tourism collapse led to sharp GDP contraction and fiscal stress.
  - Rising global commodity prices contributed to inflationary pressures and increased import bills, notably oil imports (oil import US$ and percent of GDP tracked across tables).
  - Public debt rose significantly during the pandemic due to plummeting revenues and GDP.
- Policy implications embedded in program design:
  - The combined EFF (90 percent of quota) and RSF (150 percent of quota) packages are intended to strengthen balance of payments, support macroeconomic stabilization, and reduce macro-critical climate-related risks.
  - Continued monitoring through program conditionality and reviews (EFF and RSF scheduled reviews and disbursements tied to performance criteria and RSF reform measure implementation).

*Source: IMF staff report and supporting tables and figures in the provided content unit.*

### Annex I . Debt Sustainability Analysis

### Annex I . Debt Sustainability Analysis

### A. Recent Development and Public Debt Structure
- Overall assessment: public debt put back onto a long-term downward path after a large increase in FY2020/21.
- Trajectory and levels:
  - Public debt reduced to 123 percent of GDP by end-FY2019/20 from 158 percent of GDP in FY2017/18.
  - Public debt estimated at about 135 percent of GDP in FY2021/22, down from 140 percent in FY2020/21.
- Drivers of FY2020/21 increase:
  - Fiscal responses to the COVID-19 pandemic and a sharp decrease in nominal GDP.
  - Natural disasters: volcanic eruption in St. Vincent in April 2021 and category 1 hurricane Elsa in July 2021.
- Financing and restructuring:
  - Larger financing needs met through strong IFI support including disbursements under the EFF-supported program with favorable borrowing terms.
  - 2018-2019 debt restructuring provided NPV debt reduction of about 30 percent of GDP, converted large part of short-term CG debt to longer-term debt, and improved debt service schedule.
  - Restructured external debt: 5-year grace period, principal payments resume from 2025 onwards.
  - Around half of gross financing needs represented by short-term debt with no rollover risk for the first 10-year period (commercial banks agreed to rollover the full stock); remainder of short-term debt held by the CBB.
- Domestic debt progress:
  - During FY2018/19 and FY2019/20, public domestic debt decreased due primarily to debt restructuring, fiscal adjustment, restrained commercial borrowing, and clearance of domestic expenditure arrears.

### B. Debt Coverage, Assumptions, and Realism Assessment
- Debt coverage:
  - DSA covers nearly the full stock of public debt: Central Government debt, debt and expenditure arrears incurred by the Central Government, SOE debt guaranteed by the Central Government.
  - IMF BOP support to the CBB is included in public debt; no local government debt.
  - SOE debt not guaranteed by the central government is negligible at around 3.5 percent of GDP and excluded.
  - Gross debt concept referred to as “public debt” (differs from consolidated public sector debt).
- Macroeconomic assumptions:
  - Growth and inflation:
    - Growth: modest growth of 1.1 percent in 2021; rebound of about 10 percent for 2022; return to pre-crisis levels around late 2024; long-term average around 2 percent.
    - Inflation: sharp increase to around 9 percent in FY2022/23; average inflation projected to return to around 2½ percent from 2024 onwards.
  - Primary balance:
    - FY2020/21: minus 1 percent of GDP.
    - FY2021/22: minus 1 percent of GDP.
    - FY2022/23: projected primary balance of 2 percent of GDP.
    - Medium term: projected to increase to 5 percent of GDP; could be gradually decreased later while respecting 60 percent-of-GDP debt anchor by end-FY2035/36.
- Realism assessment:
  - Realism tools indicate projected 3-year debt reduction and fiscal consolidation fall under the top quartile of distribution among peer emerging countries.
  - Part of debt decline driven by rebound in nominal GDP in FY2022/23 and high inflation (denominator effects).
  - Staff view: feasible given authorities’ commitment and country-specific circumstances; contingency measures in place.

### C. Baseline Projections
- Debt target and timing:
  - Under current baseline, 60 percent-of-GDP debt anchor projected to be reached by end-FY2035/36.
  - Public debt expected to come down to around 120 percent of GDP in FY2022/23 (pre-COVID level).
- Drivers of debt reduction:
  - Main drivers: primary balances and economic growth.
  - Effective real interest rate roughly equal to long-run real growth rate, supporting declining debt dynamics.
  - Projected primary balances larger than debt-stabilizing primary balances (estimated around zero percent of GDP over projection period).
- Debt management strategy:
  - Short-term debt automatically rolled over per restructuring agreement.
  - Near-term financing to be met through IFI financing and domestic borrowing, gradually complemented by external commercial borrowing.
  - By end-FY2035/36, external and domestic debt projected to be about 20 and 40 percent of GDP, respectively.
  - Current sovereign ratings: B- (S&P) and B (Fitch).

### D. Medium-Term Risk Analyses
- Overall medium-term risk: moderate, with mixed signals from tools.
- Fanchart (solvency risk):
  - Debt fanchart index score: 2.2 (slightly above high-risk threshold of 2.1) — attributed to large volatility of key economic indicators creating a wide fan.
  - Baseline and fan are on a downward trend; probability of debt not stabilizing assessed as limited.
- Gross Financing Needs (GFN) financeability (liquidity risk):
  - GFN financeability index score: 8.3 (below high-risk threshold 17.9; above low-risk threshold 7.6) — indicates moderate risk.
  - Medium-term GFN expected to gradually decline with fiscal consolidation.
  - Limited rollover risks due to 2018-2019 restructuring (automatic rollover of short-term debt for first 10 years; long-term debt service spread).
- Stress tests:
  - Natural disaster stress test uses default magnitude 4.5 percent of GDP.
  - Stress test generates a downward debt trajectory strictly below the 75th percentile of the fanchart, suggesting no modification of the mechanical signal (moderate).

### E. Long-Term Risk Analyses
- Long-term risk: assessed as moderate.
- Long-term modules and scenarios:
  - Large debt amortizations module shows gradual declines in GFN and debt relative to GDP under baseline and custom scenarios.
  - Climate-related expenditures: manageable; additional 1 percent of GDP expenditure in custom scenario preliminarily estimated to cover adaptation and mitigation investment needs without significant long-run sustainability impact.
- Pension and healthcare:
  - Current healthcare expenditure policies would not pose significant sustainability concerns.
  - Continued pension expenditure under current system would lead to larger GFNs and an upward debt trajectory in the long run — confirms need to reform the public pension system.
- Note on custom scenario primary surplus:
  - The primary surplus used for long-term analysis was reduced to 3 percent of GDP (from 5 percent of GDP observed in the 5th projection year and normally extended throughout the projection period as a steady-state primary balance) under the custom scenario.

### F. Public Debt Sustainability
- Assessment: Barbados’ public debt is sustainable on balance.
- Rationale:
  - Debt on gradual downward trajectory under baseline after COVID-19 interruption.
  - Projected to achieve 60 percent-of-GDP target in FY2035/36 under baseline with reasonably ambitious primary surpluses and gradual recovery.
  - Supporting factors: authorities’ strong performance under completed EFF program, commitment to long-term fiscal consolidation, cautious debt management.

### G. Overall Risk of Sovereign Debt Stress
- Overall assessment: moderate risk of sovereign debt stress.
- Key balancing factors:
  - Moderate medium- and long-term risk assessments justify overall moderate rating.
  - Higher solvency risks indicated by fanchart (economic volatility), but liquidity risks contained due to limited rollover risk and prospective IFI support.
- Main risks and uncertainties:
  - Significant deviation from gradual recovery path (e.g., repeated COVID variants, spillovers from Russia’s war in Ukraine) could delay tourism recovery and fiscal consolidation.
  - Slippages in structural reforms impeding ability to sustain high primary balances.
  - Limited domestic demand for government debt post-restructuring; steady delivery of fiscal adjustment important.
  - Natural disaster shocks would delay debt reduction; need to increase resilience to natural disasters and strengthen state-contingent financial instruments.
  - Need for continued SOE reforms, pension reform, and enforcement of procedural fiscal rule.
  - Authorities have taken measures including capital injections to the NIS to restore long-term financial soundness.

### H. External Debt Sustainability Analysis
- (Section heading retained; substantive details of external DSA are contained in the source document beyond this extract.)

*Source: Annex I . Debt Sustainability Analysis (Barbados) — IMF staff analysis and projections.*

### 12.      There is no significant concern over external debt sustainability

### 12.      There is no significant concern over external debt sustainability

### Summary findings
- In FY2021/22, external debt remained at an elevated level of 49 percent of GDP after a sharp rise in FY2020/21 due to strong support from IFIs and a sharp decline in nominal GDP.
- External debt is projected to gradually decrease to about 35 percent of GDP by the end of the projection period.
- Risks associated with external debt have been reduced by the 2018-19 debt restructuring with smoother and lower debt service and by the increased share of IFIs among non-resident creditors.
- Under the stress tests, external debt is projected to stay at reasonable levels of about 40 percent of GDP.
- A continued worsening in the current account deficit—for example due to a more prolonged pandemic and a further increase in commodity prices—would be a key risk as indicated by the stress test.
- Private external debt is not included in the analysis due to the limited data availability.

### Projections, policy stance, and drivers
- Going forward, the downward trend in external debt will be supported by the public debt management strategy aiming to limit expensive financing from the external capital market and rely on multilaterals and/or domestic sources of financing.
- The public debt management strategy explicitly seeks to limit expensive external capital market financing and rely on multilaterals and/or domestic financing sources.
- The 2018-19 debt restructuring contributed to smoother and lower debt service and increased the share of IFIs among non-resident creditors.

### Debt sustainability assessment and sovereign stress risk
- Barbados’ overall risk of sovereign stress is assessed to be moderate.
- Medium-term risks are assessed as moderate, consistent with a mechanical moderate signal predicated on the projected primary balance path.
- Long-term risks are moderate, arising from expected need to refinance debt in the long-term and increase climate change-related investment.
- Pension expenditure is projected to increase pressure onto GFNs and debt in the long term, which confirms the need to hasten to approve and implement the forthcoming pension reforms.
- The projected debt path is expected to stabilize and GFNs will remain at manageable levels under the baseline projections.
- Under the current baseline, the 60 percent-of-GDP debt anchor is projected to be reached by FY2035/36 with envisaged primary surpluses backed by an economic recovery and structural reforms.
- Risks include a slower-than-expected tourism recovery, and the authorities’ ability to maintain high primary surpluses over an extended period.

### Debt composition and creditor breakdown (selected points)
- Total public debt (end of period, FY2021/22): 6,886.7 (100.0 percent of total debt; 135.1 percent of GDP).
- External debt (end of period, FY2021/22): 2,474.7 (35.9 percent of total debt; 48.6 percent of GDP).
- Multilateral creditors (end of period, FY2021/22): 1,657.3 (24.1 percent of total debt; 32.5 percent of GDP).
  - IMF: 441.1 (6.4 percent of total debt; 8.7 percent of GDP).
  - World Bank: 122.9 (1.8 percent of total debt; 2.4 percent of GDP).
  - IADB: 657.4 (9.5 percent of total debt; 12.9 percent of GDP).
  - Other Multilaterals: 558.9 (8.1 percent of total debt; 11.0 percent of GDP), o/w: CDB 253.6 (3.7 percent of total debt; 5.0 percent of GDP).
- Bilateral creditors (end of period, FY2021/22): 156.3 (2.3 percent of total debt; 3.1 percent of GDP).
  - Paris Club: 39.0 (0.6 percent of total debt; 0.8 percent of GDP).
  - Non-Paris Club: 117.3 (1.7 percent of total debt; 2.3 percent of GDP).
- Bonds (end of period, FY2021/22): 552.0 (8.0 percent of total debt; 10.8 percent of GDP).
- Commercial creditors (end of period, FY2021/22): 109.1 (1.6 percent of total debt; 1.7 percent of GDP).
- Domestic debt (end of period, FY2021/22): 4,412.0 (64.0 percent of total debt; 86.6 percent of GDP).
  - Short-term debt (incl. T-Bills) (end of period, FY2021/22): 366.3 (5.3 percent of total debt; 7.2 percent of GDP).
    - Held by central bank: 211.1
    - Held by local banks: 142.6
    - Held by local non-banks: 12.7
  - Long-term debt (incl. Bonds) (end of period, FY2021/22): 4,045.7 (58.7 percent of total debt; 79.4 percent of GDP).
    - Held by central bank: 222.2
    - Held by local banks: 1,029.1
    - Held by local non-banks: 2,794.3

### Key statistics and fiscal metrics (as reported)
- Total public debt (end FY2021/22): 6,886.7 (135.1 percent of GDP).
- External debt (end FY2021/22): 2,474.7 (48.6 percent of GDP).
- Multilateral creditors (end FY2021/22): 1,657.3 (32.5 percent of GDP).
- IMF position (end FY2021/22): 441.1 (8.7 percent of GDP).
- Domestic debt (end FY2021/22): 4,412.0 (86.6 percent of GDP).
- Short-term debt (incl. T-Bills) (end FY2021/22): 366.3 (7.2 percent of GDP).
- Long-term debt (incl. Bonds) (end FY2021/22): 4,045.7 (79.4 percent of GDP).
- Contingent liabilities (end FY2021/22): 225.5 (3.3 percent of GDP).
- Nominal GDP values reported:
  - FY2021/22: 5,096.4
  - FY2022/23: 5,908.5
  - FY2023/24: 6,336.2

*Source: Fund staff.*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors

### Coverage and consolidation treatment
- Color code legend shown: █ chosen coverage     █ Missing f rom recommended coverage     █ Not applicable
- Reported holders/issuers table entries shown as zeros for:
  - Budget. central govt0
  - Extra-budget. f unds0
  - Social security f unds0
  - State govt.0
  - Local govt.0
  - Nonf in pub. corp.0
  - Central bank0
  - Oth. pub. f in. corp0
  - Total000000000
- Commentary:
  - "The coverage in this SRDSA is f or the central government given there is no state and local government."
  - "SoEs' debt guaranteed by the central government, including CBB's debt to the Fund, is added onto the central government's debt in this analysis."

### Reporting on intra-government debt holdings and valuation/recording specifics
- Reporting categories referenced: Nonf in. pub. corp., Central bank, Oth. pub. f in corp, Budget. central govt, Extra-budget. f unds, Social security f unds, State govt., Local govt., NFPS.
- Consolidation/status indicators:
  - CG=Central government; GG=General government; NFPS=Nonf inancial public sector; PS=Public sector.
- Notes on data proxies and measurement:
  - "Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable."
  - "Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities."
  - Types of recording/basis referenced: accrual recording, commitment basis, due for payment, etc.
  - Valuation definitions preserved:
    - "Nominal value at any moment in time is the amount the debtor owes to the creditor."
    - "The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity."
    - "Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). Only traded debt securities have observed market values."

### Realism of baseline assumptions (summary findings)
- Comparator group indicators shown: Public debt to GDP; Prim ary deficit; r - g.
- Color code percentiles referenced for realism tool (examples):
  - Exchange rate depreciation █> 75th percentile
  - SFA █50-75th percentile
  - t+3 t+5 █25-50th percentile
  - Historical output gap revisions █< 25th percentile
- Commentary:
  - "Negative impacts on growth of the projected fiscal adjustments should be smaller than indicated by the realism tool given Barbados’ near-term economic recovery will be driven by a gradual recovery in tourist arrivals."
  - "While the realism tools suggest that the projected debt reduction and 3-year fiscal adjustment are ambitious, this is feasible given the authorities’ strong commitment to fiscal adjustment and gradual recovery in the tourism sector."
- Methodological note:
  - "The Laubach (2009) rule is a linear rule assuming bond spreads increase by about 4 bps in response to a 1 ppt increase in the projected debt-to-GDP ratio."
  - Historical output gap revisions calculated as percentile rank of the country's output gap revisions in the total distribution across the data sample.

### Baseline scenario projections (percent of GDP unless indicated)
- Public debt path (Actual and Projections):
  - Public debt: 135.1122.5    114.6    107.9    101.194.989.484.880.376.272.468.665.562.459.3
  - Change in public debt: -4.6-12.7-7.8-6.8-6.8-6.2-5.5-4.6-4.5-4.1-3.8-3.8-3.1-3.1-3.1
- Contribution of identified flows: -4.4-14.9-7.3-6.1-5.9-5.3-5.2-4.1-4.0-3.8-3.7-3.7-3.0-3.0-3.1
- Primary deficit path: 0.9-2.0-3.5-4.0-5.0-5.0-5.0-4.5-4.5-4.5-4.5-4.5-4.0-4.0-4.0
- Revenues and expenditures (Noninterest):
  - Noninterest revenues: 28.929.328.929.129.629.729.729.729.729.729.729.729.729.729.7
  - Noninterest expenditures: 29.827.325.425.124.624.724.725.225.225.225.225.225.725.725.7
- Automatic debt dynamics and components:
  - Automatic debt dynamics: -5.3-13.0-3.8-2.1-0.9-0.20.10.40.50.70.80.81.01.00.9
  - Real interest rate and relative inflation: 3.2-1.61.61.91.92.02.02.22.22.32.32.22.42.22.1
  - Real interest rate: 5.1-3.01.51.81.81.81.92.12.12.22.22.12.32.22.1
  - Relative inflation: -1.91.40.10.10.10.10.10.10.10.10.10.10.10.10.1
  - Real growth rate entries include: -10.6-11.3-5.3-4.0-2.8-2.2-1.9 a.-1.8-1.7-1.6-1.5-1.4-1.3-1.3-1.2
- Other flows and contingencies:
  - Other identified flows: 0.00.10.00.00.00.0-0.30.00.00.00.00.00.00.00.0
  - Contingent liabilities: 0.01.60.00.00.00.00.00.00.00.00.00.00.00.00.0
  - Other transactions: 0.0-1.50.00.00.00.0-0.30.00.00.00.00.00.00.00.0
  - Contribution of residual: -0.32.2-0.5-0.7-0.9-0.9-0.3-0.5-0.5-0.3-0.1-0.1-0.1-0.1-0.1
- Gross financing needs and composition:
  - Gross financing needs: 15.513.810.910.411.310.49.410.910.29.19.29.59.68.48.4
  - of which: debt service: 14.614.214.414.416.315.414.415.414.713.613.714.013.612.412.4
  - Local currency: 11.811.411.511.311.110.39.610.29.39.39.49.79.98.88.8
  - Foreign currency: 2.92.82.93.15.25.04.85.35.44.44.34.33.73.63.6
- Memo: macro variables
  - Real GDP growth (percent): 8.29.24.63.62.72.22.02.02.02.02.02.02.02.02.0
  - Inflation (GDP deflator; percent): -0.96.22.62.42.42.42.42.32.32.32.32.32.32.32.3
  - Nominal GDP growth (percent): 7.215.97.26.15.24.74.44.34.34.34.34.34.34.34.3
  - Effective interest rate (percent): 3.03.63.94.14.24.34.44.74.85.15.25.45.75.75.7
- Staff commentary on baseline:
  - "Public debt has been put on a downward debt trajectory after a temporary increase during the pandemic."
  - "A debt reduction is projected to continue to meet the long-term debt target of 60 percent of GDP by FY2035/36, mainly driven by a long-term improvement in primary balance and steady economic growth."

### Public debt structure indicators (summary)
- Perimeter shown is central government (and some charts use general government).
- Projections indicate composition remains roughly the same over projection period.
- Commentary: "Over the medium and long-term market financing both from domestic and external financial markets will increase as confidence in government fiscal and debt management policies increases."
- Debt by currency:
  - Foreign currency / Local currency series shown across years (visuals referenced).
- Debt by creditor type and governing law:
  - External private creditors; External official creditors; Domestic other creditors; Domestic commercial banks; Domestic central bank.
  - Domestic law; Foreign law ex. multilateral; Multilateral.
- Maturities:
  - ≤ 1 year; 1-5 years; > 5 years.
  - Residual maturity: 6. years
- Marketable vs non-marketable debt noted.

### Medium-term risk analysis: indices and stress results
- Key indicator values:
  - Fanchart width: 73.41.1
  - Probability of debt not stabilizing (pct): 3.50.0
  - Terminal debt level x institutions index: 51.71.1
  - Debt fanchart index: ...2.2
  - Average GFN in baseline: 11.03.8
  - Bank claims on government (pct bank assets): 13.24.3
  - Chg. in claims on govt. in stress (pct bank assets): 0.6 0.2
  - GFN financeability index: ...8.3
- Legend and risk classification:
  - Overall mechanical signal for medium-term risk analysis: moderate.
  - "Of the two medium-term tools, the Debt Fanchart Module is pointing to high level of risk, while the GFN Financeability Module suggests lower, but still moderate, level of risk."
  - Triggered stress tests suggest natural disasters would not pose large enough shocks to warrant a change in the overall assessment.
- Probabilities:
  - Prob. of missed crisis, 2022-2027 (if stress not predicted): 18.2 pct.
  - Prob. of false alarm, 2022-2027 (if stress predicted): 22.7 pct.

### External debt sustainability: boundary tests and table highlights (2017–2027)
- Figure 8 boundary test references:
  - Baseline and scenario lines shown for interest-rate shock, CA shock, combined shock, real depreciation shock, growth shock.
  - Note: "Individual shocks are permanent one-half standard deviation shocks."
  - "Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance."
  - "One-time real depreciation of 30 percent occurs in 2019."
- Table 3 (selected entries, percent of FY-GDP unless otherwise indicated):
  - Baseline: External debt: 28.5 33.4 33.5 46.4 48.6 46.1 46.2 45.8 43.4 39.2 35.6 -4.4
  - Change in external debt: -3.9 4.9 0.0 13.0 2.1 -2.5 0.1 -0.3 -2.4 -4.2 -3.6
  - Identified external debt-creating flows (4+8+9): -0.2 -1.1 -2.0 0.6 2.2 0.5 1.4 0.9 0.2 0.2 -0.8
  - Current account deficit, excluding interest payments: 2.1 3.5 2.2 4.3 9.1 8.7 7.5 6.5 5.1 4.2 3.5
  - Deficit in balance of goods and services: -1.5 -1.5 -3.2 6.4 9.1 8.1 6.1 5.0 3.0 2.2 1.5
  - Exports: 42.0 40.8 43.5 29.3 29.3 31.8 33.2 33.7 34.7 34.9 35.1
  - Imports: 40.5 39.3 40.3 35.7 38.5 39.9 39.2 38.7 37.7 37.1 36.6
  - Net non-debt creating capital inflows (negative): -3.1 -4.3 -4.7 -8.0 -5.1 -5.5 -5.4 -5.3 -5.2 -4.6 -4.9
  - Automatic debt dynamics 1/: 0.9 -0.3 0.5 4.3 -1.8 -2.7 -0.7 -0.2 0.3 0.5 0.6
  - Contribution from nominal interest rate: 1.8 0.5 0.6 1.5 1.3 1.2 1.3 1.4 1.4 1.4 1.3
  - Contribution from real FY GDP growth: -0.1 0.2 1.5 3.8 -3.6 -3.8 -2.0 -1.6 -1.2 -0.9 -0.8
  - Residual, incl. change in gross foreign assets (2-3): -3.7 6.1 2.0 12.3 0.0 -2.9 -1.3 -1.3 -2.6 -4.4 -2.8
  - External debt-to-exports ratio (in percent): 67.9 81.9 76.9 158.2 165.5 145.0 139.2 136.0 125.2 112.3 101.4
  - Gross external financing need (in billions of US dollars): 0.3 0.3 0.2 0.4 0.6 0.7 0.7 0.6 0.7 0.7 0.6
  - in percent of FY GDP: 6.6 5.6 4.0 7.8 11.9 11.5 10.4 9.6 10.2 9.2 8.3
- Key macro assumptions (selected):
  - Nominal FY GDP (US dollars): 5.0 5.1 5.2 4.8 5.1 5.9 6.3 6.7 7.1 7.4 7.7
  - FY Real GDP growth (in percent): 0.2 -0.8 -4.4 -10.4 8.2 -0.4 4.8 9.2 4.6 3.6 2.7 2.2 2.0
  - FY GDP deflator in US dollars (change in percent): 2.6 3.5 4.8 3.0 -0.9 1.5 2.1 6.2 2.6 2.4 2.4 2.4 2.4
  - Nominal external interest rate (in percent): 5.6 1.7 1.8 4.2 3.0 4.2 1.5 2.8 3.0 3.2 3.3 3.4 3.5
  - Growth of exports (US dollar terms, in percent): 0.8 -0.1 6.9 -37.8 7.2 -2.2 13.2 25.6 11.9 7.8 8.2 5.5 4.9
  - Current account balance, excluding interest payments: -2.1 -3.5 -2.2 -4.3 -9.1 -4.9 2.5 -8.7 -7.5 -6.5 -5.1 -4.2 -3.5
- Notes on definitions and methodology preserved from the table footnotes (1/ through 6/).

### External Sector Assessment (Annex II) — key findings and policy implications
- External position in 2021:
  - "Barbados’ external position in 2021 was broadly in line with the level implied by medium-term fundamentals and desirable policies."
  - Reserve coverage in 2021: "around 9 months of imports of goods and services."
  - "The current account deficit is expected to remain large at around 10 percent of GDP in 2022 despite the gradual recovery in tourism."
- External sustainability and drivers:
  1. "The current account deficit has widened to 11 percent of GDP in 2021 from 6 percent in 2020 due to a slow recovery in tourism and an increase in imports."
     - Worsened current account financed by large inflows in the financial account, supported by continued IFI loans and an SDR allocation.
     - New external debt in 2021 provided by multilateral IFIs with favorable borrowing terms, "posing limited risks to future debt service and external sustainability."
  2. Outlook for 2022 and beyond:
     - Current account deficit expected to remain around 10 percent of GDP in 2022.
     - Tourist arrivals expected to recover to about 60 percent of pre-pandemic levels in 2022.
     - Imports increase driven by global food and oil prices and freight costs (recently exacerbated by the war in Ukraine).
     - Exports of goods increased in the first two quarters compared to 2021, driven by a recovery in foreign demand.
     - Current account deficit expected to slowly narrow as tourist arrivals normalize and business environment improves, unlocking growth potential in renewable energy, medical, and high-tech sectors.
     - "Accelerated efforts in transitioning to a green economy could entail higher imports of equipment and intermediate goods, putting pressures on the current account."
  3. Financial account composition and policy implications:
     - "Official inflows and long term FDI remain the key components of the financial account and continue to finance the current account deficit."
     - Official financial inflows projected to somewhat slowdown in 2022.
     - Long term FDI: around 5 percent of GDP in 2021; projected to remain stable over the next two years as tourism-related projects are realized.
     - Capital outflows from the private sector remain subdued; major outflows in 2021 and 2022 associated with repayments to outstanding official debt.
     - Policy recommendations:
       - Strengthen measures to attract long term investment and other forms of capital inflows as official inflows may decline.
       - "The authorities should also consider gradually phasing out the current capital flow measure, i.e., the 2 percent foreign exchange fee, as the fiscal position strengthen."

*Source: 1brbea2022002 - 5. Debt consolidation across sectors (IMF staff content provided).*

### 4.      The EBA-lite current account (CA) model suggest that Barbados’ external position is

### 1brbea2022002 - 4.      The EBA-lite current account (CA) model suggest that Barbados’ external position is

### EBA-lite current account (CA) model findings
- The EBA-lite CA model estimates Barbados’ COVID-19 adjusted and cyclically-adjusted current account balance at minus 5.1 percent of GDP in 2021.
- The multilaterally consistent cyclically adjusted CA Norm is minus 4.7 percent of GDP.
- Calculated CA gap: 0.8 percent of GDP.
- Using estimated current account elasticities, this implies a small undervaluation of the REER of 2.8 percentage points.
- The REER approach suggests an overvaluation by about 18 percent; staff view the REER model as less reliable than the CA model given the short sample span for estimating the fixed effect and data substitution needs.
- Staff assessment: the CA model better captures Barbados’ evolving external position and suggests the external position is broadly consistent with fundamentals and desirable policies.

Key EBA-lite adjustments and notes
- COVID-19 adjustor: calculated with the default net tourism balance adjustor method where the baseline net tourism balance over GDP is 23 percent, the decline in tourism is 70 percent, and the coefficient of adjustment is 0.5 as prefilled by the EBA-lite template.
- The model incorporates special adjustments beyond standard cyclical adjustments to strip out transitory factors related to the pandemic.

Representative model figures (as presented)
- CA-Actual: -10.9 (percent of GDP)
- Cyclical contributions (from model): (-)1.3
- COVID-19 adjustor: (-)8.1 (additional cyclical adjustment to account for the temporary impact of the pandemic on tourism (8 percent of GDP))
- Adjusted CA: -4.0
- CA Norm (from model, cyclically adjusted, including multilateral consistency adjustments): -4.7
- Adjusted CA Norm: -4.7
- CA Gap: 0.8
- o/w Relative policy gap: 4.1
- Elasticity: -0.3
- REER Gap (in percent): -2.8 / 17.9
- Note: Based on the EBA-lite 3.0 methodology. Source: IMF staff estimates.

### International reserves and external position projections
- By end-2021, international reserves increased to around US$1.5 billion.
- Reserves at end-2021 were equivalent to around 9 months of imports of goods and services, and about 290 percent of the ARA metric.
- Reserves are projected to gradually decline from 2022 onwards due to continued large current account deficits and tapering of IFI inflows.
- Staff analysis indicates gross reserves will remain above 100 percent of the ARA metric over the projection period.
- Policy implication: Given global uncertainties and intensifying climate-change related risks, Barbados needs to maintain adequate foreign exchange buffers to buttress the credibility of its exchange rate peg against the US dollar.

### Climate-related risks: exposure and economic channels
- Barbados faces increasing climate-related risks: physical risks (higher temperatures, changes in precipitations, hurricanes, coastal inundation, rising sea levels, increasing storm intensity) and transition risks (domestic and foreign mitigation measures affecting sectors like tourism and air travel).
- Historical disaster impacts:
  - Hurricane Janet (1955) caused damages amounting to 14 percent of GDP.
  - Hurricane Elsa (2021) caused damages of about 1 percent of GDP.
- Tourism dependence and sensitivity:
  - Tourism accounts directly for an estimated 35 percent of GDP.
  - Tourism’s interconnectedness with retail, construction, agriculture, and other services amplifies economic vulnerability to climate shocks.
- Physical risk channels:
  - Supply side: destruction of physical capital and disruption of labor and supply chains.
  - Demand side: damage to household and corporate balance sheets, reduced consumption and investment, and disruption to tourism activity.
  - Fiscal impacts: post-disaster spending increases public debt and can threaten fiscal sustainability and financial stability.
- Transition risks:
  - Investments in renewables may divert resources from higher private-yield investments; need to balance acceleration of energy transition with avoiding abrupt economic and social disruptions.
  - External mitigation policies (e.g., higher air travel costs) could affect tourism demand.

### Transition to renewable energy (targets, progress, needs)
- National targets:
  - Renewable sources to meet 52 percent of Barbados’ energy needs by 2023 (BNEP interim target).
  - Target full transition away from fossil fuels by 2030.
- Progress and capacity:
  - Share of renewable energy in total electricity consumption increased from less than 1 percent in 2014 to 11 percent in 2021.
  - By end-2020, installed renewable capacity of 49 MW (39 MW distributed, 10 MW utility scale) from solar PV, representing about 68 GWh, saving an estimated 114,412 barrels of oil or BBD$9.2 million in foreign exchange.
  - 50 percent of households rely on solar-powered water heaters.
- Assessment: current pace of transition to renewable energy power generation is insufficient to achieve BNEP targets.
- Recent shocks underscore urgency:
  - Higher fuel import bills and inflation following the war in Ukraine highlight need to expeditiously transition to renewable energy.
- Policy and regulatory steps needed:
  - Expeditious implementation of the licensing system for Independent Power Producers (IPPs) and guidance on licensing/approval processes.
  - Upgrade infrastructure for storage of renewable energy; close regulatory gaps for Feed-in-Tariff mechanisms promoting renewable energy storage and a licensing/approvals framework for storage technologies.
  - Reduce import taxes for electric vehicles, expand electric buses in government fleet, and approve Feed-in-Tariffs amendment for renewable energy from 1 MW to 10 MW to scale up projects.
  - Strengthen business environment to accelerate private sector investment in renewable energy.

### Structural resilience: investments, planning, and building codes
- Programs and initiatives:
  - Roofs 2 Reefs Programme: encourages investments into renewable energy, water conservation, and building resilience; operationalizes the Physical Development Plan by directing public investments.
  - Home Ownership Providing Energy program: construct 1,000 energy efficient and solar powered houses.
  - 2021 Physical Development Plan (expected adoption in 2022) to provide vision on land use, settlement patterns, food production, infrastructure, mobility and environmental management; Planning and Development Act approval expected to enhance infrastructure resiliency.
- Building codes and enforcement:
  - Barbados established the Barbados Building Standards Authority Act in 2018 to enforce the Barbados National Building Code and the Building Act, but established building codes serve as guidelines only and are not mandatory.
  - Existing building codes diverge from plans to improve housing resilience to category 4 hurricanes; enforcement and implementation need strengthening.
- Fiscal considerations:
  - Resilient infrastructure investments yield substantial long-run benefits but impose large upfront costs and short-term burden on public finances.
  - Fiscal space is limited due to the prolonged pandemic, slower tourism recovery, damages from Hurricane Elsa, and regional volcanic eruptions.
  - Recommendations: increase donor financing for climate-related projects, strengthen private sector engagement (technical support, financial incentives, affordable financial services), integrate resilient infrastructure needs into multi-year budget cycles and sectoral plans, and leverage the proposed RSF to catalyze public and private financing.

### Financial resilience: insurance and contingency instruments
- Existing framework: Barbados has developed a comprehensive insurance framework providing liquidity in natural disaster events and safeguarding public finances; three main dimensions:
  1. Parametric insurance via the Caribbean Catastrophe Risk Insurance Facility (CCRIF).
     - CCRIF makes payments based on modeled intensity and exposure and can disburse funds to governments within 14 days of an event.
  2. State-contingent bond clauses in new domestic and external bonds to provide debt service relief in extreme events.
     - Domestic bonds: trigger for a natural disaster event is a CCRIF payout above US$5 million.
     - External debt instruments: triggers linked to CCRIF payouts with thresholds depending on hazard type.
  3. Catastrophe Fund with an approximate balance of around B$30 million, financed by the NIS, to assist homeowners with uninsurable timber houses.
- Recommended enhancements:
  - Expand government saving fund for post-natural disaster liquidity needs to address small but more frequent events once fiscal space is created.
  - Scale-up access to parametric insurance under CCRIF, highlighted as desirable after Hurricane Elsa.

*Source: IMF staff estimates.*

### 13.       In addition, Barbados has access to liquidity through contingent lines or rapid credit

### 1brbea2022002 - 13.       In addition, Barbados has access to liquidity through contingent lines or rapid credit

### Liquidity access and contingent support
- Barbados has access to liquidity through contingent lines or rapid credit facilities provided by international financial organizations.
- Continued engagement with regional integration initiatives and IFI contingent support mechanisms will help bolster Barbados’ financial resiliency against future climate change shocks.
- Examples of IFI contingent support mechanisms referenced: Caribbean Catastrophe Risk Insurance Facility and the IDB’s contingent credit facility.
- Note on bond clause: holders of 50 percent of the aggregate principal amount of the bonds outstanding can block the activation of the clause.
- CCRIF payout example: The US$2.5 million CCRIF payout after Hurricane Elsa was insufficient to cover costs equivalent to around 1 percent of GDP. The CCRIF payout after Hurricane Elsa was not large enough to trigger the debt service suspension under a natural disaster clause enshrined in Barbados’ restructured bonds.

### Green finance and private renewable projects
- Barbados entered the green bond market as the first Caribbean country issuer.
- In June 2019, Williams Renewable Energy Limited (WRELs), a private solar energy company, deployed 12 MW of PV solar funded by a US$20 million green energy bond program.
- Barbados is one of the eleven countries that have ever issued a green bond in the Latin America and Caribbean region.
- WRELs bonds received the first Certification from Climate Bonds Standard in the Caribbean region, certifying consistency with addressing the 2 degrees Celsius warming limit in the Paris Agreement.
- WRELs issuance details: WRELs is a special purpose company organized under Barbadian laws created to issue green bonds. The proceeds are used to acquire PV solar equipment and complete installations in Barbados and neighboring islands. A total of BDS$34 million has been raised so far (June 2019 and February 2020) with the rest expected to be raised later in 2021 to fund the rest 8.7 MW of PV solar.
- Key parties in the bond issuance: the IDB as bond guarantor, Royal Fidelity as trustee and fund-raising partner, and CIBC as banker.
- Policy observation: The proactive use of green financing could alleviate fiscal pressures and support Barbados’ 2030 agenda on sustainable development goals, reduce fossil fuel dependency, reduce its carbon footprint, and mobilize private sector financing to support a green recovery.

### Climate change risks to financial stability
- Financial institutions in Barbados are exposed to climate change through three channels:
  - (i) Physical risks from asset exposure to weather-related disasters and climate change sensitive sectors. Financial institutions in Barbados are significantly exposed to the tourism sector, which is integral to the economy and sensitive to climate change. Higher temperatures increase the likelihood of more frequent and intense natural disasters.
  - (ii) Transition risks from decarbonization leading to capital reallocations from “dirty” sectors to “cleaner” ones, potentially causing companies in “dirty” sectors to struggle to service debt obligations and default, worsening financial institutions’ asset positions (non-performing loan claims, and declining values in equity shares in these companies).
  - (iii) Asset price volatility resulting from conflicts and migrations that climate change triggered (World Bank 2021).
- Institutional capacity and current practice:
  - The Financial Services Commission is conducting stress-testing exercises for insurance corporations to climate change effects.
  - The CBB currently does not include climate change risks in their financial stability assessments.
  - To develop capacity to monitor climate change risks in line with best practices, the CBB is considering becoming a member of the Network for Greening the Financial System.
- Recommendation: Building capacity to understand and monitor climate change risks to the financial system is essential to enhance financial sector resilience and safeguard financial stability.

### Post-disaster resilience, response, and social protection
- Barbados’ response and recovery frameworks and social safety net are relatively well developed and allow for a quick response to humanitarian needs after a natural disaster, subject to available fiscal space.
- Recent events (Hurricane Elsa, volcanic ashes, and COVID-19) have demonstrated relatively efficient institutions to assess damage, respond to disasters, and develop reconstruction plans.
- Constraint: Severely limited fiscal space constrains an increase in coverage of Barbados’ social safety net in cases of sudden climate-change-related shocks.
- Strong procurement practices are key to effective natural disaster response:
  - Without adequate procurement systems, donors may be hesitant to support Barbados, and government expenditure can become inefficient in addressing disaster impacts.
  - Current efforts include revision of the public procurement law to strengthen procurement processes.
  - Integrating procurement improvements into green PFM practices would support mainstreaming climate priorities across the budget cycle and enhance climate-friendly government expenditure.

### Capacity development strategy and IMF engagement (Annex IV highlights)
- Barbados’ CD efforts are aligned with the reform agenda under the Fund-supported program. CD priorities are diversified: developing institutional and analytical capacity; strengthening governance framework, notably in AML/CFT; supporting implementation of Barbados’ fiscal rules; strengthening the central bank’s market operations framework and financial sector supervision and regulation.
- Context:
  - A four-year Extended Fund Facility (EFF) program was approved by the Executive Board on October 1, 2018.
  - Building on completion of the 2018-22 EFF, the authorities have requested a successor EFF program along with a Resilience and Sustainability Facility (RSF).
- Collaboration:
  - IMF technical assistance covered fiscal issues, tax and customs reform, PFM legislation, fiscal rule frameworks, enhancing SOE performance and oversight, restructuring of the Ministry of Finance, and pension reform.
  - LEG and MCM provided advice on Central Bank Law Reform, Debt Management, Modernization of the National Payment System.
  - STA (with CARTAC assistance) has an ongoing TA portfolio to strengthen capacity in national accounts and price statistics.
  - Collaboration with multilateral and bilateral donors remains strong, notably with the World Bank on climate change adaptation and business climate; the IDB on Debt Swap Initiatives and blue bond issuance, climate change adaptation, and road infrastructure PPPs; and the OECD on strengthening AML/CFT framework.
- CD priorities and planned support:
  - Maintain fiscal discipline, enhance fiscal transparency, and strengthen fiscal institutions to achieve debt targets.
  - Macro-fiscal framework support (FAD): develop a macro-fiscal framework including a risk assessment of macroeconomic shocks (the lingering pandemic, Russia’s war in Ukraine, climate challenges and rising global commodity prices) and prepare a fiscal risk statement from the forthcoming CD mission on reassessment of fiscal risks alongside the annual fiscal framework (scheduled for early 2023).
  - Reorganization of the Ministry of Finance and Economic Affairs Investment (CARTAC): follow-up mission related to prior TA recommendations.
  - Maintain a stable financial sector with improved risk-based supervision including financial stress testing for climate-related risks.
  - Strengthen monetary policy operations, improve national accounts and macroeconomic statistics, and increase the effectiveness of the AML/CFT regime following Barbados’ placement on the list of countries under increased monitoring by FATF in February 2020.
- Operational approach:
  - CD delivery will be closely integrated with program priorities, surveillance, and coordination with CD providers (including CARTAC). The IMF’s resident representative office will remain a key channel for CD engagement.

*Source: 1brbea2022002 - Chapter content from the IMF document provided*

### 2021. The focus will be on the restructuring of the treasury function to improve guidance

### 1brbea2022002 - 2021. The focus will be on the restructuring of the treasury function to improve guidance

### Treasury and Public Financial Management (PFM) reforms
- Restructure the treasury function to improve guidance on internal/external audit functions, procurement, and accounting systems with the objective of establishing a cash management unit in government.
- Cash management and treasury-specific support:
  - Detailed TA (guidance and support) provided to Cash Management/Cashflow/Treasury Function — results Partially achieved; further work required to implement detailed recommendations.
  - Missions and reviews to include establishing the Cash Management Unit (FY23); Review of Cashflow Model and Training (FY23; missions Oct-20, May-22).
  - Review of the Organizational Capability and Capacity of MFEI (FY22; Sep-21).
- Budget, asset/liability and audit reforms:
  - Comprehensive, credible, and policy-based budget preparation (BPR) — Partially achieved; further TA planned to review current practices and give advice on best practice.
  - Improved asset and liability management (ALM) — Partially achieved; outstanding Financial Statements from SOEs remain unsigned or unproduced.
  - Internal audit (IA) functions moving towards a central IA unit; a paper with Cabinet for approval. IA functions are established, moving towards central IA unit; Partially achieved.
  - Support provided to the New Public Finance Management Act, implemented in 2019; further revision required.
- Public investment management:
  - Consideration for PIMA / C-PIMA to support efforts; work planned for FY24 on PPP support.
  - C-PIMA reviews five institutions of public investment management: (i) planning; (ii) coordination between entities; (iii) procurement; (iv) budgeting and portfolio management; and (v) risk management.

### Revenue administration, customs, and taxation reforms
- Revenue Administration:
  - FAD: Review of tax collection structure and development of a strategy on tax and non-tax revenue collection, focusing on compliance risk management approaches and optimizing revenue collection via the transition to the national payments system, which will be ready by early 2023.
- Customs reforms:
  - FAD: Review of tax incentives regime and in-depth assessment to verify whether expected economic outcomes of tax exemptions have been materialized; determine if regime should be modernized in accordance with current government priorities.
  - Capacity-building actions delivered/delivered/planned:
    - Valuation workshop delivered by FAD to Post-Clearance Audit team members and the Compliance Deputy Comptroller in June 2022.
    - Two-week CARTAC TA mission by a valuation expert planned in October 2022.
    - Resource Allocation Plan 2022/23 includes one HQ mission for tax and one mission for customs; RAP also includes three Short Term Expert activities for tax and two for customs, besides a valuation mission delivered by CARTAC in late October 2022.
  - Other priorities: build customs regulations, enhance post-clearance audits, and strengthen valuation capacity.
- Taxation Framework:
  - FAD: Assessment of the impact of the international global tax agreement on firms located in Barbados.
  - Review Bartbadian tax incentives and structure to remove costliest and least effective ones; particular focus on reformed property and construction tax framework aligned with previous TA recommendations.

### Green public financial management and climate-aware investment
- Green PFM (FAD): Identify potential improvements in public investment institutions and processes to build low-carbon and climate-resilient infrastructure critical for an inclusive, sustainable, and green recovery.
- IMF’s climate-public investment management assessment (C-PIMA) framework applied to public investment institutions and processes (five elements listed above).

### Data, statistics, and macroeconomic simulation capacity
- Close statistical gaps and strengthen macroeconomic simulations for informed decision-making; data provision broadly adequate but shortcomings exist in GDP at constant and current prices, consumer prices, financial reporting by public enterprises, labor force statistics, and external sector data (net foreign assets) including IIP.
- Real sector statistics:
  - STA and CARTAC: CD to be provided to the BSS to support improved estimates of expenditure-based GDP and a Tourism and Culture Satellite Account.
- Macroeconomic Simulation Tool:
  - CARTAC: developing an Excel-based framework to allow the CBB to conduct macroeconomic simulations (macroeconomic and policy risk scenarios) to strengthen policy analysis and generate medium-term macroeconomic projections once completed.

### Central bank operations, monetary toolkit, and financial sector oversight
- Upgrade the CBB’s open market operations framework and improve financial sector oversight to strengthen the space for monetary policy tightening under the fixed exchange regime amid inflationary pressure and structural excess liquidity.
- Central bank monetary policy toolkit (MCM):
  - A two-day meeting organized with the CBB to discuss experiences in modernizing operational frameworks and structural sterilization tools; customized TA to follow to upgrade the monetary policy toolkit and review the CBB’s balance sheet capacity.
- Banking and non-bank supervision (MCM/CARTAC):
  - Ongoing CD to strengthen supervision and regulation, enhance liquidity risk management, assess IFRS models and ICAAP documentation.
  - Dialogue and support on climate change issues, FinTech regulation, and cybersecurity. CARTAC delivered a regional cybersecurity workshop in 2021; guidance provided on draft guidelines for cyber-risk supervision.
  - CARTAC CD assists supervision of credit unions, insurance firms, and securities market; insurance and securities legislation require updating; priority to strengthen consolidated supervision of insurance groups.
  - CARTAC recommendations to enhance the Financial Services Commission’s organization and governance.
- Systemic risk and macroprudential capacity:
  - FSU establishment for financial risk, implementation of systemic risk monitoring framework, effective stress testing models, staff capacity to produce the first Financial Stability Report (FSR), and improved data quality for financial stability analysis.

### AML/CFT and financial integrity
- Barbados placed on FATF’s Increased Monitoring listing in February 2020.
- Progress noted: passage of revised Proceeds of Crime Act and Terrorism Prevention Act addressing some technical compliance issues.
- Remaining deficiencies and priorities:
  - Risk-based supervision of designated non-financial businesses and professions.
  - Establish effective mechanisms to ensure accurate and up-to-date beneficial ownership information with appropriate sanctions and timely access for competent authorities.
  - Enhance Financial Intelligence Unit engagement with law enforcement to increase use of financial intelligence.
  - Intensify confiscation efforts and accelerate reduction of the backlog of money laundering cases.
- LEG: Financial Integrity (AML/CFT) CD assisting CFATF region with training and mutual evaluations.

### Capacity Development integration matrix — key achieved outcomes and future CD focuses
- Revenue and customs:
  - Achieved: Trusted Trader Program established; 2020-2024 Strategic Plan, compliance units and programs created; improvements in customs clearance, airport baggage processes, and voluntary compliance; strengthened core tax administration functions.
  - Future CD: Continued strengthening of audit, verification programs, compliance risk management, and HQ functions (data analytics, performance management).
- PFM outcomes:
  - Partially achieved improvements in budget forecast explanation, cash management, ALM, and IA establishment; continued work planned (including PIMA/C-PIMA, PPP support FY24).
  - New Public Finance Management Act implemented in 2019; further revision required.
- Debt management:
  - MCM: Ministry of Finance improving MTDS formulation and implementation capacity; quantitative and qualitative analysis used to inform debt strategy.
- Financial supervision:
  - MCM: Ongoing work to align banking legislation with Basel II/III, strengthen capital and liquidity positions, implement risk-based supervision (RBS), fintech and cybersecurity supervision, and develop non-bank supervision frameworks.
- Real sector and statistical improvements:
  - STA/CARTAC: Completed benchmarking of national accounts to a more recent base year; ongoing efforts to compile/disseminate higher-frequency data, strengthen metadata, and increase staff capacity in national accounts, CPI, BOP/IIP, and FSI compilation.

### IMF Capacity Development missions since 2018 — highlights
- Customs and tax: Multiple CARTAC and FAD missions spanning 2018–2023 focused on customs risk management, valuation, post-clearance audit, Trusted Trader Program, exemption control, cargo clearance, and mapping core processes.
- Treasury and PFM: CARTAC missions on Treasury Function Reform, Cashflow Model review and training (Oct-20, May-22), establishing Cash Management Unit (May-22), IA follow-up (Jan-23), and other PFM workshops (PFM regional conferences FY22–FY24).
- Central bank and financial stability: MCM missions on systemic liquidity management and ELA (Feb-23), central bank capitalization and capital adequacy (Mar-20, Sep-20, Nov-20), financial stability and macro stress testing (various dates).
- Statistics and macro modeling: CARTAC/STA TA on GDP rebasing and improvement (Jan-22, Mar-22, Mar-23), CPI updating (Apr-22), BOP/IIP timeliness (Sep-21), FSI compilation (Sep-21), and building capacity in macro modeling and medium-term frameworks (2021–2022).

*Source: 1brbea2022002 - 2021. The focus will be on the restructuring of the treasury function to improve guidance*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Programme request and context
- Government requests a 36-month successor Extended Fund Facility (EFF) arrangement in an amount equivalent to SDR 85.05 million (around US$110 million), or 90 percent of Barbados’ IMF quota.
- Government requests a supplementary arrangement under the Resilience and Sustainability Facility (RSF) in the amount of SDR 141.75 million (around US$180 million) or 150 percent of quota.
- Rationale: an EFF is appropriate given the still ambitious medium-term structural reform agenda (including measures delayed by the pandemic); RSF use is justified by significant climate crisis challenges to Barbados and the Government’s ambitious reform plan to confront these challenges.
- Government will publish this letter on the websites of the Government Information Service and the Central Bank of Barbados and authorizes the Fund to publish this letter, its attachments, and the Staff Report.

### Programme objectives and economic strategy
- Central objective: preserve macroeconomic gains and advance reforms under a revamped 2022 BERT framework to achieve sustainable and inclusive growth while maintaining fiscal and debt sustainability and building climate resilience.
- Central elements of BERT 2022:
  - Fiscal strategy: ensure Government balances and finances are consistent with the debt anchor by streamlining expenditure and reforming the public sector, particularly State-Owned Enterprises (SOEs).
  - Debt management strategy: actively manage the debt portfolio to minimize costs.
  - Growth strategy: enhance the business environment, enable private-sector led growth, improve labour market flexibility, and build resilience through climate adaptation and mitigation spending.
- Expected outcome: steadfast implementation will help mobilize external financing and facilitate restoration of access to international capital markets.

### Medium-term macroeconomic framework
- Debt anchor: debt-to-GDP path that converges to 60 percent by FY2035/36.
- Primary balance targets:
  - FY2021/22: minus 1 percent of GDP.
  - FY2022/23: primary surplus of 2 percent of GDP.
  - FY2025/26: primary surplus of 5 percent of GDP.
- Cumulative fiscal adjustment under the joint-EFF/RSF program: 6 percent of GDP.
- Assumptions: recovery in tourism to pre-pandemic norms, normalization of global economic outlook, phasing out of COVID-related expenditures and temporary VAT and price caps.

### Fiscal strategy and policy priorities
- Two-pronged fiscal strategy:
  1. Strengthen customs and tax administration.
  2. Streamline and enhance expenditure efficiency (including SOE performance to reduce Central Government subventions and curtail current expenditure growth to free space for productive capital investments).
- Policy areas highlighted:
  - Strengthen tax administration and compliance.
  - Reform tax and duty exemption regime.
  - Bolster public financial management (PFM), including reforms to address contingent liabilities in public pension and social security systems.
  - Enhance enabling environment for growth and climate resilience.

### Revenue policy and administration — key findings and actions
- Barbados Revenue Authority (BRA) modernization:
  - BRA initiatives: Large Taxpayer Unit compliance improvement plan, scaling up audit activity, increased capacity for electronic filing and digital payments, greater use of third-party data.
  - Structural benchmark: data matching project with BRA and BCED targeted for end-March 2023.
- Legacy and current arrears:
  - Stock of Central Government (CG) arrears fell from B$1.2 billion to B$23 million at end-March 2022.
  - Stock of SOE arrears declined from B$755 million to B$16 million.
  - BRA verification: total tax refund arrears (inclusive of legacy arrears) estimated at B$296.9 million at end-April 2022.
  - BRA indicates taxpayer arrears owed to Government are estimated at more than 10 percent of GDP; vetting process targeted for completion by March 2023.
  - BRA implements repayment of non-legacy refunds within six months after the filing date.
- Commission and program to retire legacy claims are established; arrears related to land acquisitions to be dealt with via series J Bonds as agreements are reached.

### Customs modernization — reforms and near-term priorities
- Reforms implemented and improvements:
  - Organizational overhaul, Strategic Plan 2020-2023, strengthened Internal Audit Division, implementation of KPIs, upgrade to ASYCUDA World IT system, passage of a modernized Customs Act, implementation of Harmonized Commodity Description and Coding System (2017 Edition).
  - Introduced holistic risk management, standardized cargo processing, post-clearance audits, compliance units, and a Steering Committee to oversee the 2020-2023 Strategic Plan.
  - Introduction of Taxpayer Identification Numbers commenced in collaboration with BRA; movement toward paperless electronic forms.
  - Trusted Trader Program introduced in 2020 involving 23 large importers.
- Key near- and medium-term priorities (customs):
  - Undertake new initiatives to follow through on principles and services enunciated in the new Customs Act and Regulations by end-June 2023 (including implementation of the Exemption Management Program, outreach and educational products, governance and internal control improvements).
  - Pursue the Customs and Excise Department reform and modernization program by implementing the strategic plan, compliance framework, integrated risk management strategy, and an enforcement manual.

### Tax and customs exemption regime — reform steps and timelines
- Problem: current stock of approved waivers exceeds 6,000, causing significant foregone revenues and potential misallocation.
- Two-phase reform approach:
  1. Phase 1: adopt new legislative and regulatory provisions to strengthen and modernize procedures for granting and managing all duty and tax exemptions (structural benchmark for end-December 2022).
  2. Phase 2: undertake recertification of all pre-existing/legacy tax and customs waivers to ensure qualification under the enhanced waiver framework (structural benchmark for end-March 2024).
- Features of the modernized waiver framework: centralized, transparent, rules-based approvals, conditionality via rigorous cost-benefit analyses, monitoring, and sunset provisions or regular re-certifications.

*Source: Appendix I. Letter of Intent; Attachment I. Supplementary Memorandum of Economic and Financial Policies (excerpt).*

### 13.      Prudent and efficient management of public finances remains a centerpiece of

### 13.      Prudent and efficient management of public finances remains a centerpiece of

### Public Financial Management (PFM) reforms and budget process
- Introduction of a modernized Public Financial Management and Audit (FMA) Act in 2019 strengthened oversight and reporting, notably for SOEs: Government pre-approval for borrowing is required and reporting requirements tightened, with sanctions for non-compliance.
- GOB adopted an action plan for PFM reform to implement the new FMA Act.
- Steps to strengthen the strategic phase of budget formulation:
  - Annual updates 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 Government priorities (see procedural fiscal rule).
  - Setting of multi-year expenditure ceilings in accordance with the updated fiscal strategy.
  - Provision of clear instructions by Cabinet for budget submissions, including binding spending ceilings.
  - Ensure the budget calendar is aligned to the requirements of the new FMA Act, and the budget circular is issued soon after the fiscal framework has been tabled in Parliament.
- Critical legislative and regulatory reforms proposed include requiring:
  - i) the tabling of tax expenditures to Parliament in the Annual Budget;
  - ii) the annual tabling of Public Accounts showing exemptions granted by entity over a de minimis threshold;
  - iii) that all exemptions granted are “in the public interest”;
  - iv) that exemptions require approval of the Minister of Finance and/or an independent deliberating committee for classes of cases, and for individual decisions above a sensible threshold;
  - v) that entitlement of exemptions be sunset (deadline to be specified by regulations or MFEA policy);
  - vi) that any exemption ceases if the recipient does not follow the laws of Barbados.
- Budget documentation upgrades:
  - Mid-year budget review report tabled in Parliament by October 15th every year.
  - From the FY2023/24 budget onwards, the Annual Budget Document will include an assessment of alignment between the budget and fiscal objectives and a comprehensive description of all revenue and expenditure measures taken.

### Fiscal risk management and SOE oversight
- Compliance with the FMA Act requires establishing reporting and analytical frameworks; Ministries, SOEs and Agencies to produce annual and quarterly reports.
- A health dashboard analyzing financial performance of SOEs monitored by MFEAI has been developed to assess risks and target reforms.
- Planned institutional measures:
  - Create a dedicated Fiscal Risk Unit within the MFEA (structural benchmark for end-June 2023) to prepare quarterly fiscal risk reports and help contain macroeconomic risks (including contingent liabilities).
  - NIS to clear backlog of financial statements and submit all outstanding financial statements (2010 to 2021) for audit by the Auditor General (structural benchmark for end-March 2024).
- Procurement and governance reforms:
  - New procurement law approved December 2021 to promote integrity, fairness, transparency, and value for money.
  - GOB intends to approve Procurement Regulations to enhance efficiency and effectiveness of public expenditure and support ‘green procurement’ (reform measure for end-March 2023). Regulations will include requirements to publish beneficial ownership information of bidding companies to support FATF action plan.
  - Reintroduce a revised Integrity in Public Life Bill; prior legislation laid in Parliament in September 2021 included a revised Prevention of Corruption Act (passed both Houses in October 2021), a Deferred Prosecutions Act (passed both Houses in December 2021), and a Whistle-blower Protection bill (Cabinet approved October 2021; passed Parliament December 2021).
- Cash management:
  - Establish a cash management unit within the Treasury by end March 2024 (structural benchmark) to manage the Consolidated Account, Government bank accounts, monthly cash plan, bank reconciliations, and monitor MDAs’ and SOEs’ cash plans.

### Fiscal Rule
- A procedural fiscal rule was approved by Parliament in December 2021, aligned with IMF TA recommendations. Under the rule the Government commits to:
  - i) annually prepare a monitorable fiscal strategy/framework over the medium term;
  - ii) regularly publish outcomes against this strategy;
  - iii) take remedial action when required.
- Minister of Finance commitments:
  - i) table in Parliament a fiscal framework annually in August including projections for revenue, expenditure, and debt for the current and forthcoming three fiscal years;
  - ii) present an annual mid-year review report in October detailing half-year outturns;
  - iii) take remedial action when required.
- Deliberations over a numerical fiscal rule will resume once pandemic uncertainties resolve and PFM systems strengthen.
- An Independent Fiscal Council will be established by Parliament to strengthen the fiscal framework and promote sound fiscal management.

### Debt management
- Target: bring debt-to-GDP ratio below 60 percent by FY2035/36.
- Commitment to generate needed primary surpluses to achieve the 60 percent of GDP debt target.
- Post-2019 sovereign debt restructuring outcome:
  - Government debt service reduced from 68 percent of every tax dollar to 22 percent just prior to the onset of the COVID pandemic.
- Institutional measures:
  - Established a Debt Management Committee.
  - Develop and implement a medium-term debt management strategy (MTDS) by March 2023, with objective to meet financing needs at the lowest possible cost over the medium- to long-term consistent with a prudent degree of risk.
  - Publish medium-term debt strategy and borrowing plan with the annual Financial Statement and Budgetary Proposals.
  - Review debt management practices and debt legislation with a view to pursuing a comprehensive debt law.

### Expenditure arrears and SOE borrowing
- Domestic public sector arrears:
  - Total Public Sector domestic arrears stood at B$1.9 billion at the beginning of the 2018 BERT program.
  - Stock reduced to approximately B$340 million as at August 2022, inclusive of recently discovered B$296.9 million legacy arrears.
  - Central Government trade payables (non-tax arrears) largely settled, with a residual amount of B$0.18 million to be cleared.
- New measures:
  - System developed for ongoing monitoring of SOE arrears.
  - Legislation introduced so 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 commercial and dependent on Central Government for financial operations, or if borrowing purpose is not commercial.

### Public sector reform: pensions, NIS, and SOEs
- Public Pension Reform:
  - Civil service pension reform informed by a 2020 actuarial review—pillars include a lengthening of service for new public servants and required contributions for earnings above established NIS ceilings.
  - Public consultation ongoing; aim to enact public sector pension reform legislation by end of FY2022/23 (structural benchmark for end-March 2023).
- NIS recapitalization and reform:
  - NIS is partially funded and experienced deteriorations due to demographic and economic shocks and concentration in Government bonds.
  - Initial focus: restore the Unemployment Benefit Account via infusion of B$143 million from the Consolidated Fund over a three to five-year period (B$60 million disbursed to date).
  - Develop a recapitalization and reform plan to restore and safeguard the National Insurance Fund (structural benchmark by end-December 2022).
- SOE reform agenda:
  - Subventions to public entities are relatively high at 6 percent of GDP.
  - Many SOEs are loss-making; reforms aim to reduce Government subventions and redirect resources to productive investments.
  - Immediate measures:
    - Unwind temporary COVID-related support by FY2023/24, including cessation of temporary support programs.
    - Mergers and rationalizations announced in FY2022/23 Budget: merge Rural and Urban Development Commissions (RDC and UDC) and reform National Housing Corporation (NHC); scale back subsidies and services to the Barbados Agriculture Management Corporation (BAMC) and create strategic alliances with private sector (both structural benchmarks for end-June 2023).
    - Transfer BAMC factory operations to private sector to reduce subsidy needs and enable specialty sugar production.
  - Risk assessments and targeted reforms:
    - Comprehensive stocktaking of financial performance of the SOE sector to be prepared (structural benchmark for end-June 2023).
  - Modernization principles guiding SOE reform:
    - i) shift commercial activities to the private sector;
    - ii) ensure adequate and modern user fee structures;
    - iii) provide enfranchisement opportunities in delivery of public services;
    - iv) eliminate inefficiencies through mergers and rationalizations.

### Monetary and financial sector policies
- Maintain exchange rate peg to the US dollar as central policy objective; commitment across Social Partners to maintain the peg.
- Amended Central Bank Law (passed December 2020) enhances CBB autonomy, mandate, and decision-making structures and limits CBB financing to Government:
  - Reduced limit on the Ways and Means account to 7.5 percent of CG revenues (from 10 percent at end-2017).
  - Restricted purchases of Government securities to 3 percent of GDP on the primary market in case of a declared national emergency.
- Exchange control liberalization measures (gradual and targeted):
  - Effective August 1st, 2019: allowed all Barbadians to open foreign currency denominated accounts.
  - Allowed foreign currency proceeds from sale of assets to be repatriated in foreign currency or kept locally in foreign currency accounts.
  - Eliminated the surrender requirement of 70 percent of foreign exchange brought into Barbados effective August 1st, 2019.
  - Increased select foreign exchange limits such as personal travel facilities and delegated authority to foreign exchange dealers.
- CBB recapitalization plan:
  - Gradual recapitalization preferred to balance fiscal space and eliminate capital deficiency.
  - Recapitalization intended to provide balance sheet space for operations to sterilize excess liquidity and mitigate vulnerabilities to the fixed exchange rate regime.

*1brbea2022002 - 13.      Prudent and efficient management of public finances remains a centerpiece of*

### 20.      The CBB acknowledges the need for the IMF to update its safeguards assessment as

### 20.      The CBB acknowledges the need for the IMF to update its safeguards assessment as

### Safeguards assessment and institutional commitments
- The IMF safeguards assessment is a diagnostic review of the CBB’s governance and control framework and is a standard IMF procedure for all countries using the Fund’s resources.
- A safeguards assessment of the Central Bank was completed in December 2018.
- The authorities remain committed to implement all recommendations from the previous and upcoming safeguards exercise.
- An update of the safeguards assessment of the Central Bank of Barbados will be completed by the time of the first EFF/RSF review.
- The Ministry of Finance and CBB will prepare and sign an updated Memorandum of Understanding that clarifies their respective responsibilities for servicing financial obligations to the Fund under the new arrangement.

### Financial sector monitoring and oversight
- The amended Central Bank Law establishes the promotion of financial stability as a secondary objective for the CBB and attributes formal macroprudential powers to the CBB.
- Oversight of the financial system is shared by the CBB, the Financial Services Commission (FSC), and the Barbados Deposit Insurance Corporation; these authorities participate in the Financial Oversight Management Committee (FOMC).
- The FOMC manages production of the annual Financial Stability Report and collaborates in monitoring the financial system.
- The effective banking regulatory framework in Barbados is Basel II; banks follow standardized approaches for calculating risk-weighted assets and prepare financial statements according to IFRS 9.
- The CBB designs reporting forms and schedules for banks and Part III companies (trust and finance companies and merchant banks).
- Monitoring of insurance corporations, pension funds, mutual funds, and credit unions falls under the FSC, which is revising reporting forms and increasing reporting frequency.
- The CBB and FSC release a Financial Stability Report and health check reports for sub-sectors of the financial system annually.
- The CBB compiled and disseminated quarterly core financial stability indicators (FSIs) for deposit takers (excluding credit unions) in line with IMF TA guidance provided in 2019.
- On balance, Barbados’ financial system remains well capitalized; stress tests by the CBB and FSC indicate a low risk of a systemic crisis.
- Commercial banks have a system-wide capital adequacy ratio that is more than twice the regulatory minimum.

### Monetary policy toolkit and balance sheet capacity
- The Central Bank of Barbados Act establishes the primary objective of the Bank as maintaining the value of the currency.
- Historically, monetary policy was largely based on direct controls, including securities reserve requirements on financial institutions; the securities reserve requirement was discontinued under the new Central Bank of Barbados Act adopted in December 2020.
- The CBB will review its balance sheet capacity and monetary toolkit, with the support of IMF TA by end December 2023 (structural Benchmark).
- The CBB has the power to implement macroprudential measures and uses prudential tools to assess, contain and mitigate systemic risk.
- Barbados’ current toolkit consists of some lagged and basic early warning indicators; as the financial system evolves in size and complexity, the CBB may need to identify new measures based on the characteristics of Barbados’ financial system.

### COVID-19 credit support measures and unwinding priorities
- In March 2020, key measures included:
  - 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.
- Six-month moratoriums on loan repayment introduced by commercial banks have expired; extensions and/or restructurings were granted while respecting regulatory standards on loan classification and provisioning.
- The CBB maintained its credit support measures and extended its temporary regulatory guidance on loan classification through October 2022.
- The regulatory guidance includes allowing banks not to classify moratoria loans as nonperforming (currently less than 0.1 percent of the outstanding bank credit to the nonfinancial private sector), provided loans were previously in good standing and borrowers were impacted by the pandemic.
- Going forward, priorities include unwinding support measures after a careful evaluation of economic and financial developments.

### AML/CFT commitments
- The authorities commit to continuing efforts to strengthen the AML/CFT framework in keeping with their action plan agreed with the FATF to promptly exit the FATF’s International Review Group process.
- As part of this agenda, the GOB intends to adopt regulations requiring the publication of beneficial ownership information of bidding companies (reform measure for end-March 2023).

### Growth-enhancing reforms (BERT 2022 growth strategy)
- Objective: lift productive potential to between 3.0 to 5.0 percent per annum.
- Reforms will focus on regulatory and legislative improvements, climate resilience and empowerment, and resource capacity for sector development.
- BERT growth strategy pillars:
  - incentivizing an acceleration of small-scale private sector investment in the green transition;
  - incentivizing low- and middle-income housing;
  - investing in skills training and education to enhance human resource capacity;
  - preserving financial stability and mobilizing domestic savings for local investment;
  - making Government an enabler to enhance productivity, competitiveness, and service excellence for higher local and foreign direct investment;
  - establishing Barbados as a logistics hub by developing and strengthening regional and international economic linkages, particularly with the African continent;
  - targeted public investments for sectoral integration and climate resilient infrastructure;
  - promoting a new, high-skilled, knowledge-based economy that is tech-heavy, carbon neutral and marine-conscious;
  - adopting open labour market policies to support stronger, resilient growth, expand the population base, and improve productivity and competitiveness.

### Near-term reform priorities and structural benchmarks
- Completing the reform program to further enhance business and investment conditions is a top near-term priority.
- A Doing Business Sub-Committee of Cabinet and Private Sector Committee was established to execute and monitor policy measures; a stocktaking of execution overseen by that Committee will identify the unfinished reform agenda and elaborate a plan (structural benchmark for end-March 2023).
- Programmes and measures to be undertaken (near- and medium-term) include:
  - commitment to reaching the 100 percent renewable energy target by 2030; incentivize small-scale private sector investment in the green transition through temporary feed-in-tariffs and temporary tax reductions;
  - build 10,000 houses in five years under the HOPE housing project, with Government contribution financed through renewable energy technology enabling homeowners to generate income from roof-top solar systems;
  - investing in skills and education: National First Jobs Initiative and Apprenticeship Scheme; return to free tertiary education at vocational, technical, and undergraduate levels; reform the education system including introducing a new Education Act, replacing the 11-plus exam, and promoting STEAM subjects; prioritize the Youth Advance Corps programme and continue the National Transformation Initiative (community-based training);
  - improve public service delivery and effectiveness, complete rollout of digitization of Government services, develop a GovTech-type agency (structural benchmark for end-June 2023), establish an E-Services platform and develop a digital platform to improve monitoring and execution of the Public Sector Investment Programme (structural benchmark for end-June 2023);
  - enhance competitiveness via improved operations at Barbados Port Inc.; launch an electronic single window for trade expected to be fully operational by [end-2024];
  - establish a collateral registry, a factoring program, and micro-leasing agencies to enhance access to finance for small and medium enterprises; create a web-based collateral registry of movable assets; complement the Fair Credit Reporting (FCR) Act (proclaimed in May 2022), the recently launched Financial Literacy Bureau, the National Payments Systems Act, and the creation of a digital payments ecosystem;
  - establish Barbados as a southern hub for aviation commercial activity anchored by Grantley Adams International Airport; establish a new Maintenance and Repair Operation within the first quarter of 2023; expand flight training capability; construct a new cargo berth to serve as the maritime logistics hub; new sister Port Agreements signed with ports in Africa, Latin America, and the Middle East;
  - collaborate with Guyana and Suriname to establish a Food Terminal in Barbados to address food security and reduce the regional food import bill by 25 percent by 2025; initiative expected to commence by the winter cruise season;
  - reform civil aviation and maritime legislative frameworks to expand air routes, airlift (particularly from the US market), and maritime travel and cargo movement; encourage establishment of a regional ferry service;
  - build on the Barbados Employment and Sustainable Transformation (BEST) Plan to refurbish and modernize the tourism product, maintain competitiveness, promote training and upskilling, diversify product offerings including community villages, and invest in sewerage, sanitation and road repairs;
  - review and update the current Companies Act for consistency with international best practice; improve efficiency of the Corporate Affairs and Intellectual Property Office (CAIPO) through a digital strategy and ICT platforms; implement change management and continuous staff training.

### Sustainability and climate resilience
- Reform measures under the RSF are grouped into three pillars: i) addressing immediate adaptation needs and resiliency priorities; ii) reducing greenhouse gas emissions; iii) mitigating transition risks.
- Existing disaster and resilience arrangements:
  - Insurance through the Caribbean Catastrophe Risk Insurance Facility (CCRIF);
  - Natural disaster clauses in domestic and external bonds allowing capitalization of interest and deferral of scheduled amortization for two years following a major natural disaster;
  - Secured an IDB contingent credit facility allowing Barbados to borrow up to almost 2 percent of GDP (or US$80 million) in case of a natural disaster;
  - Structural and post-disaster resilience improvements (e.g., ‘roof to reef’ program and strengthened public procurement);
  - Incentives for individuals and corporates to invest in renewable energy, water conservation, and resilience measures.
- Planned measures:
  - Approve the National Comprehensive Disaster Risk Management (DRM) Policy to mainstream comprehensive DRM principles into ministry and agency budget planning and ensure resilience in Government and business continuity after a disaster event (reform measure for end-September 2023).

*IMF: 1brbea2022002 - 20. The CBB acknowledges the need for the IMF to update its safeguards assessment as*

### 30.      Higher fuel import bills and inflation following Russia’s  invasion of Ukraine highlight

### 30.      Higher fuel import bills and inflation following Russia’s  invasion of Ukraine highlight 

### Renewable energy transition: commitments, regulatory steps, and targets
- Barbados remains committed to reaching its 100 percent renewable energy target by 2030 (about 10 percent as of end-FY2021/22).
- Institutional and regulatory developments:
  - The independent Fair Trade Commission (FTC) has published Feed-in Tariffs (FITs) for independent power producers (IPPs) for a range of renewable energy technologies.
  - The Government of Barbados (GoB) established a licensing system for IPP renewable energy projects accompanied by a guidance note on the licensing and approval process for investors in March 2022.
  - Now that the licensing process is clarified, it is important for Barbados to expeditiously implement the process as envisaged and accelerate private sector investments into renewable energy projects.
- Government commitments and reform measures:
  - Government is committed to close remaining regulatory gaps in the FITs mechanism to promote renewable energy storage technologies and a corresponding licensing policy/approvals framework, thereby increasing investments into battery storage technologies to meet energy demand.
  - Parliament will adopt the New Electricity Supply Act to (i) enhance competition in the electricity market; and (ii) introduce local participation in renewable energy investment with an entitlement for households of roughly 30 percent of the 60 percent investment space, leaving the remainder for FDI (reform measure for end-September 2024).
  - Government committed to greening the transport sector by shifting toward electric vehicles and providing fiscal incentives to further reduce import duties, excise taxes and VAT on electric vehicles (reform benchmark for end-September 2023).
- Public transport electrification targets and status:
  - Barbados has the largest electric bus fleet in the region of 49 electric buses (65 percent of available bus fleet).
  - Plan to increase the share of electric vehicles in public transportation to about 85 percent by end-2025.
- Additional initiatives (footnote):
  - Collaboration with BL&P to develop a minimum of 30 megawatts (MW) of wind energy investment, allowing for Barbadians to participate in and to own a minimum of 30 percent share in the benefits of the 30MW wind project through newly established financial instruments.
  - Opportunity for Barbadians to participate in a 30 percent requirement for all major energy investment projects and reserve another 30 percent for SOEs.
  - Work with MDBs to develop competitive tendering processes for more extensive projects to expand supply into technologies with greater economies of scale, such as wind power.

### Building affordable, green, and climate-resilient housing
- Policy objective:
  - The Government’s housing agenda is to build 10,000 houses in five years, financed in part through renewable energy technology.
- Delivery models for housing provision:
  - Model 1: Government provides the land and large local contractors construct the houses and infrastructure.
  - Model 2: Government provides the infrastructure and small- and medium-sized local contractors construct the houses.
  - Model 3: First-time homeowners provided with affordable climate-resilient and energy-efficient housing solutions (examples referenced: HOPE and Guyanese Housing programmes).
- Energy and income-support feature:
  - Government intends to place solar PV panels on the roofs of small homes to facilitate a basic income for all owner-occupied houses.
- Social housing for lowest incomes:
  - For those who can’t participate in HOPE schemes because income levels are too low, the NHC is constructing new housing units for rent-to-own. Work already started in the city and another set scheduled for next year (individual units – duplex, quad, and multi-stories).

### Roof to Reef (R2R) initiative and island-wide resilience measures
- R2R overview:
  - The Roof to Reef (R2R) initiative is a national roadmap toward the resilient development of Barbados, an island-wide integrated public and private investment program founded on principles of sustainable development and climate crisis resilience.
- Key components and interventions:
  - Rapid roof replacement programme to support homeowners’ replacement of non-hurricane resistant roofs.
  - Replacement and maintenance of water mains, reservoirs and other climate-resilient water and sanitation sector infrastructure.
  - Enhanced efforts to protect the coral reefs and marine environment.
  - Conversion of all remaining outdoor toilets into indoor water efficient toilets to protect the water table.
  - Re-siting over ground utility infrastructure underground.
  - Develop a national storage capacity of generators, water, food, and medicine to last for seven days.
  - Upgrade hurricane shelters.
  - Improve the climate resilience of roads through improved drainage and other interventions (reform measure for end-March 2023).
- Supporting measures and reform benchmarks:
  - Tabling in Parliament the Water Re-use Bill, incorporating the new water re-use policy (reform measure for end-March 2023).
  - Full establishment and operationalization of the National Environmental and Conservation Trust (reform measure for end-March 2023).
  - Tabling an amended Prevention of Floods Act in Parliament, incorporating the new Stormwater Management Plan (reform measure for end-March 2024).
  - Cabinet approval for the Energy Efficiency and Conservation Policy Framework to reduce energy use of all government agencies and develop efficient public lighting (reform measure for end-March 2024).
- Footnote implementation detail:
  - The Barbados Water Authority (BWA) will utilise grant funding, provided by the Green Climate Fund, to provide 1,500 tanks as well as rainwater harvesting systems at homes, educational and health facilities, and community centres across the island.
  - Through the Strap-It programme, roofs will be retrofitted across vulnerable and susceptible communities to secure the housing stock against hurricanes.

### Green public financial management (PFM) and financial sector resilience
- Green PFM integration objectives:
  - Adopt green PFM practices to include climate priorities across the budget cycle: budget preparation, budget execution, fiscal reporting, oversight and auditing.
  - Enhanced green PFM requires risk assessments that quantify the macroeconomic and fiscal impact of climate crisis to help identify green PFM reform priorities to enhance structural, financial, and post-disaster resilience.
- Specific commitments and reform measures:
  - Include a fiscal risk statement focusing on climate crisis risks in forthcoming budgets beginning with FY2023/24 (reform measure for end-March 2023).
  - Include climate adaptation and mitigation priorities in the annual fiscal strategy report (released annually in August) that: i) identify programs to enhance climate resilience in the fiscal framework and ii) discuss climate crisis related risks in a fiscal risk statement. IMF TA will be required to support this work and ensure that outputs are in line with international best practice.
  - Complete a diagnostic evaluation—potentially through a Climate Public Investment Management Assessment (C-PIMA)—and undertake reforms to strengthen integration of climate concerns into the PFM process (reform measure for end-March 2025). This includes implementing green tagging processes in the budget, which identifies and tracks climate projects (or expenditure) in the budget.
- Financial sector stability and transition-risk management:
  - Build assessment capacity to gauge climate crisis risks to financial sector stability.
  - The Central Bank of Barbados (CBB) seeks to integrate climate crisis risks into its financial stability assessments—including stress testing based on potential scenarios.
  - The CBB intends to adopt a strategy with time-bound guideposts for building capacity to monitor and assess climate crisis risks, including building data collection mechanism and joining the Network for Greening the Financial System (reform measure for end-September 2024).
  - The Financial Services Commission (FSC) has developed climate stress tests for the local insurance industry.
  - The CBB intends to conduct a first climate crisis stress testing exercise for commercial banks with support from MDBs including through relevant Capacity Development by end-March 2025 (reform measure).

### Program monitoring, timelines, and review schedule
- Monitoring modalities:
  - Program implementation will be monitored through quantitative performance criteria and indicative targets, structural benchmarks and reform measures. These are detailed in Tables 1, 2 and 3, with definitions and data requirements provided in the attached TMU.
- EFF-RSF review schedule:
  - The joint EFF-RSF arrangement with the Fund will be subject to semi-annual reviews, with the first, second, and third reviews occurring on or after May 15, 2023, November 15, 2023, and May 15, 2024, respectively.
- Selected reform timing highlights (as recorded in Tables 1 and 2):
  - End-December 2022: Government to adopt new legislative and regulatory provisions to strengthen and modernize procedures for granting and managing all duty and tax exemptions.
  - End-March 2023: Undertake a data matching project with participation from the BRA and BCED to improve compliance and risk management.
  - End-March 2023: Government to table a revised public pension law to enhance sustainability of the public sector pension scheme.
  - End-June 2023: Government to set up a fiscal risk unit.
  - End-June 2023: Government to amalgamate the operations of the RDC and UDC and reform the NHC to reduce overlap and achieve greater financial and operating efficiencies.
  - End-December 2023: The CBB to review its balance sheet capacity and monetary toolkit, with the support of IMF technical assistance.
  - End-September 2023: Government to lower import taxes for electric vehicles; Government to close remaining regulatory gaps in licensing policy/approvals framework to increase investments into battery storage technologies to meet energy demand.
  - End-March 2024: Parliament to adopt the New Electricity Supply Act to (i) enhance competition in the electricity market and (ii) introduce local participation in renewable energy investment (listed elsewhere as end-September 2024 in the main text).
  - End-September 2024: The CBB to adopt a strategy with time-bound guideposts for building capacity to monitor and assess climate change risks, including building data collection mechanism and joining the Network for Greening the Financial System.
  - End-March 2025: The CBB to include climate change risk in their bank stress testing exercise with support from MDBs including through relevant Capacity Development; Government to implement reforms to strengthen integration of climate concerns into the PFM process, based on a comprehensive diagnostic evaluation.

*Source: MEFP and TMU content provided in the PDF chapter "1brbea2022002 - 30.      Higher fuel import bills and inflation following Russia’s  invasion of Ukraine highlight"*

### 2020. The term “debt” will be understood to mean a current; i.e., not contingent, liability, created

### 1brbea2022002 - 2020. The term “debt” will be understood to mean a current; i.e., not contingent, liability, created

### Definition of “debt” and related treatments
- Debt is a current (not contingent) liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, which requires the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) in time; these payments discharge principal and/or interest liabilities.
- Primary forms of debt:
  - loans: advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets equivalent to fully collateralized loans (such as repurchase agreements and official swap arrangements);
  - suppliers’ credits: contracts where the supplier permits the obligor to defer payments until sometime after delivery/provision;
  - leases: arrangements where property is provided for specified period(s) shorter than total expected service life; debt is the present value (at lease inception) of all lease payments expected during the agreement excluding payments that cover operation, repair, or maintenance.
- Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payments under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
- External CG debt: debt contracted or guaranteed by the CG in foreign currency.
- Domestic CG debt: debt contracted or guaranteed by the CG in Barbados dollars.
- A CG guarantee arises from any explicit legal or contractual obligation of the CG to service a debt owed by a third-party debtor (involving payments in cash or in kind).
- CG debt is considered contracted when authorized by Barbadian law or approved by Parliament and signed or accepted by the relevant authority.

### Public Institutions covered (Section I)
- Queen Elizabeth Hospital
- University of the West Indies
- Barbados Tourism Marketing Inc.
- Sanitation Service Authority
- Barbados Agricultural Management Corporation
- Barbados Community College
- National Conservation Commission
- Transport Board
- Child Care Board
- Barbados Water Authority
- National Assistance Board
- Barbados Investment and Development Corporation
- Invest Barbados
- National Housing Corporation
- Barbados Tourism Product Inc.
- Student Revolving Loan Fund
- Urban Development Commission
- Barbados Agricultural Development and Marketing Corporation
- Barbados Tourism Investment Inc.
- Rural Development Commission
- Caves of Barbados Limited
- Barbados Conferences Services
- Kensington Management Oval Inc.
- National Accreditation Board
- Southern Meats
- Caribbean Broadcasting Corporation

### I. Quantitative Performance Criteria
A. Floor on the CG Primary Balance
- CG primary balance = total revenues and grants minus primary expenditure; covers non-interest Government activities as specified in the budget; measured cumulative over the fiscal year and monitored above the line.
- Revenues recorded when funds are transferred to a Government revenue account; tax revenues net of tax refunds; tax refunds recorded when funds for repayment are transferred to the BRA from the Barbados Treasury Department. Revenues include grants. Capital revenues exclude revenues from non-financial asset sales from divestment operations.
- Central Government primary expenditure recorded on a cash basis and includes recurrent expenditures, capital spending, and transfers to SOEs.
- All primary expenditures directly settled with bonds or any other form of non-cash liability treated as one-off adjustments, recorded as spending above-the-line, financed with debt issuance, and will affect the primary balance.
- Adjustor: primary balance target adjusted upward (downward) by the surplus (shortfall) in disbursements of grants relative to baseline projection.
- Monitoring frequency: data provided monthly with a lag of no more than four weeks from end-of-period (Section C, Table 2).

B. Ceiling on Stock of Net Domestic Assets (NDA) of the Central Bank of Barbados (CBB)
- NDA defined as difference between the monetary base and the sum of the NIR (excluding EFF/RSF disbursements used for budget support) and commercial banks’ and Part III companies’ foreign currency deposits at the CBB.
- Monetary base includes currency in hands of the non-bank public plus vault cash, statutory cash reserve requirements, and the current account of commercial banks and non-bank financial institutions (Part III companies) comprising credit balances held at the Central Bank.
- Monitoring frequency: data reported monthly with a lag of no more than two weeks from end-of-period (Section B, Table 2).

C. Floor on Net International Reserves (NIR)
- NIR defined as difference between reserve assets and reserve liabilities with maturity of less than one year.
- Reserve assets: readily available claims on nonresidents denominated in foreign convertible currencies; include CBB holdings of 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 pledged, collateralized, or otherwise encumbered; claims on residents; claims in foreign exchange arising from derivatives vis-a-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; illiquid assets.
- Reserve liabilities: (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 including EFF/RSF disbursements used for budget support.
- Adjustors:
  - NIR target adjusted upward (downward) by 75 percent of the amount of the surplus (shortfall) in program loan disbursements from multilateral institutions (Caribbean Development Bank (CDB), the Interamerican Development Bank (IDB), the Development Bank of Latin America (CAF), and the International Bank for Reconstruction and Development (IBRD)) relative to baseline projection.
  - NIR target adjusted upward (downward) by the surplus (shortfall) in disbursements of budget support grants relative to baseline projection.
- Monitoring frequency: data reported by the Central Bank on a daily basis, with a lag of no more than one week from end-of-period (Section A, Table 2).

D. Non-Accumulation of CG External Debt Arrears
- CG will not incur new arrears in payments of its external debt obligations at any time during the program.
- External arrears defined as delay in payment of contractual obligations beyond grace period set in loan/debt contracts.
- Exclusions: arrears from nonpayment of debt service for which a clearance framework agreed or for which Government or institution with Government guaranteed debt is pursuing debt restructuring.
- Performance criterion applied continuously.
- Monitoring: data on external arrears by creditors reported immediately.

E. 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 cumulative over the fiscal year and reported monthly with a lag of no more than four weeks from end-of-period (Section C, Table 2).

F. Ceiling on the Stock of Public Debt
- Public debt = domestic and external CG debt, SOEs debt guaranteed by the CG, and domestic CG expenditure arrears.
- Interest and penalties arrears from non-payment of debt service on external commercial debt subject to debt restructuring are excluded from public debt definition.
- For program purposes, stock of CG and CG guaranteed debt measured on disbursement basis excluding valuation effects. Program FX rates in Table 1 used to value debt in FX.
- Adjustors:
  - Ceiling adjusted upwards by full amount of surplus in disbursements from multilateral institutions (CDB, IDB, CAF, IBRD) relative to baseline projection.
  - Ceiling adjusted downward by amount of nominal debt forgiveness in case of debt restructuring.
- Monitoring: CG debt and CG guaranteed debt data by issuer, creditor, maturity, and currency reported quarterly with a lag of no more than four weeks from end-of-period (Section D, Table 2). Data on external and domestic arrears reported as set forth elsewhere in TMU.

### II. Indicative Targets
A. Ceiling on the Stock of Domestic CG Expenditure Arrears
- Stock defined as sum of:
  - any invoice received by a spending agency from a supplier for goods, services, and capital goods delivered and verified, unpaid within contractually agreed period (or, absent grace period, within 60 days after due date);
  - non-contributory pension transfers (by CG only), wages and pensions contributions to the NIS pending longer than 60 days;
  - rent and loan payments to the NIS pending longer than 60 days;
  - arrears on refunds of PIT, RTC, CIT, and VAT. Tax refund arrears defined as obligations on tax refunds remaining unpaid six months after filing date.
- Monitoring: data measured as stock observed at test date and reported monthly with a lag of no more than four weeks from end-of-period (Section C, Table 2).

B. Floor on CG Social Spending
- Indicative floor applies only to CG expenditures on specified plans and programs, excluding operating expenditure, intended to positively impact education, health, social protection, housing and community services and recreational activities:
  - 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: data measured cumulative over fiscal year and reported quarterly with a lag of no more than four weeks from end-of-period (Section D, Table 2).

C. Ceiling on the Stock of Public Institutions Expenditure Arrears
- Stock defined as sum of:
  - any invoice received by a spending agency from a supplier for goods, services, and capital goods delivered and verified, unpaid within contractually agreed period (or, absent grace period, within 60 days after due date);
  - wages and pensions contributions to the NIS pending longer than 60 days;
  - arrears on Tax obligations defined as obligations on taxes in accordance with tax legislation.
- List of public institutions covered: paragraph 3 list excluding University of West Indies (UWI).
- Monitoring: data measured as stock observed at test date and reported monthly with a lag of no more than four weeks from end-of-period (Section D, Table 2).

### III. Program Reporting Requirements and Data Reporting (Table 2 summary)
- Performance monitored from data supplied to IMF as outlined in Table 2. Authorities to transmit promptly any data revisions and other information necessary to monitor the EFF arrangement.
- Reporting frequencies and selected reported items (as specified, with maximum lags):
  - Daily (lag no more than one week): CBB NIR (as defined in section I), CBB GIR.
  - Monthly (lag no more than two weeks): CBB NDA; CBB survey detailed composition of NFA, NCCG, CODC, COSE, OIN, MB; CBB purchases and sales of foreign exchange; amounts in Government auctions and primary issues; statement of use and outstanding balance of CG deposit in the CBB.
  - Monthly (lag no more than four weeks): RPI index, components, weights; CG budgetary accounts; Net Domestic Financing and components; Net External Financing and components; Grants and transfers to public institutions listed in paragraph 3; Stock of CG external arrears (interest, principal, and penalty amounts separately) by creditor (reported immediately); Program loan disbursements from multilateral institutions (CDB, IDB, CAF, IBRD); Budget support grants; Liabilities of PPPs (if any); Stock of CG expenditure arrears by creditor and components; Stock of expenditure arrears of public institutions listed in paragraph 3 by creditor and components; BOP trade balance data; CBB’s Cashflow Table deriving GIR and NIR.
  - Monthly (lag no more than six weeks): ODC survey gross items for NFA, claims on the CBB, NCCG, COSE, OIN, BM; DC survey consolidation of CBB and ODC surveys.
  - Quarterly (lag no more than four weeks): Nominal and real GDP; tourism and other high frequency indicators; Social expenditure and components; 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 by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity); CG external debt stock by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity); CG domestic guaranteed debt stock by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity); CG external guaranteed debt stock by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity); SOE domestic non CG guaranteed debt stock by creditor/holder and by maturity (ST <= 1 year, and LT > 1 year maturity); SOE external non CG guaranteed debt stock 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 and renegotiated agreements; Stock of Tax Refunds and components; CBB Balance sheet; Balance of Payments accounts.
  - Quarterly (lag no more than six weeks): 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.
  - Annual (within 6 weeks): Nominal and real GDP and components from demand and supply side (MOF); Audited financial statements of Public Institutions listed in Paragraph 2 within 12 weeks; 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; Audited financial statements of Commercial Banks.

*International Monetary Fund — Barbados: TMU and program data reporting requirements (excerpts).*

### 1.      Barbados is highly vulnerable to climate change due to increased frequency

### 1.      Barbados is highly vulnerable to climate change due to increased frequency

### Climate vulnerability and projected physical changes
- Barbados is highly vulnerable to climate change due to increased frequency and intensity of climate-induced natural disasters.
- Located in the windward part of the Caribbean’s archipelago, Barbados’s climate is heavily influenced by the El Niño Southern Oscillation.
- Economy is especially vulnerable to the adverse effects of tropical cyclones, storm surge, and floods.
- Low-lying coastal areas face severe risk to sea level rise.
- Vulnerability is heightened by the housing stock and the increased probability of hurricanes making landfall.
- Temperature projections:
  - Median annual mean temperatures expected to rise by 1.03°C under a high emissions scenario (Shared Socioeconomic Pathway 3-7.0, SSP3-7.0) by the 2040-2050 period.
- Precipitation projections:
  - Changes in rainfall are less certain; most scenarios show an expected reduction in annual precipitation across Barbados by the 2040-2059.
  - Under SSP3-7.0, annual precipitation is expected to decline by approximately 9 percent by mid-century.
- Sector-level climate impacts likely to be significant for:
  - Tourism: increasing damage to coastal tourism infrastructure and erosion of beaches and coral reefs.
  - Water resources: reduction through groundwater contamination from flooding, soil or pollutant infiltration and saline intrusion.
  - Agriculture: impacts from droughts, flooding and storm damages.
  - Fisheries: impacts from sea surface temperature increase and sedimentation.
- Data source cited: World Bank Climate Change Knowledge Portal.

### Greenhouse gas emissions profile
- Barbados’s greenhouse gas emissions are low, contributing to less than 0.01 percent of the global total.
- Emissions by source (shares as presented):
  - Energy and domestic transport: 73.7 percent.
  - Waste: 14.9 percent.
  - Industrial processes: 8.5 percent.
  - Agriculture: 3.0 percent.
- Land use, land use change and forestry provided a sink of greenhouse gas emissions of 51 Gg CO2e in 2010, equivalent to a reduction of 2.6 percent of total emissions for that year.
- Reference: Barbados. National Communication (NC). NC 2.

### Economic context and capacity to respond
- Population: 287,000.
- Per capita gross national income: US$16,720, as of 2021.
- Historical context:
  - Several decades of solid economic growth improved key social indicators (e.g., life expectancy) and enhanced capabilities for development challenges.
- Constraints:
  - As a small, open economy, Barbados is highly vulnerable to exogenous economic shocks which may be compounded by climate change.
  - Critical investments for adaptation and mitigation are very costly as a share of GDP given the small size of the economy.
  - Despite improvements since 2018, fiscal space is limited and attracting private financing is challenging.
- Policy implication: Increasing fiscal space is critical to implement public investment programs supporting adaptation and reducing dependence on fossil fuels.

### Government policies and commitments — Adaptation and resilience priorities
- The government has integrated climate change adaptation into its policy framework and sector policies.
- Key instruments and programs:
  - Barbados Economic Recovery and Transformation (BERT) Plan (implementation since 2018) aligned climate change and development objectives and helped enhance debt sustainability.
  - 2021 Physical Development Plan (PDP): policies and strategies to guide land use, settlement patterns, infrastructure and environmental management to enhance resilience.
  - 2021 Roofs to Reefs Programme (R2RP): operationalizes the PDP and directs public investment.
  - Sector policies/regulations incorporating adaptation considerations: Water Reuse Policy, Integrated Coastal Zone Management Plan, Comprehensive Disaster Risk Management (DRM) Policy, Climate Change and Agriculture Policy.
  - Catastrophe Fund: intended to provide financial aid to eligible persons and qualifying businesses as a result of, inter alia, climate-induced natural disasters.
  - Insurance sector resilience: requirement that all domestic insurers run annual natural disaster stress tests.
  - COVID-19 related conditional assistance to tourism sector requiring Greening and Digitization Investment Plans.
- R2RP specifics:
  - Aims to fortify and retrofit roofs to withstand up to Category 4 hurricanes.
  - Promotes distributed electricity generation to shorten post-disaster recovery time.
  - Plans protocols and standards for rooftop solar PV installation, including recommended options for energy storage technology, recognizing that distributed clean energy with battery storage is more resilient.

### Government policies and commitments — Mitigation priorities
- Nationally determined contributions (NDCs) commitments:
  - 2025 targets:
    - 20 percent reduction relative to business-as-usual emissions by 2025 without international support (unconditional).
    - 35 percent reduction relative to business-as-usual emissions by 2025 conditional upon international support.
  - 2030 targets:
    - 35 percent reduction relative to business-as-usual emissions without international support (unconditional).
    - 70 percent reduction relative to business-as-usual emissions conditional upon international support.
- Energy and transport goals:
  - 2019 Barbados National Energy Policy (BNEP) target: fossil fuel-free electricity sector by 2030 (100 percent renewable electricity by 2030).
    - Assessment: BNEP’s goal is generally realistic but requires significant additional investments to achieve.
    - A draft Integrated Resource and Resilience Plan (IRRP) is under consultation to guide implementation of BNEP in the electricity sector.
  - Transport:
    - Government procurement policy (effective April 2021) prioritizes purchase of electric or hybrid vehicles where possible.
    - Barbados Transport Board objective: operate a fully electrified fleet by 2030.
    - Plans to reduce taxes on electric vehicles and develop regulations related to green procurement.
- Policy alignment: Mitigation and adaptation policies are being aligned (e.g., R2RP measures that simultaneously increase resilience and support distributed clean energy).

### Other challenges and needs
- Institutional capacity and coordination:
  - Need to strengthen multi-sectoral coordination to support a well-functioning institutional framework and to operationalize sector policies.
  - Capacity to develop and implement laws and policies to operationalize strategic documents can be strengthened.
- Financing gap:
  - Further increase in fiscal space would help scale up climate action by bridging financing gaps.
  - Innovative approaches could include establishing an Environmental Sustainability Fund to supplement government financing and serve as a vehicle for implementing Barbados’s NDC, which calls for scaled-up, new, additional, and predictable financial resources for climate.

### World Bank engagement
- As an IBRD graduate, the World Bank’s engagement in Barbados has been limited.
- Recent and planned World Bank support:
  - COVID-19 Response and Recovery Development Policy Loan (DPL): support in improved disaster risk management, decarbonization of the tourism sector, and enhanced disaster and climate resilience of the insurance industry.
  - Technical assistance to the Financial Services Commission in FY 2022.
  - Green and Resilient Recovery DPL (under preparation): supporting the government’s ambitious climate reform program across agriculture, DRM, fiscal management, procurement, transport, water and energy.
- Coordination: The Green and Resilient Recovery DPL and an IMF RSF program are being developed in close collaboration between World Bank and IMF teams.

*Source: 1brbea2022002 - 1.      Barbados is highly vulnerable to climate change due to increased frequency (IMF PDF chapter).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1brbea2022002.pdf_