## 0.8 percent in 2015, underpinned by an increase in private investment and surge in tourism

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### Recent developments and real sector
- Real GDP grew by 0.8 percent in 2015, up from 0.2 percent in 2014, underpinned by an increase in private investment and a surge in tourism arrivals.
- Tourism arrivals increased by 13.9 percent (noted as 14 percent elsewhere).
- Employment rose by 2 percent; the unemployment rate fell to 11.3 percent.
- Inflation:
  - CPI (end-period) was -2.5 percent in 2015, compared with 2.3 percent in 2014.
  - CPI inflation (average) was -1.1 percent in 2015.

### External sector and reserves
- Current account:
  - Deficit narrowed from 9.9 percent of GDP in 2014 to 6.7 percent in 2015, largely reflecting lower oil and other prices and improved terms of trade.
  - Exports of goods and services rose by 1.7 percent in 2015, mainly due to tourism receipts (tourism receipt increase cited as 3.6 percent).
- Net financial flows fell from 8.4 percent of GDP in 2014 to 4.0 percent in 2015, driven by large amortization payments and lower FDI.
- Net international reserves:
  - US$463.5 million in 2015 (table).
  - Reported as US$469 million at end-April 2016 (2.8 months of imports).
  - Memorandum table: reserves 463.5 (2015) and 468.6 (2016 est.), with months of imports 2.8 (2015) and 2.9 (2016 est.).

### Fiscal situation and public debt
- FY2015/16 budget deficit remained broadly unchanged at about 7 percent of GDP.
- FY2015/16 budget measures increased revenue by approximately 1 percent of GDP but fell short of targets due to implementation delays.
- Central government gross debt (end-FY2015/16):
  - Excluding NIS: 105.5 percent of GDP.
  - Including NIS: 141.6 percent of GDP.
  - Up from 98.0 (excluding) and 132.3 (including) percent of GDP in FY2014/15.
- Large funding requirements totaling about 45 percent of GDP were mostly met by CBB, the NIS, and growing arrears.
- Arrears:
  - Central government arrears estimated to have risen from 4.3 percent of GDP at end-FY2014/15 to 5.9 percent at end-FY2015/16 (including arrears to the NIS).
  - SOE arrears estimated at 5.5 percent of GDP.
- Rating action: Moody's downgraded Barbados' government bond rating to Caa1 on April 1, 2016, with outlook changed to stable.

### Financial sector and monetary developments
- Banking system:
  - Financial sector remains stable; banks are well capitalized and very liquid.
  - Bank non-performing loans (NPLs) declined to 10.6 percent of total loans (2015).
  - Return on assets (ROA) was 0.9 percent (2015).
  - Commercial Banks: CAR 19.7 (2013), 20.5 (2014), 18.9 (2015).
  - Liquid assets as percent of total assets: 18.0 (2013), 20.3 (2014), 25.3 (2015).
  - Commercial banks’ excess reserves in local currency increased by B$353 million (period specified in text).
  - Commercial banks’ direct holding of government securities is equivalent to 15 percent (noted).
- Credit:
  - Private sector credit growth: -2.2 percent (2013), -4.6 percent (2014), 0.5 percent (2015).
- Monetary policy:
  - CBB continued to fund the government through money creation and with commercial banks’ excess reserves.
  - Short-term rate rose to an average of about 3.4 percent, from 2.8 percent in 2015, in more recent auctions.
  - CBB purchases of TBs and debentures accounted for approximately two-thirds of the increase in financing of the government in 2015.
- Correspondent banking:
  - Withdrawal of CBRs directly affected a small number of IBFS entities; domestic banks (foreign-owned) have maintained CBRs.

### Executive Board assessment and Directors' recommendations
- Overall view:
  - Directors welcomed the pickup in growth led by tourism and the improvement in the external position, while noting the challenge of a large fiscal deficit and rising public debt.
- Fiscal recommendations:
  - Continue fiscal adjustment and public sector reforms to bring public debt on a downward path, preserve external sustainability, and improve investor sentiment.
  - Fiscal adjustment of at least 3.5 percent of GDP over three years—consistent with a primary surplus of 6 percent of GDP—identified as required to reverse the increase in the debt-to-GDP ratio in 2015/16 and place it on a downward trajectory.
  - Focus on: reforming the revenue authority, improving tax administration and compliance, SOE reform (governance), consideration of user fees, potential divestment and consolidation of public entities.
  - Swift action to eliminate government arrears.
- Monetary and exchange rate recommendations:
  - Continued financing of the fiscal deficit by the CBB is inconsistent with maintenance of the exchange rate anchor; CBB encouraged to allow domestic interest rates to rise in line with increases in U.S. interest rates and to ensure adequate international reserve buffers.
- Financial sector recommendations:
  - Continue close supervision, particularly of non-bank institutions including credit unions and insurance companies.
  - Quick action on any shortcomings identified by upcoming AML/CFT evaluation.
- Growth strategy recommendations:
  - Implement a comprehensive growth strategy to raise long-term competitiveness in key tourism sectors: implement tourism investment and infrastructure projects, improve public service efficiency, streamline business regulation, increase labor market flexibility, and unlock agriculture’s growth potential.
- Data and transparency:
  - Continue efforts, with Fund TA, to resolve outstanding data issues and improve dissemination of statistics.

### Key statistics (selected)
- Real GDP: 0.0 (2013), 0.2 (2014), 0.8 (2015), 2.1 (2016 proj.), 2.3 (2017 proj.)
- CPI inflation (average): 1.8 (2013), 1.9 (2014), -1.1 (2015), -0.1 (2016 proj.), 1.6 (2017 proj.)
- CPI inflation (end of period): 1.1 (2013), 2.3 (2014), -2.5 (2015), 0.9 (2016 proj.), 2.3 (2017 proj.)
- Exports of goods and services (annual % change): 0.2 (2013), -3.2 (2014), 1.7 (2015), 1.8 (2016 proj.), 3.6 (2017 proj.)
- Imports of goods and services (annual % change): -1.2 (2013), -1.5 (2014), -5.1 (2015), -2.5 (2016 proj.), 5.1 (2017 proj.)
- Revenue and grants (percent of GDP): 26.7 (2013), 28.8 (2014), 29.7 (2015), 30.4 (2016 proj.), 30.4 (2017 proj.)
- Expenditure (percent of GDP): 37.7 (2013), 35.6 (2014), 36.7 (2015), 36.8 (2016 proj.), 36.8 (2017 proj.)
- Interest (percent of GDP): 7.0 (2013), 7.6 (2014), 7.7 (2015), 8.3 (2016 proj.), 8.6 (2017 proj.)
- Balance (percent of GDP): -11.0 (2013), -6.9 (2014), -7.0 (2015), -6.4 (2016 proj.), -6.3 (2017 proj.)
- Primary balance (percent of GDP): -4.0 (2013), 0.7 (2014), 0.7 (2015), 2.0 (2016 proj.), 2.3 (2017 proj.)
- Central government gross debt, excluding NIS (percent of GDP): 94.3 (2013), 98.0 (2014), 105.5 (2015), 106.0 (2016 proj.), 106.7 (2017 proj.)
- Central government gross debt, including NIS (percent of GDP): 128.5 (2013), 132.3 (2014), 141.6 (2015), 142.7 (2016 proj.), 143.6 (2017 proj.)
- Current account (percent of GDP): -9.1 (2013), -9.9 (2014), -6.7 (2015), -5.6 (2016 proj.), -6.0 (2017 proj.)
- Capital and financial account (percent of GDP): 5.9 (2013), 8.4 (2014), 4.0 (2015), 5.7 (2016 proj.), 6.8 (2017 proj.)
- Net international reserves (US$, millions): 571.9 (2013), 526.0 (2014), 463.5 (2015), 468.6 (2016 proj.), 505.8 (2017 proj.)
- Net international reserves (months of imports): 3.2 (2013), 3.0 (2014), 2.8 (2015), 2.9 (2016 proj.), 3.0 (2017 proj.)
- Nominal GDP (BDS$, millions): 8,742 (2013), 8,705 (2014), 8,729 (2015), 8,903 (2016 proj.), 9,254 (2017 proj.)

### Implementation of 2015 Article IV Recommendations — progress and gaps
- Areas with progress:
  - Marginal reduction in wages and salaries bill (percent of GDP) in 2015/16.
  - Authorities set up an SOE Monitoring Unit reviewing business plans of 15 large SOEs.
  - Legislative amendments to the CBB, FSC and Financial Institutions Act are being drafted or are before Parliament.
  - Strategic plan for BDIC and discussions on deposit insurance system for credit unions continue.
- Areas with limited or no progress:
  - Medium-term fiscal consolidation framework—with a debt anchor—not established; government missed 2015/2016 deficit target.
  - Central government debt-to-GDP ratio continued to rise by an estimated 7.5 percentage points.
  - No discernible progress on better targeting social spending, improving public services quality, or labor market reforms.
  - CBB continues to be a major purchaser of government debt.
  - Slow progress in resolving data inconsistencies between real and nominal GDP and the deflator.

### Illustrative adjustment scenario and expected yields (cumulative 2016/17 to 2019/20)
- Proposed adjustment composition (percent of GDP):
  - New revenue measures: 0.8
  - Improvement in tax administration: 0.7
  - Reduced current spending: 0.6
  - Reduced transfers to SOEs: 1.4
  - Total: 3.5
- Primary balance — Baseline vs Adjustment (selected):
  - Baseline primary balance: 0.7 (2015/16), 2.0 (2016/17), 2.3 (2017/18), 2.6 (2018/19), 2.6 (2019/20), 2.6 (2020/21), 2.6 (2021/22)
  - Adjustment scenario primary balance: 0.7 (2015/16), 3.5 (2016/17), 4.7 (2017/18), 6.1 (2018/19), 6.1 (2019/20), 6.1 (2020/21), 6.1 (2021/22)
  - Difference: 0.0 (2015/16), 1.5 (2016/17), 2.4 (2017/18), 3.5 (2018/19) and thereafter 3.5
- Debt (central government, excl. NIS) — Baseline vs Adjustment:
  - Baseline: 105.5 (2015/16), 106.0 (2016/17), 106.7 (2017/18), 107.7 (2018/19), 109.3 (2019/20), 111.3 (2020/21), 114.2 (2021/22)
  - Adjustment: 105.5 (2015/16), 104.9 (2016/17), 103.6 (2017/18), 100.8 (2018/19), 98.1 (2019/20), 95.3 (2020/21), 93.3 (2021/22)
- Real GDP growth — Baseline vs Adjustment:
  - Baseline real growth: 0.8 (2015/16), 2.1 (2016/17), 2.3 (2017/18), 1.7 (2018/19), 1.5 (2019/20), 1.2 (2020/21), 1.2 (2021/22)
  - Adjustment real growth: 0.8 (2015/16), 2.1 (2016/17), 2.0 (2017/18), 2.0 (2018/19), 2.2 (2019/20), 2.3 (2020/21), 2.3 (2021/22)
- Additional notes:
  - A sustained primary surplus of 6.1 percent would reduce debt to 90 percent of GDP by FY2023/24, assuming an average interest cost of 7 percent and nominal growth of 4 percent.
  - With real growth of 1 percent and the same primary balance improvement, debt-to-GDP would be 103 percent in FY2021/22 and only decline below 100 percent by FY2019/20.
  - A more aggressive strategy could aim for a primary surplus of about 7 to 8 percent of GDP.

### NIS integrity and social insurance pressures
- NIS pressures:
  - Population aging and slow growth pressuring NIS finances.
  - Contribution rates range from 17.75 to 21.35 percent; coverage about 90 percent of employed.
  - Retirement age increasing to 67 years by January 1, 2018.
  - Expenditures began to exceed contributions in 2013 (earlier than the 2024 estimate in the 14th Actuarial Review).
  - Since 2014, NIS faced late contribution payments from government and SOEs.
  - Investment portfolio: 74 percent held in government securities (exceeds suggested prudential limit of 54 percent and agency target of 60 percent).
  - Replacement income is 60 percent (for low earners) and may need revision if investment earnings and contributions fall below expenditure.
- Policy advice:
  - Government urged to make contributions in a timely manner (rather than providing debentures) to ensure NIS liquidity.

### Public Debt Sustainability Analysis, risks and stress tests (selected)
- Baseline public debt (nominal gross public debt, percent of GDP): 65.2 (2014), 98.0 (2015), 105.5 (2016), 106.0 (2017), 106.7 (2018), 107.7 (2019), 109.3 (2020), 111.3 (2021), 114.2 (projection horizon)
- Public gross financing needs (percent of GDP): 22.7 (2014), 40.5 (2015), 46.8 (2016), 44.5 (2017), 51.1 (2018), 50.4 (2019), 50.4 (2020), 51.6 (2021), 54.7 (projection)
- Effective interest rate (percent): 8.7 (2014), 8.0 (2015), 7.9 (2016), 8.1 (2017), 8.4 (2018), 9.0 (2019), 9.4 (2020), 9.5 (2021), 9.4 (projection)
- Real GDP growth (percent): 0.9 (2014), 0.4 (2015), 1.1 (2016), 2.2 (2017), 2.1 (2018), 1.6 (2019), 1.4 (2020), 1.2 (2021)
- Stress tests include:
  - Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Macro-Fiscal Shock with resulting paths for gross nominal public debt and public gross financing needs.
  - Real Interest Rate Shock example: Effective interest rate path 8.1 (2016), 8.4 (2017), 11.7 (2018), 12.7 (2019), 13.2 (2020), 13.6 (2021).
  - Combined Shock example: Effective interest rate 8.1 (2016), 8.5 (2017), 11.6 (2018), 12.6 (2019), 13.1 (2020), 13.5 (2021).

### Competitiveness, tourism and reserve adequacy
- Exchange rate and competitiveness:
  - Currency judged moderately overvalued by approximately 5 to 10 percent.
  - EBA-Lite current account methodology suggests overvaluation of about 4.8 percent; EBA-lite external sustainability analysis suggests overvaluation of about 9.6 percent.
  - REER Index Model: ln(REER)-Actual 4.80; ln(REER)-Fitted 4.75; REER-Gap 0.05.
- Tourism:
  - Despite surge in arrivals, travel receipts and GDP impact remain low; scope to enhance earnings from tourism via product quality, cost reductions, and sector integration (e.g., agriculture).
  - Institutional reforms: BTMI (marketing) and BTPA (product development) established September 2014.
  - Tourism initiatives: “Brilliant Barbados” promotion, “Mystery Shopper Programme”, updated accommodation regulations.
- Reserve adequacy:
  - Reserves broadly adequate but below levels considered comfortable for a small island with a fixed exchange rate.
  - Reserves projected to improve slightly in 2016 from 2.8 to 3.1 months of prospective imports on account of a further decline in the current account deficit and increased official borrowing.
  - Reserves exceed short-term external debt by a substantial margin but are significantly lower than thresholds that account for capital flight-related risks.

### Data adequacy and statistical issues
- General assessment:
  - Data provision broadly adequate for surveillance but with important shortcomings in GDP at constant and current prices, CPI, financial reporting by public enterprises, and external sector data (IIP).
- National accounts:
  - BSS compiles GDP at current prices; CBB compiles GDP at constant prices using an outdated 1974 base year—staff views these as “projections” rather than statistics.
  - Series cannot be reconciled with CPI since 2011.
  - BSS committed to disseminate annual real GDP estimates and quarterly nominal and real GDP by October 2016.
- Monetary statistics:
  - Monetary data available on CBB website but not reported to STA nor published in IFS since May 2012.
  - Monetary survey excludes other deposit-taking institutions and three largest credit unions; monetary data likely under-estimated.
- External sector:
  - Quarterly balance of payments estimates hampered by lags in trade in services and incomplete offshore sector information.
  - Tourism receipts may not capture Airbnb and similar services adequately.
- GFS and public sector:
  - Above-the-line central government data fairly comprehensive; off-budget transactions and delayed PE reporting create discrepancies.
  - Public sector debt data used by staff based on MoF end-March 2016 data.

### Risk Assessment Matrix — selected risks and policy responses
- Global risks:
  - Surge in the US dollar — Likelihood: High; Impact: Medium. Policy response: structural measures to improve competitiveness; contain wage increases.
  - Reduced financial services by global/regional banks (“de-risking”) — Likelihood: Medium; Impact: Medium/High. Policy response: strengthen AML/CFT supervision; ensure full compliance with international transparency standards.
- Country-specific risks:
  - Fiscal financing pressures — Likelihood: High; Impact: High. Policy response: accelerate fiscal adjustment to put debt on a downward path.
  - Fiscal slippages — Likelihood: High; Impact: High. Policy response: step up revenue administration reform and review expenditures, particularly SOE transfers.
  - Brexit and Zika — Likelihood: High (Brexit) / Medium (Zika); Impact: High (Brexit) / Medium (Zika). Policy response: maintain fiscal adjustment and accelerate structural reforms; contain spread of Zika.

*Source: IMF staff report for the 2016 Article IV consultation on Barbados (selected excerpts from _cr16279).*

### 0.8 percent in 2015, underpinned by an increase in private investment and surge in tourism

### _cr16279 - 0.8 percent in 2015, underpinned by an increase in private investment and surge in tourism

### Recent developments and real sector
- Real GDP grew by 0.8 percent in 2015, up from 0.2 percent in 2014, underpinned by an increase in private investment and a surge in tourism arrivals.
- Tourism arrivals increased by 13.9 percent (noted as 14 percent elsewhere in the text), among the highest in the Caribbean.
- Employment rose by 2 percent; the unemployment rate fell to 11.3 percent.
- Inflation: end-period CPI was -2.5 percent in 2015, compared with 2.3 percent in 2014. CPI inflation (average) was -1.1 percent in 2015.

### External sector and reserves
- Current account deficit narrowed from 9.9 percent of GDP in 2014 to 6.7 percent in 2015, largely reflecting lower oil and other prices and improved terms of trade.
- Exports of goods and services rose by 1.7 percent in 2015, mainly due to tourism receipts (tourism receipt increase cited as 3.6 percent).
- Net financial flows fell from 8.4 percent of GDP in 2014 to 4.0 percent in 2015, driven by large amortization payments and lower FDI.
- Net international reserves: US$463.5 million in 2015 (table), and reported as US$469 million at end-April 2016 (2.8 months of imports). Memorandum table lists reserves as 463.5 (2015) and 468.6 (2016 est.), with months of imports 2.8 (2015) and 2.9 (2016 est.).

### Fiscal situation and public debt
- FY2015/16 budget deficit remained broadly unchanged at about 7 percent of GDP.
- FY2015/16 budget measures increased revenue by approximately 1 percent of GDP but fell short of targets due to implementation delays.
- At end-FY2015/16, central government gross debt excluding (including) securities held by the National Insurance Scheme (NIS) was 105.5 (141.6) percent of GDP, up from 98.0 (132.3) percent in FY2014/15.
- Large funding requirements, totaling about 45 percent of GDP, were mostly met by the Central Bank of Barbados (CBB), the NIS, and growing arrears.
- Central government arrears estimated to have risen from 4.3 percent of GDP at end-FY2014/15 to 5.9 percent at end-FY2015/16 (including arrears to the NIS). SOE arrears estimated at 5.5 percent of GDP.
- Moody's downgraded Barbados' government bond rating to Caa1 on April 1, 2016, with outlook changed to stable (cited reason: high fiscal deficit and growing debt).

### Financial sector and monetary developments
- Financial sector remains stable; banks are well capitalized and very liquid.
- Commercial bank liquidity and excess reserves rose; commercial bank excess reserves in local currency increased by B$353 million (period specified in text).
- Private sector credit growth: -2.2 percent (2013), -4.6 percent (2014), 0.5 percent (2015) (table: private sector credit annual percentage change).
- Bank non-performing loans (NPLs) declined to 10.6 percent of total loans (2015); return on assets (ROA) was 0.9 percent (2015).
- Commercial Banks: Capital Adequacy Ratio (CAR) 19.7 (2013), 20.5 (2014), 18.9 (2015); Liquid assets as percent of total assets 18.0 (2013), 20.3 (2014), 25.3 (2015).
- Withdrawal of Correspondent Banking Relationships directly affected a small number of entities in the International Business and Financial Services (IBFS) sector.
- Monetary policy: CBB continued to fund the government through money creation and with commercial banks’ excess reserves; interest rates have begun to rise with reduced direct intervention by the central bank in Treasury Bill auctions.

### Executive Board assessment and Directors' recommendations
- Directors welcomed the pickup in economic growth led by tourism and the improvement in the external position, while noting the challenge of a large fiscal deficit and rising public debt.
- Fiscal policy recommendations:
  - Continued fiscal adjustment and public sector reforms to bring public debt on a downward path, preserve external sustainability, and improve investor sentiment.
  - A fiscal adjustment of at least 3.5 percent of GDP over three years—consistent with a primary surplus of 6 percent of GDP—was identified as required to reverse the increase in the debt-to-GDP ratio in 2015/16 and place it on a downward trajectory.
  - Focus adjustment on reforming the revenue authority, improving tax administration and compliance, reforming state-owned enterprises through better governance, consideration of user fees, and potential divestment and consolidation of public entities.
  - Swift action to eliminate government arrears.
- Monetary and exchange rate recommendations:
  - Continued financing of the fiscal deficit by the CBB is inconsistent with maintenance of the exchange rate anchor; CBB encouraged to allow domestic interest rates to rise in line with increases in U.S. interest rates and to ensure adequate international reserve buffers.
- Financial sector recommendations:
  - Continue close supervision of the financial sector, particularly non-bank institutions including credit unions and insurance companies.
  - Take quick action on any shortcomings identified by the upcoming AML/CFT evaluation.
- Growth strategy recommendations:
  - Implement a comprehensive growth strategy to raise long-term competitiveness in key tourism sectors, including timely implementation of tourism investment and infrastructure projects, improving public service efficiency and streamlining business regulation, increasing labor market flexibility, and unlocking agriculture’s growth potential.
- Data and transparency:
  - Continue efforts, with Fund technical assistance, to resolve outstanding data issues and improve the dissemination of statistics.

### Key statistics (selected, as reported)
- Real GDP: 0.0 (2013), 0.2 (2014), 0.8 (2015), 2.1 (2016 proj.), 2.3 (2017 proj.)
- CPI inflation (average): 1.8 (2013), 1.9 (2014), -1.1 (2015), -0.1 (2016 proj.), 1.6 (2017 proj.)
- CPI inflation (end of period): 1.1 (2013), 2.3 (2014), -2.5 (2015), 0.9 (2016 proj.), 2.3 (2017 proj.)
- Exports of goods and services (annual % change): 0.2 (2013), -3.2 (2014), 1.7 (2015), 1.8 (2016 proj.), 3.6 (2017 proj.)
- Imports of goods and services (annual % change): -1.2 (2013), -1.5 (2014), -5.1 (2015), -2.5 (2016 proj.), 5.1 (2017 proj.)
- Net domestic assets (annual % change): 13.0 (2013), 3.1 (2014), 3.0 (2015), 1.2 (2016 proj.), 1.3 (2017 proj.)
- Broad money (annual % change): 6.2 (2013), 2.1 (2014), 3.7 (2015), 1.2 (2016 proj.), 2.0 (2017 proj.)
- Revenue and grants (percent of GDP): 26.7 (2013), 28.8 (2014), 29.7 (2015), 30.4 (2016 proj.), 30.4 (2017 proj.)
- Expenditure (percent of GDP): 37.7 (2013), 35.6 (2014), 36.7 (2015), 36.8 (2016 proj.), 36.8 (2017 proj.)
- Interest (percent of GDP): 7.0 (2013), 7.6 (2014), 7.7 (2015), 8.3 (2016 proj.), 8.6 (2017 proj.)
- Balance (percent of GDP): -11.0 (2013), -6.9 (2014), -7.0 (2015), -6.4 (2016 proj.), -6.3 (2017 proj.)
- Primary balance (percent of GDP): -4.0 (2013), 0.7 (2014), 0.7 (2015), 2.0 (2016 proj.), 2.3 (2017 proj.)
- Central government gross debt, excluding NIS (percent of GDP): 94.3 (2013), 98.0 (2014), 105.5 (2015), 106.0 (2016 proj.), 106.7 (2017 proj.)
- Central government gross debt, including NIS (percent of GDP): 128.5 (2013), 132.3 (2014), 141.6 (2015), 142.7 (2016 proj.), 143.6 (2017 proj.)
- Current account (percent of GDP): -9.1 (2013), -9.9 (2014), -6.7 (2015), -5.6 (2016 proj.), -6.0 (2017 proj.)
- Capital and financial account (percent of GDP): 5.9 (2013), 8.4 (2014), 4.0 (2015), 5.7 (2016 proj.), 6.8 (2017 proj.)
- Net international reserves (US$, millions): 571.9 (2013), 526.0 (2014), 463.5 (2015), 468.6 (2016 proj.), 505.8 (2017 proj.)
- Net international reserves (months of imports): 3.2 (2013), 3.0 (2014), 2.8 (2015), 2.9 (2016 proj.), 3.0 (2017 proj.)
- Nominal GDP (BDS$, millions): 8,742 (2013), 8,705 (2014), 8,729 (2015), 8,903 (2016 proj.), 9,254 (2017 proj.)

*Source: IMF staff report for the 2016 Article IV consultation on Barbados (staff calculations and Barbados authorities).*

### 2015. Bank exposure to government increased through holdings of Treasury Bills, partly offset by

### _cr16279 - 2015. Bank exposure to government increased through holdings of Treasury Bills, partly offset by reduced holdings of longer-term debentures.

### Implementation of 2015 Article IV Recommendations
- Areas with progress:
  - Contain current spending through further reductions in the wage bill and transfers.
    - Wages and salaries bill (in percent of GDP) fell marginally in 2015/16.
    - Transfers increased by an estimated 0.7 percent of GDP, partially due to an unbudgeted debt amortization of one entity.
  - Accelerate restructuring of public enterprises, including amalgamation or divestment.
    - Authorities set up a Monitoring Unit, reviewing business plans of 15 large state-owned enterprises (SOEs).
    - Progress in rationalizing and reining in spending has been slow.
  - Continued progress on several 2014 FSAP Update recommendations.
    - Legislative amendments to the CBB, FSC and Financial Institutions Act are being drafted or are before Parliament.
    - Strategic plan for Barbados Deposit Insurance Corporation (BDIC) and discussions on a deposit insurance system for credit unions are continuing.
- Areas with limited or no progress:
  - Establish a medium-term fiscal consolidation framework—with a debt anchor.
    - Government missed its 2015/2016 deficit target by a significant margin.
    - Central government debt-to-GDP ratio continued to rise by an estimated 7.5 percentage points.
  - Review social spending to better target social programs: No discernible progress.
  - Improve quality of public services and review labor market regulations: No progress.
  - Cease central bank financing of the government and, if financing sources are not sufficient, allow interest rates to rise to support the exchange rate peg.
    - The CBB continues to be a major purchaser of government debt although it has allowed interest rates to rise somewhat.
  - Address shortcomings in production and dissemination of data before next Article IV consultation.
    - Despite ongoing TA, progress in improving data and resolving inconsistencies between real and nominal GDP and the deflator has been slow.

### Monetary and Fiscal Developments
- Monetary policy and CBB actions:
  - The CBB has continued to fund the government through money creation and using commercial banks’ excess reserves.
  - Direct CBB intervention in the Treasury Bill (TB) auction in 2015 pushed down interest rates.
  - Short-term rate rose to an average of about 3.4 percent, from 2.8 percent in 2015, in more recent auctions.
  - CBB purchases of TBs and debentures accounted for approximately two-thirds of the increase in financing of the government in 2015.
- Public sentiment and labor market:
  - Democratic Labour Party in power since 2008; parliamentary elections scheduled for 2018.
  - Real wages are 11½ percent lower than in 2008.
  - Government implemented a 10 percent workforce reduction and wage freeze since 2009; labor action increasing, including temporary closure of port and airport in March 2016.
  - Unwinding of a late 2013 10 percent voluntary wage cut for ministers and Parliamentary Secretaries has exacerbated wage pressures.

### Outlook and Risks
- Growth and fiscal projections:
  - Growth projected to rise to 2.1 percent in 2016.
  - Growth expected to continue around this pace in 2017, likely to taper off thereafter.
  - Staff projects a deficit of 6.4 percent, based on the draft budget presented in March 2016, with a primary surplus of 2 percent.
  - Central government debt projected to increase, reaching 114.2 percent in FY2021/22 under baseline.
  - Expected interest rate increases and low credit ratings will raise debt service costs and pressure the exchange rate peg.
- External sector and reserves:
  - Current account deficit narrowed from 6.7 percent of GDP in 2015 to 5.6 percent in 2016.
  - Reserves remain at about 2.9 months of imports at end-2016.
  - Over the medium-term, current account balance projected to deteriorate and reserves are projected to decline.
  - Reserves drop sharply in 2020/21 from 2.7 months of imports to 2.2 months because of scheduled amortization.
  - Recent Moody’s downgrade highlights growing risks.
- Competitiveness and financial stability:
  - Currency judged moderately overvalued by approximately 5 to 10 percent.
  - Cross-country indices indicate a decline in competitiveness despite record tourism arrivals.
  - Financial system generally sound, but further fiscal deterioration could put pressure on the system via reserve leakage, reversal of NPL improvements, and weaker bank profitability.
  - Banks do not carry large net open foreign exchange positions.
  - Withdrawal of Correspondent Banking Relationships (CBRs) has not affected domestic banks directly; domestic banks are foreign-owned and their CBRs have been maintained.
  - Termination of relationships for some IBFS corporate vehicles could depress offshore sector growth.
  - Risks from external environment: weak growth in advanced economies (particularly the U.K.), Brexit spillovers, possible spread of Zika virus, strong U.S. dollar, and financial volatility reducing FDI and capital flows.

### Policy Discussions — Support a Nascent Economic Recovery
- Policy priorities to support recovery:
  - Improve delivery, quality and cost effectiveness of public services.
  - Improve labor market efficiency.
  - Enhance agricultural sector policies and strengthen links to tourism through local sourcing.
- Specific impediments and reforms:
  - Address public sector inefficiencies and bureaucratic hurdles; streamline processes and procedures; increase online service availability.
  - Facilitate permit issuance to unblock investment projects.
  - Reform labor market to increase flexibility and boost productivity while protecting workers; address rigid rules on permitted working hours and lengthy dismissal processes.
  - Government to facilitate practical, low-cost employment initiatives involving business community and labor.
- Authorities’ views:
  - Authorities generally agreed with staff recommendations but questioned accuracy of Doing Business Report.
  - Noted business licenses typically granted in 3 days once supporting documentation is in order.
  - Reforms underway include enabling online filing, streamlining business legislation, accelerating registrations and licensing.
  - Acknowledged some Town and Country Planning building permit delays, partly due to incomplete applications.

### Policy Discussions — Resuscitate Fiscal Adjustment
- Need for adjustment:
  - To place debt on a downward trajectory after an increase of 7.5 percent of GDP in FY2015/16, staff recommended fiscal adjustment of at least 3.5 percent of GDP over the next three years.
  - Such adjustment would reduce debt below 100 percent by FY2019/20, ease funding burden, support international reserves, and improve credit ratings.
  - Currency depreciation (rejected by authorities) could allow somewhat less ambitious adjustment, but substantial fiscal adjustment still required.
  - Market-based debt operations are another option but benefits would be small and could have negative repercussions.
- Growth trade-offs:
  - Proposed adjustment could temporarily inhibit growth but support higher medium-term growth through improved business sentiment and private investment.
  - Fiscal reforms should reduce waste and duplication and improve public sector efficiency rather than further cuts in employment and wages.
- Recommended reform priorities:
  - Complete and strengthen BRA reform:
    - Urgently complete BRA-CED merger.
    - Strengthen the large taxpayers unit.
    - Accelerate modernization: improved data collection, verification, sharing, and rapid implementation of a new IT system.
    - Adopt effective risk management and enforcement strategies.
    - Resolve outstanding tax arrears by prioritizing refunds in cash management by the Accountant General.
  - Deeper and comprehensive SOE reform:
    - Transfers to SOEs rose from 9.8 percent of GDP in 2005/06 to a peak of 14.4 percent in 2013/14.
    - Focus on 15 largest enterprises accounting for over 80 percent of transfers.
    - Goals: improve corporate governance, strengthen internal control, prepare financial statements, and reduce government transfers.
    - Need for stronger government leadership, accountability of SOE managers, a strengthened SOE monitoring unit, and increased pace of consolidation, rationalization, and divestment of the 64 SOEs.
  - Eliminate arrears:
    - Improve budget process: strengthen forecasting, impose hard spending ceilings, and strengthen SOE oversight.
    - Comprehensive SOE management strategy to reduce arrears accumulation and improve liquidity for SOEs and private sector, enhancing taxpayer ability to pay the BRA.

### Box 2 — Fiscal Adjustment Effort Over the Past Five Years
- Key measures implemented and outcomes:
  - Freeze on public sector wages since 2009.
  - VAT increase from 15 percent to 17.5 percent in December 2010 (initially for 18 months), extended indefinitely in May 2012; VAT on tourism products reduced to 7.5 percent from 8.75 percent in September 2013.
  - 2013 commitments: fiscal consolidation of 5.3 percent of GDP over September 2013–March 2015; medium-term target fiscal deficit of 2.0 percent of GDP by 2020.
  - Public sector retrenchment announced December 2013:
    - Roughly 3,000 employees (~11.5 percent of 26,000 central government and statutory corporations employees) to be laid off in two tranches.
    - Further 500 to be downsized by attrition until 2018/19; estimated cut of 15 percent in public sector employment.
    - High-ranking officials to take temporary ten per cent salary reduction.
    - Wages and salaries down by 8.2 percent in 2014/15 from 2012/13, yielding BD$72 million (0.8 percent of GDP) savings vs BD$140 million (1.6 percent of GDP) envisaged.
  - 2015/16 June Budget measures aimed to raise BD$200 (2.3 percent of GDP) million:
    - Removal of Group Relief and reduction of carry forward period for tax losses from nine years to seven years: BD$19 million (0.2 percent of GDP).
    - Increase in land tax rates: BD$44 million (0.5 percent of GDP).
    - Narrowing VAT exemptions and imposition of VAT on betting and gambling: 0.5 percent of GDP.
    - New surcharge on mobile telephone usage: BD$32.7 million (0.4 percent of GDP).
  - Establishment of Barbados Revenue Authority (BRA) from April 2014; merger with Customs and Excise Department delayed from April 1, 2015 to July 1, 2016.
  - SOE reform began in 2014 with CARTAC support, focusing on 15 largest enterprises (nearly 90 percent of government transfers in FY2015/16); progress slow with more modest reduction in transfers and reports of significant increase in enterprise arrears.

### Illustrative Adjustment Scenario and Expected Yields (Cumulative from 2016/17 to 2019/20)
- Proposed adjustment composition (in percent of GDP):
  - New revenue measures: 0.8
  - Improvement in tax administration: 0.7
  - Reduced current spending: 0.6
  - Reduced transfers to SOEs: 1.4
  - Total: 3.5
- Fiscal and debt projections (selected figures; central government debt less NIS):
  - Primary balance — Baseline and Adjustment:
    - Baseline: 0.7 (2015/16), 2.0 (2016/17), 2.3 (2017/18), 2.6 (2018/19), 2.6 (2019/20), 2.6 (2020/21), 2.6 (2021/22)
    - Adjustment scenario: 0.7 (2015/16), 3.5 (2016/17), 4.7 (2017/18), 6.1 (2018/19), 6.1 (2019/20), 6.1 (2020/21), 6.1 (2021/22)
    - Difference: 0.0 (2015/16), 1.5 (2016/17), 2.4 (2017/18), 3.5 (2018/19), 3.5 (2019/20), 3.5 (2020/21), 3.5 (2021/22)
  - Debt (central government, excl. NIS) — Baseline vs Adjustment:
    - Baseline: 105.5 (2015/16), 106.0 (2016/17), 106.7 (2017/18), 107.7 (2018/19), 109.3 (2019/20), 111.3 (2020/21), 114.2 (2021/22)
    - Adjustment: 105.5 (2015/16), 104.9 (2016/17), 103.6 (2017/18), 100.8 (2018/19), 98.1 (2019/20), 95.3 (2020/21), 93.3 (2021/22)
  - Real GDP growth — Baseline vs Adjustment:
    - Baseline real growth: 0.8 (2015/16), 2.1 (2016/17), 2.3 (2017/18), 1.7 (2018/19), 1.5 (2019/20), 1.2 (2020/21), 1.2 (2021/22)
    - Adjustment real growth: 0.8 (2015/16), 2.1 (2016/17), 2.0 (2017/18), 2.0 (2018/19), 2.2 (2019/20), 2.3 (2020/21), 2.3 (2021/22)
- Additional scenario notes:
  - A sustained primary surplus of 6.1 percent would reduce debt to 90 percent of GDP by FY2023/24, assuming an average interest cost of 7 percent and nominal growth of 4 percent.
  - With real growth of 1 percent and the same primary balance improvement, debt-to-GDP would be 103 percent in FY2021/22 and only decline below 100 percent by FY2019/20.
  - A more aggressive strategy (including active divestment program) could aim for a higher primary surplus of about 7 to 8 percent of GDP and reduce debt faster.

*International Monetary Fund — Barbados staff report (selected excerpts).*

### 20.      Maintain NIS integrity. As in other Caribbean countries, Barbados’ NIS faces pressure from

### Maintain NIS integrity.

### NIS financial position and pressures
- The NIS faces pressure from population aging and slow growth.
- The NIS is well managed, with high contribution rates, ranging from 17.75 to 21.35 percent, and coverage of about 90 percent of employed.
- The retirement age is increasing to 67 years by January 1, 2018.
- Weak employment growth in recent years led to a deterioration of the NIS financial position: expenditures began to exceed contributions in 2013, rather than in 2024 as estimated in the 14th Actuarial Review.
- Since 2014, the NIS has faced late contribution payments from the government and SOEs.
- The bulk of the investment portfolio—74 percent—is held in government securities, exceeding an earlier suggested prudential limit of 54 percent and the agency’s target of 60 percent.
- Given high contribution rates and the adjusted retirement age, there is limited scope to address future shortfalls other than by reducing benefits.
- Replacement income is 60 percent (for low earners) and would need to be revisited if investment earnings and contributions fall below expenditure.
- Staff urged the government to make contributions in a timely manner (rather than providing the equivalent in debentures) to ensure that NIS has sufficient liquidity.

### Authorities’ views on NIS and related fiscal issues
- The authorities noted the budget deficit in 2015/16 was higher than targeted due to increased transfers as a result of debt service the government made on behalf of one entity, and several foreign-financed investments that are represented as transfers, including a high priority project to upgrade ageing infrastructure in the water sector. Adjusting for these developments, the authorities argued they were much closer to their deficit target.
- They emphasized that foreign-financed capital projects should be accounted for differently.
- The authorities recognized the need for fiscal adjustment and were in broad agreement with staff’s recommendations, acknowledging that fiscal adjustment is urgent in light of the funding constraints and loss of international reserves. They noted that adjustment fatigue makes broad stakeholder involvement important and that legislative changes can cause delays in implementation.
- They agreed with the focus on SOE reform and plan to intensify efforts, including expanding the role of the private sector in providing some services.
- Regarding health care financing, they emphasized maintaining service quality and are contemplating specific measures dedicated to funding the hospital. They noted that an increase in user fees could increase cost of living and prompt calls for wage increases.
- They indicated scope to streamline SOE activities and merge entities, but noted labor unions would have to be involved.
- A shortage of cash has led to tax arrears, exacerbated by the complex VAT structure and associated refunds; they are contemplating doing away with all domestic zero-ratings to help reduce future arrears.
- To reduce arrears, the authorities envisage a netting operation of interagency arrears and offering government paper in lieu of cash settlement to deal with suppliers’ arrears.
- The government should ensure its own prompt payment to the NIS.

### Monetary and financial stability recommendations
- Monetary policy needs to be consistent with the exchange rate peg.
- The CBB should end its direct financing of the government, including through direct purchases of government debt through “recycling” of commercial banks’ excess reserves and by money creation.
- Such purchases risk an unsustainable expansion of the monetary base, depleting international reserves and over the long run are incompatible with a fixed exchange rate, constituting a significant macro-financial risk.
- The CBB should continue to allow domestic interest rates to increases in line with U.S. rates, to reduce pressure on the peg.
- Commercial banks’ direct holding of government securities is equivalent to 15 percent.

### Non-bank financial sector supervision
- Continue close supervision of non-bank financial institutions.
- Credit unions have broad membership and, like the banks, faced loan quality deterioration (chiefly mortgages) and lower profitability since the global financial crisis.
- Though NPLs remain high, despite some decline in 2015, credit unions are not considered a source of systemic risk.
- The 34 Credit Union have assets that comprise about 9 percent of the domestic financial system, compared to about 60 percent for the commercial banks, and have a large membership of about 174,000 members.
- In line with the 2014 FSAP Update recommendations, staff underscored the need to move forward with improving onsite supervision and regulation of the non-bank financial sector, and cross-border supervision of financial institutions.
- The insurance sector, while large, has not been growing and profitability has been mixed. Latest public full-year data are for 2014.
- Most insurance company investment is held domestically by statutory requirement, primarily in government debt, concentrating this sector’s exposure to the sovereign.

### International Business and Financial Services (IBFS) sector risks
- The IBFS sector is economically important and is second in importance after tourism; growth has been stagnant since the global financial crisis.
- Withdrawal of CBRs has not impacted domestic banks in Barbados, though a small number of IBFS entities have lost CBRs; prospects of further withdrawals could depress growth in the sector.
- Correspondent banks and IBFS firms face increasing regulatory compliance costs under AML/CFT regulations.
- The upcoming CFATF AML/CFT evaluation (beginning this summer and expected to be completed in December 2016) could raise issues that increase costs.
- Financial sector regulators at the CBB and FSC should ensure close scrutiny of financial intermediaries in the onshore and offshore sectors to support Barbados’ desire to project a strong reputation as a transparent, efficient, and diverse financial center.
- Authorities expressed concern about adverse impacts of withdrawal of CBRs, particularly for the offshore sector, and indicated the need for a global resolution to address the regulatory burden and reduce externalities for small jurisdictions.

### Data inadequacies
- Current and constant price-based GDP data cannot be reconciled with available price information; the series have moved in different directions since 2011.
- The current GDP series may not be a comprehensive measure of economic activity, while inflation is consistently higher than in similar economies.
- Lack of adequate information on measuring tourism value added is a concern.
- While data are adequate for surveillance, shortcomings increase difficulties establishing policy priorities and monitoring outcomes.
- Staff stressed urgency of addressing these shortcomings and urged authorities to obtain support to resolve capacity problems.
- The authorities recognized data inadequacies, plan to complete the technical assistance program underway, and seek a long-term resident advisor to build capacity.

### Key statistics and fiscal/structural recommendations from staff appraisal
- Economic activity: growth was 0.8 percent in 2015 and growth should be about 2 percent this year and next if planned private and public investment programs go forward.
- Budget deficit: about 7 percent of GDP after significant consolidation in 2014.
- Central government debt: now exceeds 100 percent of GDP.
- Rollover requirements: about 45 percent of GDP.
- Financing sources: new financing is largely met by the central bank, the NIS, and arrears.
- To reverse last year’s 7.5 percent of GDP increase in public debt, fiscal adjustment of at least 3.5 percent of GDP over three years is needed and greater consolidation would be warranted.
- Priority actions:
  - Improve public sector services and eliminate growth impediments, especially related to new tourism developments.
  - Reform the labor market to increase flexibility and productivity without unduly reducing worker protection.
  - Support agriculture, particularly through local product sourcing for the tourism sector.
  - Renew structural reform in the public sector, improve implementation, increase monitoring, build capacity, and hold managers accountable.
  - Revitalize revenue authority reform: merge the revenue authority and customs service expeditiously, strengthen the large taxpayers unit, modernize with improved data collection/verification/sharing, and rapidly implement a new IT system.
  - Reform SOEs comprehensively, reconsider the size and form of SOE-supported social programs, reduce the number and operating cost of public entities, and pursue divestment and consolidation.
  - Swift action to eliminate arrears: strengthen cash forecasting, impose hard spending ceilings, and strengthen SOE oversight.
  - Ensure monetary policy consistency with the exchange rate peg and end direct central bank financing of the government.
  - Maintain vigilance over the financial system, monitor credit unions closely, address FSAP Update AML/CFT recommendations, and prepare for the upcoming CFATF assessment.
  - Improve the quality of data: strengthen capacity and methodologies to resolve discrepancies between current and constant-price GDP and improve inflation measurement.

*Source: IMF staff report excerpt on Barbados.*

### 36.      It is recommended that the next Article IV consultation with Barbados be held on the

### _cr16279 - 36.      It is recommended that the next Article IV consultation with Barbados be held on the

### Real Sector Developments
- Economic activity has been weak, but is picking up, underpinned by tourist arrivals.
- Tourism has been stronger than in most competing markets.
- Labor force participation has decreased.
- Potential output fell with a decline in the growth of capital, but is now rising.
- Activities in some sectors remain weak.
- Consumer prices are falling, driven by global oil and food prices.
- Key graphical indicators (2008–2015):
  - Real GDP Comparison (percent growth) series include Tourism, Other tradables, Non-tradables.
  - Capital Accumulation and Potential GDP presented (in percent of GDP; potential GDP in percent, right).
  - CPI inflation series with World oil (12-mma) and World food (12-mma).
  - Manufacturing and Agriculture sectors (in percent of GDP).
  - Tourist Arrivals: Barbados, Cuba, Dominican Republic, Other Caribbeans (Percent, change in 12 month average).
  - Labor: Total Employment (in tens of thousands person) and Unemployment rate; Labor Force Participation Rate (RHS).

### Fiscal Sector Developments
- Current expenditures and interest have crowded out capital spending.
- Expenditures have been rising, albeit slower in the last two years.
- Result: excessive central government deficits.
- Financing has relied increasingly on short-term debt instruments.
- Central government debt has risen sharply since 2008; debt service cost has increased.
- Public sector balance components shown for Central government, NIS, Public enterprises, Public sector.
- Government financing (percent of GDP) highlights rising short-term debt and Barbados T-bill rate versus USA T-Bill rate.
- Selected fiscal figures (fiscal year, April–March) — levels and ratios:
  - Central government balance (percent of GDP): -11.0 (2013/14), -6.9 (2014/15), -7.0 (2015/16), projections through -7.6 (2021/22).
  - Total revenue (BDS$ millions): 2,334 (2013/14), 2,506 (2014/15), 2,608 (2015/16), projection 3,291 (2021/22).
  - Total expenditure (BDS$ millions): 3,293 (2013/14), 3,105 (2014/15), 3,220 (2015/16), projection 4,116 (2021/22).
  - Interest (BDS$ millions): 609 (2013/14), 662 (2014/15), 673 (2015/16), projection 1,101 (2021/22).
  - Central government gross debt (excl. NIS) (percent of GDP): 94.3 (2013/14), 98.0 (2014/15), 105.5 (2015/16), projection 114.2 (2021/22).
  - Central government gross debt (incl. NIS) (percent of GDP): 128.5 (2013/14), 132.3 (2014/15), 141.6 (2015/16), projection 151.8 (2021/22).
  - Short term (percent of GDP): 30.4 (2013/14), 32.3 (2014/15), 36.6 (2015/16), projection 66.5 (2021/22).
  - Long term (percent of GDP): 98.2 (2013/14), 100.0 (2014/15), 104.9 (2015/16), projection 85.3 (2021/22).

### External Sector Developments
- Capital inflows remain subdued in 2015.
- The current account deficit has narrowed, driven by lower imports, contributing to the decline in reserves.
- Trade (percent of GDP): Exports of goods and services, Imports of goods and services, Current account.
- Capital and Financial Account (US$ million): Long-term capital inflow, Private long-term capital inflow, Government disbursements.
- Net International Reserves: months of imports and BRB$ million levels shown; reserves declined through 2015.
- Tourist Arrivals: higher tourism arrivals in 2015; quarterly data Q1–Q4 for 2013–2015.
- Key balance of payments figures (US$ millions, projections):
  - Current account: -397 (2013), -432 (2014), -291 (2015), projection -404 (2021).
  - Exports of goods and services: 1,958 (2013), 1,895 (2014), 1,927 (2015), projection 2,324 (2021).
  - Imports of goods and services: 2,147 (2013), 2,115 (2014), 2,007 (2015), projection 2,429 (2021).
  - Net international reserves (US$ million): 572 (2013), 526 (2014), 464 (2015), projection 450 (2021).
  - Current account (percent of GDP): -9.1 (2013), -9.9 (2014), -6.7 (2015), projection -7.5 (2021).
  - Current account after FDI (percent of GDP): -5.5 (2013), -2.7 (2014), -1.1 (2015), projection -1.4 (2021).

### Monetary Sector Developments
- CBB’s claims on the government continued to increase in 2015.
- The domestic policy rate (3-month T-bill) averaged 2.8 percent in 2015, slightly lower than 2014.
- The country's risk premium has remained elevated (bond spreads over U.S. 10 year bonds).
- Private sector credit growth turned modestly positive in 2015.
- Ample liquidity has resulted in a further rise in commercial banks’ excess reserves.
- Banks’ reserves with the CBB also grew significantly.
- Monetary indicators and levels:
  - Monetary base and commercial banks’ reserves (BRB$ millions) shown across Jan-11 to May-16.
  - Banks' reserves at CBB and foreign reserves plotted; BRB$ millions.
  - Credit flows: Net credit to central government and credit to private sector (percent change).

### Financial Sector Developments
- With modest economic improvement in 2015, banks' NPLs are slowly coming down.
- Mortgage growth was flat in 2015.
- Capitalization ratios remain very high, providing buffers against shocks.
- With weak loan growth, banks’ liquid assets to total assets have increased.
- The sector's exposure to the government has increased significantly.
- Profitability of financial institutions remains weak.
- Selected financial ratios and trends:
  - Nonperforming Loans to Total Loans: Banks and Credit Unions series (2008–2015).
  - Return on Assets (percent): Banks and Credit Unions (2008–2015).
  - Capital Adequacy Ratio (percent): Banks and Credit Unions (2008–2015).
  - Banks' exposure to mortgages and to the government in BRB$ million and percent of GDP.
  - Liquid assets to total assets and loans and advances growth (percent).

### Social Development and Competitiveness Indicators
- Public social spending remains steady and is among the highest compared to neighboring countries.
- Spending on health and education is reflected in life expectancy and higher development outcomes than regional peers.
- Selected social and competitiveness statistics:
  - Life Expectancy, 2013: BRB appears among highest (figure labeled "Life Expectancy, 2013 (years)").
  - Human Development Index, 2014: BRB ranking among 188 (figure shown).
  - PPP GDP per capita, 2015 (PPP dollars) plotted.
  - Doing Business Indicators, 2016: Barbados falls behind on "Doing Business Indicators" (rankings out of 189 economies).
  - Global Competitiveness Index (WEF) and Travel and Tourism Competitiveness Index (WEF) rankings presented for 2013-14 and 2014-15; Barbados' Tourism Competitiveness ranking has declined.
  - Real Effective Exchange Rate (index: January 2000=100): Barbados' effective exchange rate has appreciated since 2008.
  - Market shares: Tourism, Goods exports and FDI show Barbados losing market share to other Caribbean destinations.

### Key Macroeconomic Indicators and Projections (selected)
- Output, prices, and employment (Est./Projection):
  - Real GDP: 0.0 (2013), 0.2 (2014), 0.8 (2015), 2.1 (2016), 2.3 (2017).
  - CPI inflation (average): 1.8 (2013), 1.9 (2014), -1.1 (2015), -0.1 (2016), 1.6 (2017).
  - CPI inflation (end of period): 1.1 (2013), 2.3 (2014), -2.5 (2015), 0.9 (2016), 2.3 (2017).
- Public finances (fiscal year ratios):
  - Revenue and grants: 26.7 (2013/14), 28.8 (2014/15), 29.7 (2015/16), projection 30.4 (2016/17 onward).
  - Expenditure: 37.7 (2013/14), 35.6 (2014/15), 36.7 (2015/16), projection ~36.8–38.1 (2016/17–2021/22).
  - Interest: 7.0 (2013/14), 7.6 (2014/15), 7.7 (2015/16), projection 10.2 (2021/22).
  - Balance (percent of GDP): -11.0 (2013/14), -6.9 (2014/15), -7.0 (2015/16), projection -7.6 (2021/22).
- Public debt (fiscal year, percent of GDP):
  - Central government gross debt (excl. NIS): 94.3 (2013/14), 98.0 (2014/15), 105.5 (2015/16), projection 114.2 (2021/22).
  - Central government gross debt (incl. NIS): 128.5 (2013/14), 132.3 (2014/15), 141.6 (2015/16), projection 151.8 (2021/22).
- Balance of payments / reserves:
  - Net international reserves (US$ millions): 731 (2012), 572 (2013), 526 (2014), 464 (2015), projection 450 (2021).
  - Months of imports: 4.0 (2012), 3.2 (2013), 3.0 (2014), 2.8 (2015), projection 2.2 (2021).

*Source: IMF staff report content as provided in the supplied PDF content unit.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Global Risks
- Sharp asset price decline and decompression of credit spreads.
  - Likelihood: Medium
  - Impact: Medium
  - Policy Response: Ensure that the recommended fiscal adjustment path remains on track, and accelerate growth-promoting structural reforms to boost investor confidence.
- Surge in the US dollar. Could further weaken cost competitiveness, although impact mitigated by large share of trade with the U.S. and dollar pegs of other Caribbean tourist destinations.
  - Likelihood: High
  - Impact: Medium
  - Policy Response: Structural measures to improve competitiveness and boost attractiveness to tourists. Strengthen social compact and contain wage increases to reduced competitiveness problems.
- Structurally weak growth in key advanced and emerging economies. Tourism sector is sensitive to growth in advanced economies, notably Canada, the U.K. and the U.S.
  - Likelihood: High/Medium
  - Impact: Medium
  - Policy Response: Structural measures to improve competitiveness and support development of other sectors.
- Reduced financial services by global/regional banks (“de-risking”). While commercial banks are foreign-owned and have not indicated plans to deleverage and/or pull out, a number of firms in the offshore financial center have already lost correspondent services.
  - Likelihood: Medium
  - Impact: Medium/High
  - Policy Response: Strengthen AML/CFT risk-based supervision of the offshore sector; Ensure full compliance with international standards on transparency of tax information; Explore industry initiatives to reduce costs of meeting heightened compliance requirements.

### Country-specific risks
- Fiscal financing pressures. Fiscal financing pressures, high borrowing costs, and possible monetization of the deficit raise the risk of a liquidity crisis and/or imperil the currency peg.
  - Likelihood: High
  - Impact: High
  - Policy Response: Accelerate the proposed fiscal adjustment to put debt on a downward path to reduce financing requirements and strengthen creditworthiness assessments.
- Fiscal slippages. These would reinforce market concerns about fiscal sustainability and default and undermine private sector confidence necessary for investment.
  - Likelihood: High
  - Impact: High
  - Policy Response: Step up reform of revenue administration and review expenditure, particularly transfers to state-owned enterprise.
- Brexit. Adverse impact on tourism and investment from uncertainties and economic spillovers associated with Brexit.
  - Likelihood: High
  - Impact: High
  - Policy Response: Ensure that the recommended fiscal adjustment path remains on track, and accelerate growth-promoting structural reforms to boost investor confidence.
- Zika virus. Increase incidents of Zika could adversely impact tourism arrivals and reduce growth.
  - Likelihood: Medium
  - Impact: Medium
  - Policy Response: Implement necessary measures to contain the spread of Zika to reduce the possible spread of the virus.

### Risk assessment framework and interpretation
- The RAM shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- Likelihood categories are staff’s subjective assessment of the risks surrounding the baseline:
  - "low" indicates a probability below 10 percent,
  - "medium" a probability between 10 and 30 percent,
  - "high" a probability between 30 and 50 percent.
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.

*Source: _cr16279 - Annex I. Risk Assessment Matrix*

### 1.5 is the max positive growth rate shock (percent)

### 1.5 is the max positive growth rate shock (percent)

### Restrictions on upside shocks
- Max positive growth rate shock: 1.5 (percent)
- No restriction on the interest rate shock
- Max positive public balance (pb) shock: 0 (percent of GDP)
- Max real appreciation shock: 0 (percent)

- Other listed restrictions / values (as presented):
  - 15
  - 45
  - 29%
  - 12

- Public Debt Held by Non-Residents (in percent of total) — label present without explicit numeric mapping in the excerpt.

### Realism of baseline assumptions (Barbados Public DSA: Figure A2.2)
- Forecast track record, versus all countries:
  - Real GDP growth: Barbados median forecast error = -1.50 (percent, actual-projection), percentile rank: 100%
  - Primary Balance: Barbados median forecast error = -4.05 (in percent of GDP, actual-projection), percentile rank: 100%
  - Inflation (Deflator): Barbados median forecast error = -1.73 (in percent, actual-projection), percentile rank: 100%

- Boom–Bust Analysis / Distribution notes:
  - Distribution data cover annual observations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis. (Footnote 5/)

- Assumed fiscal multiplier and persistence:
  - Assumed multiplier of 0, persistence of 0

- Growth and level of output in absence of fiscal adjustment:
  - Baseline real output (index): Baseline real output in 2016 = 100 (used as reference)
  - Implicit metrics shown for baseline real potential output and implicit real output without adjustment (figures presented graphically in source).

- Assessing projected fiscal adjustment:
  - Distributional indicators for 3-year CAPB adjustment:
    - 3-year CAPB adjustment greater than 3 percent of GDP in approx. top quartile
    - 3-year average CAPB level greater than 3.5 percent of GDP in approx. top quartile
  - Barbados has a percentile rank of 18% for 3-year CAPB adjustment and 50% for 3-year average CAPB level (as shown).

### Public Sector Debt Sustainability Analysis — Baseline scenario (Figure A2.3 and Table A2.1)
- Key debt, economic and market indicators (selected series and projections shown):
  - Nominal gross public debt (in percent of GDP): 65.2 (2014), 98.0 (2015), 105.5 (2016), 106.0 (2017), 106.7 (2018), 107.7 (2019), 109.3 (2020), 111.3 (2021), 114.2 (projection horizon)
  - Public gross financing needs (in percent of GDP): 22.7 (2014), 40.5 (2015), 46.8 (2016), 44.5 (2017), 51.1 (2018), 50.4 (2019), 50.4 (2020), 51.6 (2021), 54.7 (projection)
  - EMBIG (bp): 615 (reference)
  - Real GDP growth (in percent): 0.9 (2014), 0.4 (2015), 1.1 (2016), 2.2 (2017), 2.1 (2018), 1.6 (2019), 1.4 (2020), 1.2 (2021), 0.0 (later projection)
  - Inflation (GDP deflator, in percent): 1.3 (2014), -0.6 (2015), -0.4 (2016), 0.3 (2017), 1.8 (2018), 2.4 (2019), 2.5 (2020), 2.5 (2021), 3.0 (projection)
  - Nominal GDP growth (in percent): 2.2 (2014), -0.2 (2015), 0.7 (2016), 2.5 (2017), 4.0 (2018), 4.1 (2019), 3.9 (2020), 3.7 (2021), 3.0 (projection)
  - Effective interest rate (in percent): 8.7 (2014), 8.0 (2015), 7.9 (2016), 8.1 (2017), 8.4 (2018), 9.0 (2019), 9.4 (2020), 9.5 (2021), 9.4 (projection)

- Contribution to changes in gross public sector debt (cumulative, projection):
  - Change in gross public sector debt (cumulative): 5.2 (2005-2013 actual), 3.7 (2014), 7.4 (2015), 0.5 (2016), 0.7 (2017), 0.9 (2018), 1.6 (2019), 2.0 (2020), 2.9 (2021), 8.7 (cumulative projection)
  - Identified debt-creating flows: 4.7 (2005-2013 actual), 6.5 (2014), 5.5 (2015), 0.5 (2016), 0.7 (2017), 0.9 (2018), 1.6 (2019), 2.0 (2020), 2.9 (2021), 8.7 (cumulative projection)
  - Primary deficit (percent of GDP): 0.7 (2005-2013 actual), -0.7 (2014), -0.7 (2015), -2.0 (2016), -2.3 (2017), -2.6 (2018), -2.6 (2019), -2.6 (2020), -2.6 (2021), -14.4 (cumulative)
  - Primary (noninterest) revenue and grants (percent of GDP): 27.1 (2005-2013 actual), 28.8 (2014), 29.7 (2015), 30.4 (2016), 30.4 (2017), 30.4 (2018), 30.4 (2019), 30.4 (2020), 30.4 (2021), 182.7 (cumulative)
  - Primary (noninterest) expenditure (percent of GDP): 27.8 (2005-2013 actual), 28.0 (2014), 29.0 (2015), 29.0 (2016), 28.5 (2017), 28.2 (2018), 27.9 (2019), 27.9 (2020), 27.9 (2021), 168.3 (cumulative)
  - Automatic debt dynamics (percent): 4.3 (2005-2013 actual), 7.8 (2014), 7.0 (2015), 5.8 (2016), 4.5 (2017), 5.0 (2018), 5.7 (2019), 6.0 (2020), 7.0 (2021), 34.0 (cumulative)
    - Interest rate / growth differential (same series): 4.3; 7.8; 7.0; 5.8; 4.5; 5.0; 5.7; 6.0; 7.0; 34.0
    - Of which: real interest rate: 4.6; 8.2; 8.1; 8.0; 6.7; 6.7; 7.2; 7.3; 7.0; 42.8 (series as shown)
    - Of which: real GDP growth: -0.4; -0.4; -1.1; -2.2; -2.2; -1.7; -1.5; -1.3; 0.0; -8.8 (series as shown)
  - Other identified debt-creating flows (percent): -0.3 (2005-2013 actual), -0.7 (2014), -0.8 (2015), -3.3 (2016), -1.5 (2017), -1.5 (2018), -1.5 (2019), -1.5 (2020), -1.5 (2021), -10.8 (cumulative)
    - Foreign financing, Privatization receipts (negative): -0.1; 0.0; 0.0; -1.8; 0.0; 0.0; 0.0; 0.0; 0.0; -1.8
    - Contingent liabilities: 0.0 (series)
    - National Insurance Scheme: -0.2; -0.7; -0.8; -1.5; -1.5; -1.5; -1.5; -1.5; -1.5; -9.0
  - Residual, including asset changes: 0.5 (2005-2013 actual), -2.7 (2014), 2.0 (2015), 0.0 (2016 onward in projection)

- Underlying assumptions (selected projections by scenario table):
  - Baseline scenario (selected years):
    - Real GDP growth: 2.2 (2016), 2.1 (2017), 1.6 (2018), 1.4 (2019), 1.2 (2020), 0.0 (2021)
    - Inflation: 0.3 (2016), 1.8 (2017), 2.4 (2018), 2.5 (2019), 2.5 (2020), 3.0 (2021)
    - Primary Balance: 2.0 (2016), 2.3 (2017), 2.6 (2018), 2.6 (2019), 2.6 (2020), 2.6 (2021)
    - Effective interest rate: 8.1 (2016), 8.4 (2017), 9.0 (2018), 9.4 (2019), 9.5 (2020), 9.4 (2021)
  - Historical scenario (selected years):
    - Real GDP growth: 2.2 (2016), 0.5 (2017), 0.5 (2018), 0.5 (2019), 0.5 (2020), 0.5 (2021)
    - Primary Balance: 2.0 (2016), -0.8 (2017), -0.8 (2018), -0.8 (2019), -0.8 (2020), -0.8 (2021)
    - Effective interest rate: 8.1 (2016), 8.4 (2017), 9.5 (2018), 10.0 (2019), 10.1 (2020), 10.0 (2021)
  - Constant Primary Balance scenario:
    - Primary Balance held at 2.0 (2016–2021) in scenario table.

### Stress tests and scenario shocks (Figure A2.5 and Figure A2.6)
- Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Macro-Fiscal Shock are presented as scenario classes with resulting time-paths for gross nominal public debt and public gross financing needs.
- Scenario specifics (selected):
  - Real GDP Growth Shock path (2016–2021):
    - Real GDP growth: 2.2 (2016), 0.3 (2017), -0.2 (2018), 1.4 (2019), 1.2 (2020), 0.0 (2021)
    - Inflation: 0.3 (2016), 1.3 (2017), 1.9 (2018), 2.5 (2019), 2.5 (2020), 3.0 (2021)
    - Primary balance: 2.0 (2016), 1.6 (2017), 1.2 (2018), 2.6 (2019), 2.6 (2020), 2.6 (2021)
    - Effective interest rate: 8.1 (2016), 8.4 (2017), 9.0 (2018), 9.5 (2019), 9.4 (2020), 9.4 (2021)
  - Real Interest Rate Shock path (2016–2021):
    - Effective interest rate: 8.1 (2016), 8.4 (2017), 11.7 (2018), 12.7 (2019), 13.2 (2020), 13.6 (2021)
  - Real Exchange Rate Shock path (2016–2021):
    - Inflation: 0.3 (2016), 3.3 (2017), 2.4 (2018), 2.5 (2019), 2.5 (2020), 2.6 (2021)
  - Combined Shock (selected series):
    - Effective interest rate: 8.1 (2016), 8.5 (2017), 11.6 (2018), 12.6 (2019), 13.1 (2020), 13.5 (2021)
    - Real GDP growth, Inflation, Primary balance under combined paths mirror elements above (tabled in source).

- External debt sustainability bound tests (Figure A2.6):
  - Interest-rate shock panel shows an i-rate shock labeled with value "43" and baseline value "41" (percent scale for interest rate shock in graph).
  - Bound tests apply permanent one-half standard deviation shocks; combined shocks include permanent 1/4 standard deviation shocks and one-time real depreciation of 30 percent occurring in 2017 for a specified scenario.

### External debt and external sector (Table A2.1 and Annex III)
- Baseline: External debt (percent of GDP and projections):
  - External debt (in percent of GDP): 46.7 (2011), 45.4 (2012), 48.5 (2013), 49.0 (2014), 47.9 (2015), 47.2 (2016), 45.7 (2017), 44.3 (2018), 43.5 (2019), 43.1 (2020), 41.1 (2021)
  - Change in external debt (annual): 3.0 (2011), -1.3 (2012), 3.1 (2013), 0.5 (2014), -1.1 (2015), -0.7 (2016), -1.5 (2017), -1.4 (2018), -0.8 (2019), -0.4 (2020), -2.0 (2021)
  - Identified external debt-creating flows (4+8+9): 2.3 (2011), -1.7 (2012), 5.1 (2013), 1.8 (2014), 1.0 (2015), -1.5 (2016), -1.1 (2017), -0.6 (2018), 0.1 (2019), 0.5 (2020), 0.9 (2021)

- External sector components (selected):
  - Current account deficit, excluding interest payments (percent of GDP): 10.6 (2011), 7.1 (2012), 7.3 (2013), 7.0 (2014), 3.9 (2015), 2.9 (2016), 3.4 (2017), 3.7 (2018), 4.2 (2019), 4.5 (2020), 4.9 (2021)
  - Deficit in balance of goods and services (percent of GDP): 5.0 (2011), 5.1 (2012), 4.3 (2013), 5.0 (2014), 1.8 (2015), -0.1 (2016), 0.5 (2017), 0.7 (2018), 1.2 (2019), 1.5 (2020), 1.9 (2021)
  - Exports (percent of GDP): 47.3 (2011), 45.1 (2012), 44.8 (2013), 43.5 (2014), 44.1 (2015), 44.1 (2016), 43.9 (2017), 43.8 (2018), 43.5 (2019), 43.4 (2020), 43.1 (2021)
  - Imports (percent of GDP): 52.4 (2011), 50.2 (2012), 49.1 (2013), 48.6 (2014), 46.0 (2015), 43.9 (2016), 44.4 (2017), 44.4 (2018), 44.8 (2019), 44.9 (2020), 45.0 (2021)
  - Net non-debt creating capital inflows (negative shown): -11.4 (2011), -11.3 (2012), -3.6 (2013), -7.3 (2014), -5.5 (2015), -6.1 (2016), -6.1 (2017), -6.1 (2018), -6.1 (2019), -6.1 (2020), -6.1 (2021)

- Automatic debt dynamics (external) — contribution (percent):
  - Automatic debt dynamics: 3.1 (2011), 2.5 (2012), 1.4 (2013), 2.0 (2014), 2.6 (2015), 1.8 (2016), 1.5 (2017), 1.8 (2018), 1.9 (2019), 2.1 (2020), 2.1 (2021)
    - Contribution from nominal interest rate: 2.2 (2011), 2.2 (2012), 1.8 (2013), 2.8 (2014), 2.7 (2015), 2.8 (2016), 2.6 (2017), 2.6 (2018), 2.6 (2019), 2.6 (2020), 2.6 (2021)
    - Contribution from real GDP growth: -0.3 (2011), -0.1 (2012), 0.0 (2013), -0.1 (2014), -0.4 (2015), -1.0 (2016), -1.0 (2017), -0.7 (2018), -0.6 (2019), -0.5 (2020), -0.5 (2021)

- Residual, including change in gross foreign assets (2-3): 0.7 (2011), 0.4 (2012), -2.0 (2013), -1.3 (2014), -2.1 (2015), 0.8 (2016), -0.3 (2017), -0.8 (2018), -0.9 (2019), -0.8 (2020), -2.9 (2021)

- External debt-to-exports ratio (in percent): 98.7 (2011), 100.8 (2012), 108.4 (2013), 112.6 (2014), 108.4 (2015), 107.1 (2016), 104.2 (2017), 101.3 (2018), 99.9 (2019), 99.4 (2020), 95.4 (2021)

- Gross external financing need (in billions of US dollars and percent of GDP):
  - Absolute (US$ billions): 0.7 (2011), 0.5 (2012), 0.5 (2013), 0.5 (2014), 0.4 (2015), 0.4 (2016), 0.4 (2017), 0.4 (2018), 0.4 (2019), 0.4 (2020), 0.6 (2021)
  - In percent of GDP: 15.5 (2011), 11.0 (2012), 10.8 (2013), 11.4 (2014), 9.4 (2015), 8.2 (2016), 8.4 (2017), 8.5 (2018), 8.6 (2019), 8.2 (2020), 10.4 (2021)

- Scenario with key variables at their historical averages (10-year historical averages and standard deviations are presented in the table; selected underlying macro assumptions):
  - Real GDP growth (in percent) — historical averages and projections shown: 0.8; 0.3; 0.0; 0.2; 0.8; 0.6; 2.3; 2.1; 2.3; 1.7; 1.5; 1.2; 1.2 (table sequence as presented)
  - GDP deflator in US dollars (change in percent): -2.7; -0.9; 0.9; 1.5; -0.5; 0.8; 2.8; -0.1; 1.6; 2.4; 2.5; 2.5; 2.5
  - Nominal external interest rate (in percent): 4.9; 4.7; 4.0; 5.9; 5.6; 6.1; 1.3; 5.9; 5.7; 5.8; 6.0; 6.1; 6.1
  - Growth of exports (US$ terms, in percent): 0.2; -5.3; 0.2; -3.2; 1.7; 0.6; 8.3; 1.8; 3.6; 3.7; 3.5; 3.4; 3.0
  - Growth of imports (US$ terms, in percent): 1.9; -4.8; -1.2; -1.5; -5.1; -0.4; 8.6; -2.5; 5.1; 4.0; 4.8; 4.1; 4.0
  - Current account balance, excluding interest payments: -10.6; -7.1; -7.3; -7.0; -3.9; -6.0; 2.4; -2.9; -3.4; -3.7; -4.2; -4.5; -4.9
  - Net non-debt creating capital inflows: 11.4; 11.3; 3.6; 7.3; 5.5; 6.7; 3.2; 6.1; 6.1; 6.1; 6.1; 6.1; 6.1

### External Sector Assessment, Competitiveness, and Reserve Adequacy (Annex III)
- Overall assessment:
  - The Barbados dollar remains moderately overvalued although improvements in the terms of trade have narrowed the gap with fundamentals.
  - The EBA-lite assessment (current account, equilibrium exchange rate and external sustainability) points to an overvaluation of about 5-10 percent.
  - Quantitative approaches are limited by lack of consistent data (e.g., on net foreign assets (NFA) and terms of trade).
  - Qualitative measures suggest competitiveness may have weakened, though tourism performance indicates improvement.
  - Reserves are broadly adequate, but staff estimates suggest they are below the level considered comfortable for a small island economy with a fixed exchange rate.

- EBA-Lite current account methodology results:
  - Estimated overvaluation from current account approach: 4.8 percent (stated as "The EBA-Lite current account methodology suggests that the exchange rate is overvalued by 4.8 percent.")
  - Estimated cyclically adjusted current account and norms used:
    - Cyclically adjusted CA: -4.96% (presented)
    - Cyclically adjusted CA Norm: -3.33%
    - CA-Actual: -4.60%
    - CA-Fitted: -1.89%
    - CA-Norm: -2.97%
    - Residual: -2.72%
    - CA-Gap: -1.63%
    - Policy gap: 1.09%
    - Elasticity: -27.53%
    - RER Gap: 5.92%
    - Cyclical Contributions: 0.35%

- REER Index Model:
  - ln(REER)-Actual: 4.80
  - ln(REER)-Fitted: 4.75
  - ln(REER)-Norm: 4.75
  - Residual: 0.05
  - REER-Gap: 0.05
  - Policy gap: 0.00

- EBA-lite external sustainability analysis:
  - Suggests the Barbados dollar may be slightly overvalued at about 9.6 percent.
  - For Barbados to stabilize its NFA, it would have to maintain its CA deficit at about 5 percent of GDP.

- Qualitative competitiveness indicators:
  - Global Competitiveness Index ranking: declined from 47th to 55th (period 2013/2014 to 2014/15 as presented).
  - Travel and Tourism Competitiveness Index ranking: declined from 27th to 46th (2013 to 2015).
  - Tourism data (contradictory signal): arrivals indicate an increase in tourism market share, with Barbados receiving the largest increase in stay-over visitors in the Caribbean after Cuba and Aruba; visitor expenditure picked up at a slower pace.
  - Factors cited for improved tourism performance in 2015: recovery in key markets (including the UK), entrance of a well-known tourism chain (including Sandals Resorts International), increased airlift, and strengthened marketing effort.

*Source: Fund staff calculations and country desk data (excerpts from the IMF Barbados Public DSA and Annex III).*

### 5.      There have been several recent initiatives to enhance tourism competitiveness

### _cr16279 - 5.      There have been several recent initiatives to enhance tourism competitiveness

### Tourism institutional reforms and marketing initiatives
- Two agencies established in September 2014 to replace the Barbados Tourism Authority:
  - Barbados Tourism Marketing Inc. (BTMI): tasked with marketing the country.
  - Barbados Tourism Product Authority (BTPA): focuses on development of Barbados tourism attractions and infrastructure.
- BTMI strategies:
  - Focused on innovative approaches to increase airlift and building “strong alliances” with travel agencies, tour operators and local partners to increase Barbados marketing presence.
  - Launched, with the Barbados Hotel & Tourism Association (BHTA), the “Brilliant Barbados” promotion aimed at increasing forward booking for the softer summer and fall periods, with value-packed deals.
- Product quality and standards initiatives:
  - Updating visitor accommodation regulations to internationally-recognized visitor short-term accommodation standards to ensure Barbados remains globally competitive in an evolving tourism product market.
  - Introduction of a “Mystery Shopper Programme” for Visitor Accommodation, Tourism Services and Service Providers to objectively assess amenities and services comprising Barbados’ Tourism Product; the Programme is intended to provide valuable feedback to all Tourism Service Providers and enhance product quality offerings and tourism services.

### Tourism earnings, structural issues, and policy recommendations
- Despite a surge in tourism arrivals, travel receipts and GDP impact remain low; there is scope to enhance earnings from tourism.
- IMF study (“Revisiting Tourism Flows to the Caribbean: What is driving arrivals” WP/14/229) findings and implications for Barbados:
  - Need for structural reforms to raise product quality and reduce cost in destinations like Barbados.
  - Benefits from integrating sectors, including agriculture supply chains, with tourism.
  - Additional reforms needed to safeguard the “brand” and ensure longer-term competitiveness.
  - Policy recommendations include incentives for investment in the tourism human capital stock (including through better skills matching and training).

### Reserve adequacy assessment and external position (prospective 2016)
- Reserve position expected to improve slightly in 2016 mainly on account of a further decline in the current account deficit, reflecting low commodity prices and an increase in official borrowing (including a loan from the Export-Import Bank of China).
- Reserves projected increase: from 2.8 to 3.1 months of prospective imports.
- Assessment by metrics:
  - Reserves exceed the short-term external debt by a substantial margin.
  - Reserves are somewhat higher than the threshold using the short-term external debt rule or the Fund’s reserve adequacy metric (ARA) controlling for capital controls in place.
  - Reserves are significantly lower than the estimated threshold using metrics that take into account capital flight-related risks when capital controls are ineffective—given the level required to cover broad money.
  - Reserves are also below “comfortable” levels for small open economies with high debt and fixed-exchange rate regimes.

### Financial stability risks and banking sector indicators (Annex IV highlights)
- Methodology: financial stability assessed using country financial stability map methodology and a credit cycle and Financial Soundness Indicators (FSI) heat map.
- Macroeconomic and credit risk indicators:
  - Declined slightly over the past eighteen months but remain above the normalized historical average.
  - Contributing factors to macro risk: although growth turned positive, high unemployment, low growth, and fiscal deficits.
- Banking sector structure and soundness:
  - Financial system dominated by strongly capitalized and highly liquid foreign commercial banks.
  - Liquidity is extremely high, reflecting weak economic performance and slow private sector credit growth.
  - Banks’ holdings of government treasury bills and debentures are about 15 percent of their total assets.
  - Profitability indicators (ROA and ROE) are low by historical standards but beginning to increase.
  - NPL ratio: 10.6 percent in 2015Q4 (very high but slowly declining).
  - Banks’ average leverage ratio is stable and close to the range for advanced economies with highly developed banking systems; it falls within the template’s medium vulnerability threshold range.
- Selected banking sector numeric indicators (quarterly and annual series as reported):
  - NPL ratio series (selected points): 13.9, 11.3, 11.7, 11.0, 12.2, 12.2, 11.5, 11.4, 11.0, 10.8, 10.6.
  - NPL ratio change (%, annual) series (selected points): 13.0, -11.0, -9.3, -20.9, -12.2, 8.0, -1.7, 3.6, -9.8, -11.5, -7.8.
  - ROA series (selected points): 1.0, 0.9, 0.7, 0.7, 0.7, 0.7, 0.7, 0.7, 0.7, 0.8, 0.9.
  - ROE series (selected points): 3.2, 2.5, 2.6, 3.2, 3.4, 3.5, 2.8, 3.3, 4.2, 5.0, 5.5.
  - Deposit-to-loan ratio series (selected points): 138.8, 140.3, 142.6, 145.9, 142.3, 142.2, 142.3, 145.6, 150.1, 150.6, 152.6.
  - Leverage ratio (%) series (selected points): 4.5, 4.4, 4.0, 4.0, 4.1, 4.0, 4.3, 4.0, 4.3, 4.0, 4.0.
- Credit cycle indicators:
  - Change in credit / GDP ratio (pp, annual) series (selected points): -4.3, -5.7, -10.8, -23.2, -18.6, -27.0, -24.4, -0.5, -9.2, 0.3, -1.5.
  - Growth of credit / GDP (%, annual) series (selected points): -0.8, -1.1, -2.1, -4.5, -3.7, -5.3, -4.8, -0.1, -1.9, 0.1, -0.3.
  - Credit-to-GDP gap (st. dev) series (selected points): -0.5, -0.5, -0.7, -1.9, -1.5, -1.4, -0.9, -0.1, -0.5, 0.0, 0.2.

*Information extracted from the IMF staff report content provided.*

### 9.9 percent of CDB’s total disbursements to its BMCs.

### _cr16279 - 9.9 percent of CDB’s total disbursements to its BMCs.

### Caribbean Development Bank (CDB) disbursements and sectoral approvals (2004–2015)
- 9.9 percent of CDB’s total disbursements to its BMCs.
- Table of sectoral approvals by year (as presented):
  - 2004: 3.4 — Manufacturing and Industry; Agriculture and Rural Development; and Transportation and Communication.
  - 2005: 4.1 — Tourism; Manufacturing and Industry; and Social Infrastructure and Services.
  - 2006: 20.4 — Tourism; Manufacturing and Industry; Agriculture and Rural Development; Social Infrastructure and Services; Financial, Business and Other Services; and Environmental Sustainability and Disaster Risk Reduction.
  - 2007: 32.4 — Manufacturing and Industry; Transportation and Communication; Financial, Business and Other Services; and Multi-Sector.
  - 2008: 0.1 — Multi-Sector; Financial, Business and Other Services; and Multi-Sector.
  - 2009: 13.3 — Tourism; Manufacturing and Industry; Social Infrastructure and Services; and Multi-Sector.
  - 2010: 62.1 — Manufacturing and Industry; Agriculture and Rural Development; Social Infrastructure and Services; Transportation and Communication; Power, Energy, Water, and Sanitation; and Multi-Sector.
  - 2011: 35.3 — Agriculture and Rural Development; Manufacturing and Industry; Social Infrastructure and Services; and Multi-Sector.
  - 2012: 2.1 — Manufacturing and Industry; Social Infrastructure and Services; and Financial, Business and Other Services.
  - 2013: 39.9 — Transportation and Communication; Environmental Sustainability and Disaster Risk Reduction; and Manufacturing and Industry.
  - 2014: 6.4 — Manufacturing and Industry; Social Infrastructure and Services; and Financial, Business and Other Services.
  - 2015: 31.0 — Power, Energy, Water and Sanitation and Social Infrastructure and Services.
- Source: Caribbean Development Bank.

### Approvals of Loans, Contingent Loans, Equity and Grants (Net) 2004–15 — disbursed and undisbursed balances (Table 3)
- Year / Disbursed / Undisbursed (as presented):
  - 2005: Disbursed 8.6 / Undisbursed 47.5
  - 2006: Disbursed 9.3 / Undisbursed 62.2
  - 2007: Disbursed 23.6 / Undisbursed 71.3
  - 2008: Disbursed 25.2 / Undisbursed 47.2
  - 2009: Disbursed 16.8 / Undisbursed 46.1
  - 2010: Disbursed 32.8 / Undisbursed 43.2
  - 2011: Disbursed 11.8 / Undisbursed 32.3
  - 2012: Disbursed 7.5 / Undisbursed 102.4
  - 2013: Disbursed 12 / Undisbursed 101.2
  - 2014: Disbursed 11 / Undisbursed 91.3
  - 2015: Disbursed 5.4 / Undisbursed 124.3
- Source: Caribbean Development Bank.

### Statistical issues — Assessment of Data Adequacy for Surveillance (as of June 28, 2016)
- General:
  - Data provision is deemed to be broadly adequate for surveillance despite shortcomings in GDP at constant and current prices, consumer prices, financial reporting by public enterprises (statutory bodies) and discrepancies on external sector data (net foreign assets), including international investment position (IIP).
  - Shortcomings are due to weak capacity; IMF experts, mainly from CARTAC, provide technical assistance.
  - Barbados participates in GDDS since May 2000 and in the enhanced GDDS.
- National Accounts:
  - Barbados Statistical Services (BSS) compiles GDP at current prices according to the 1993 system of national accounts.
  - GDP at constant prices (real) is compiled by the Central Bank of Barbados (CBB) on an annual basis using the production approach at a highly aggregated level with partial data and an outdated 1974 base year; Fund experts determined these estimates should be viewed as “projections” rather than statistics.
  - Neither agency publishes an estimate of a GDP deflator.
  - Series have moved in different directions since 2011 and cannot be reconciled with CPI.
  - IMF experts are supporting BSS in production of a constant price series; BSS committed to disseminate annual real GDP estimates and quarterly nominal and real GDP by October 2016 and staff urged moving production officially to BSS after addressing inconsistencies.
  - BSS is finalizing constant price series by industry and plans to develop quarterly constant price estimates by industry; medium-term goal: construct GDP by expenditure quarterly and annually.
- Price Statistics:
  - BSS, with CARTAC support, published producer price indexes (PPI) covering 27 industries and 68 establishments representing 80 percent of manufacturing output, and export and import price indices.
  - Output hampered by weaknesses in survey and processing; reliability of recent numbers is in question.
  - CPI uses an expenditure basket for 1998–99 for July 2001=100 series introduced in January 2002.
  - BSS is working towards a new index of industrial production with base year 2014.
  - Absence of a systematic index of property prices leaves potential misalignments in real estate prices unaddressed.
- Government Finance Statistics:
  - Fairly comprehensive and up-to-date above-the-line data for central government budgetary accounts, but government transfers are reported with a lag.
  - Authorities reported for the GFSY 2015 edition, but most recent year provided is 2013.
  - Incomplete coverage of off-budget transactions creates discrepancies between overall balance and financing in some years.
  - Public enterprises (PEs) and statutory bodies have not submitted financial reports for several years; some reports date back to 2007 or 2009.
  - Authorities are increasing resources at the Ministry of Finance (MoF) to monitor largest PEs; compliance has increased but more work is needed.
  - Information on central government arrears has improved; a more comprehensive measure should include general government and the Barbados Revenue Agency.
  - Financial sector data on public sector net domestic borrowing cannot be fully reconciled with above-the-line fiscal data due to limited nonbank financial sector information and contracting of liabilities by PEs.
  - Authorities introduced accrual accounting of public finance in April 2007; further refinements underway.
  - Public sector debt data based on end-March 2016 data from the Debt Management Unit at MoF; CBB presents differing debt data for timing and source reasons. Staff uses MoF data.
  - STA has not received recent requests for TA in government finance statistics.
- Monetary and Financial Statistics:
  - Monetary data available on CBB website, but these data have not been reported to STA nor published in IFS since May 2012.
  - Monetary survey uses only central bank and commercial bank data; recommendation to expand to other deposit-taking institutions and three largest credit unions not implemented; actual monetary data are under-estimated.
  - Interest rate data (T-bill, deposit and lending rates) are available on CBB website.
  - CBB and FSC publish financial stability reports analyzing FSIs; authorities compile FSIs for their own use but do not report them to STA.
- External Sector Statistics:
  - Authorities making efforts to provide more comprehensive quarterly balance of payments estimates; hampered by lags in trade in services data and incomplete offshore sector activity information.
  - Lack of data on external private debt prevents full quantitative assessment of external position.
  - Current and capital account estimates need improvement given sometimes large errors and omissions.
  - Tourism receipts may not comprehensively capture tourism spending (uncertainty whether Airbnb and similar services are adequately captured).
  - Barbados provides IIP estimates with a lag; these data do not appear consistent with balance of payments data.
  - CBB should continue CARTAC assistance to reconcile IIP with the balance of payments.
  - Data on official reserve assets are not disseminated on a timely basis or according to a fixed schedule; should be circulated monthly within one to four weeks after the end of the reference month.

### Data Standards and Quality
- Country is a GDDS participant; most metadata (except real sector and socio-demographic) have not been updated since October 2002.
- At authorities’ request, STA conducted an SDDS assessment and provided a draft action plan that could lead to SDDS subscription.
- Table of Common Indicators Required for Surveillance (selected entries as presented):
  - Exchange Rates: Fixed — Date of latest observation 04/2016; Date received 05/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 04/2016; Date received 05/2016; Frequency M M M.
  - Reserve/Base Money: 04/2016 / 05/2016 / M M M.
  - Broad Money: 12/2015 / 03/2016 / M M M.
  - Central Bank Balance Sheet: 04/2016 / 05/2016 / M M M.
  - Consolidated Balance Sheet of the Banking System: 01/2016 / 04/2016 / M M M.
  - Interest Rates: 03/2016 / 05/2016 / M M M.
  - Consumer Price Index: 12/2015 / 04/2016 / M M M.
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government: 03/2016 / 05/2016 / Q Q Q.
  - Stocks of Central Government and Central Government-Guaranteed Debt: 03/2016 / 05/2016 / Q Q Q.
  - External Current Account Balance: 12/2015 / 05/2016 / Q Q Q.
  - Exports and Imports of Goods and Services: 12/2015 / 04/2016 / Q Q Q.
  - GDP/GNP: 2014 / 03/2016 / A A A.
  - Gross External Debt: 03/2016 / 05/2016 / A A A.
  - International Investment Position: 2013 / 10/2015 / A I I.
- Frequency codes: D; W; M; Q; A; I; NA (as defined in the table).

### Statement by the IMF Staff Representative on Barbados (August 22, 2016) — key developments and staff appraisal
- Economic developments since the Article IV mission:
  - CBB reported growth in the first six months of 2016 was 1.3 percent and lowered its projection for the year to 1.5 percent, reflecting first-half performance, a delay of a large tourism investment project, slower growth of tourism arrivals, and concerns about Brexit.
  - Unemployment rate declined from 10.2 percent in 2015Q4 to 9.3 percent for 2016Q1.
  - Growth in tourism arrivals slowed to 5.3 percent compared to 14.7 in the first half of 2015.
  - Producer prices are down 3 percent from May 2015 while the CPI fell by 1.4 percent by end-March.
- External developments:
  - Lower fuel prices, recovery in merchandise exports, and continued growth in tourism receipts improved current account relative to first half of 2015.
  - Long-term private capital inflows have increased.
  - Official debt service and short-term outflows caused reserves to fall by US$21.5 million to US$441.9 million, compared with Staff’s revised end-2016 estimate of US$ 458 million, or about 3 months of imports).
- Fiscal developments:
  - Government finances deteriorating and funding challenges intensified.
  - CBB reported deficit in first quarter of FY2016/17 (April to June) increased by about 0.25 percent of GDP, mainly due to lower revenues.
  - Non-interest expenditures declined broadly offsetting lower revenues, but interest costs were higher.
  - CBB significantly increased funding of the government as commercial banks reduced their lending and rolled over less; about two-thirds of this funding came from the CBB on-lending commercial banks’ excess reserves, and a third reflected the creation of new money.
- Government budgetary proposals presented August 16:
  - Measures intended to reduce the cash deficit by about 1.8 percent this year and continue consolidation to bring the deficit to about 2.5 percent in 2018 — the government’s medium-term real growth target.
  - Main measures: a new social responsibility levy on imports to help pay for medical costs and support an improved sanitation program; increase in the bank asset tax from 0.2 percent to 0.35 percent; and a tax amnesty.
  - Expenditure side: budget targets reducing spending by about 0.6 percent of GDP through increased efficiencies and continued reduction in transfers to public enterprises.
  - Budget noted there would be no new capital controls.
  - Privatization, new tourist projects, and accelerated drawdown from development banks are expected to increase international reserves to over US$500 million in the coming months.
  - Budget reiterated commitment to meet debt service obligations and to develop a refinancing plan for state enterprises to better manage contingent liabilities; provided for increased tax exemptions for certain tourist developments.
- Staff appraisal:
  - Staff welcomes government’s commitment to continue fiscal consolidation but cautions that further increase in tax exemptions could erode revenue performance.
  - Developments in first half of year (delayed investment, slower tourism arrivals, Brexit) likely to reduce growth to below 2.0 percent in 2016 and 2017.
  - Budgetary measures should more than offset weaker growth effects on the debt profile — assuming full and timely implementation.
  - More may need to be done to stabilize debt over the medium term, particularly if growth fails to pick up as envisaged.
  - Staff’s key points: support the economic recovery, renew the reform effort, reduce the fiscal deficit and bring down public debt remain valid.

### Statement by Michael McGrath, Alternate Executive Director for Barbados and Lorie Zorn, Senior Advisor (August 22, 2016) — authorities’ view (excerpt)
- Authorities express broad agreement with staff on challenges and policy proposals, while noting differences of view given past years of fiscal consolidation and the need to maintain social consensus.
- Economic overview (authorities’ perspective):
  - Real GDP grew by almost 1 percent in 2015 — the highest rate since 2007 — and pace increased into 2016.
  - Between January and June, the economy grew by 1.3 percent compared to virtually no growth over same period in 2015.
  - Tourist arrivals grew by about 14 percent over 2015 and continued to grow into 2016 at a slower rate of 5 percent.
  - Financial services sector contributes to almost one quarter of GDP and has maintained a small but steady pick-up.
  - These developments have helped increase employment and reduce the unemployment rate (authorities’ narrative continues in source).

*Source: IMF staff report content as provided in the supplied PDF excerpt.*

### 12.5 percent in the latter half of 2014 to an average of 11.5 percent in the latter half of 2015.

### _cr16279 - 12.5 percent in the latter half of 2014 to an average of 11.5 percent in the latter half of 2015.

### Economic outlook and labor market
- Unemployment reached an average of 9.3 percent over the first quarter of 2016.  
- The Barbadian authorities forecast economic growth of 1.5 percent in 2016, citing expected delays in major tourism and other commercial investment projects as reasons for a slower pace for the remainder of the year.  
- Main downside risk from the recent fall in the value of the pound sterling: potential reduction in real estate sales to U.K. residents.  
- Upside potential: higher growth if investment in tourism and alternative energy can be accelerated.  
- Inflation, largely imported via fuel and commodity prices, has continued to decline further into negative territory.

### External balances and foreign reserves
- Despite strong tourism and a narrowing current account deficit, a decline in private investment plus higher external debt service requirements led to a decline in foreign exchange reserves of approximately BDS$168 million (USD 84 million) since the end of 2014.  
- Reserve cover declined from 14.7 weeks at end-2014 to 13.5 weeks at end-June 2016 (a decline of about 1 week of import cover).  
- Loss of reserves from January to June 2016 was about half as large as that experienced in the first six months of 2015.  
- Projected restoration: private foreign inflows for known investment projects (mostly hotel development), plus tightened foreign exchange outflows related to recently announced budget measures, are expected to restore the stock of reserves to approximately BDS$938 million (USD 470 million), equivalent to about 14 weeks of import cover, by the end of this year.  
- Authorities view BDS$938 million (~14 weeks) as adequate to protect the Barbados currency but acknowledge little margin for maneuver in the event of a downside shock.  
- Medium-term goal: restore reserves to a level closer to 18 weeks of import cover, requiring a reduction in public sector spending alongside increased economic activity.

### Fiscal performance and outlook
- Publicly announced target deficit of 4.5 percent (accrual basis) for 2015-16 was achieved despite delays in investment projects and slow implementation of certain 2015 budget measures.  
- This compares to a deficit of 5.0 percent (on an accrual basis) in 2014-15.  
- On a cash basis, lower-than-expected growth in tax revenues plus higher-than-expected capital transfers resulted in a cash deficit greater than originally anticipated.  
- With the exception of two tax measures, all of the June 2015 policy changes have been fully implemented.  
- Additional actions announced in the August Budget and Financial Statement (BFS) aim to maintain credibility in fiscal rationalization and a sustained economic recovery.  
- A further increase in the gross government debt-to-GDP ratio is implied in the near term.  
- Authorities judge debt sustainable in the short term, noting low concentration of foreign debt: foreign debt service accounts for only 8 percent of balance-of-payment current account credits.  
- Appropriate policy actions are expected to contain and eventually reverse the debt ratio in the longer term.

### Fiscal policy agenda and measures
- Historical context: response to an 11 percent deficit in fiscal year 2013-14 involved extensive fiscal consolidation; cash deficits declined to approximately 7 percent of GDP in 2014-15 and 2015-16.  
- Authorities committed to reducing the fiscal deficit below the rate of economic growth in the near term and achieving balance by 2020; work on a fiscal responsibility law continues with technical assistance.  
- Recent measures to increase revenues and reduce expenditures include tax measures and a reduction in the contingent of public sector employees; effects have only recently started to materialize.  
- August BFS specific adjustments:
  - Effective September 1, 2016, a National Social Responsibility Levy at a rate of 2 percent on all imports into Barbados (except goods for manufacturing, agriculture and tourism) to assist in offsetting the costs of financing public health care service provision in Barbados.
  - Effective April 1, 2016, the Bank Asset Tax will increase from the current rate of 0.2 percent to 0.35 percent.
  - An amnesty on interests and penalties on taxes owed across the tax categories of VAT, Income, and Land taxes will be granted from September 15, 2016 to February 15, 2017 if the full balance of the principal is paid within this time frame.
  - BDS$50 million in approved expenditure will be cut across all ministries in the 2016-17 fiscal year.
- Structural public sector reforms to complement fiscal measures:
  - Restructuring public enterprises through improved governance and financial management, and through mergers and eliminations to increase efficiency.
  - Centralized Barbados Revenue Authority fully established to oversee and enforce collection of all taxes and excise duties; new common IT system to streamline operations, increase tax compliance, and reduce tax refund arrears.
  - Proposed mergers involving the National Housing Corporation and other organizations with mandates related to tourism, sports, and delivery of social goods—consultations mean decisions likely not completed before year end.
  - Planned enhancements to government procurement: stronger legal framework, enhanced procurement operations, and governance; procurement legislation well advanced and should be brought before Parliament before year end.
- Financing the deficit:
  - Commercial banks increased holdings of government debt by more than BDS$150 million over the 2015-16 fiscal year.
  - Central Bank of Barbados recycled BDS$238 million of surplus funds (excess commercial bank reserves on deposit at the central bank) and provided BDS$190 million in new financing.
  - Central bank credit to the government is expected to decline along with deficit reduction.
- Arrears and tax refunds:
  - Authorities intend a more aggressive, multi-faceted approach to tackle the stock of arrears, including elimination of zero-ratings in the VAT system and exchanging owed payments for arrears.
  - Over BDS$200 million in tax returns was paid out to Barbadians in fiscal year 2015-16; government intends to continue to pay tax refunds in line with cash flows.

### Monetary and financial sector policy and stability
- Financial system remains stable and resilient despite difficult economic environment.  
- Central bank focus: preserving the fixed exchange rate by ensuring adequate reserves and maintaining a small spread between short-term domestic and U.S. interest rates.  
- Following April 15, 2015 elimination of central bank stipulated minimum deposit rates, there was an attempt to narrow the Barbados-U.S. spread and reduce the Barbados risk premium via intervention in the Treasury bill auction; minor rate reductions could not be sustained due to government cash flow needs and the spread returned to average levels maintained since 2009.  
- Authorities and staff view Barbadian banks as well-capitalized and liquid, with low exposure to foreign liabilities. Parent banks and banking systems remain financially sound per national financial stability reports.  
- 2015 banking sector improvements: write-offs of bad loans and non-performing loans decreased; profitability increased substantially. Loan growth overall remained weak; excess cash holdings in 2015 were more than double the required amount.  
- Stress tests of deposit-taking institutions and the insurance sector indicate the system could withstand a range of adverse shocks.  
- Regulatory and supervisory standards have continually improved; authorities aim to further strengthen financial practices in line with outstanding Financial Sector Assessment Program and Financial Action Task Force recommendations.  
- Regional cooperation to address de-risking and the decline in correspondent banking relationships is ongoing.

### Economic data and capacity building
- Authorities agree with staff that improving data quality is of high importance.  
- Continued work with the Fund’s technical assistance program to resolve outstanding data issues; pressing for a long-term resident advisory to build capacity in this area.

### Enhancing medium-term growth
- Government medium-term agenda (first outlined in 2013) aims to meet fiscal and foreign exchange targets and objectives for balanced, sustainable, and inclusive economic growth.  
- Growth strategy focuses on enhancing competitiveness and increasing private sector activity in foreign exchange earning sectors: tourism, international business, competitive exports (mainly bottled rum and chemical products for household use), and developing an alternative energy sector to reduce energy costs.  
- Government support: fiscal incentives for private investment, direct financial support for priority investment projects, infrastructure improvements, and facilitating a competitive business environment through efficient public services.
- Measures supporting growth objectives:
  - Tourism: increased airlift from key source countries negotiated; tax incentives for tourism services companies improved; several high-end hotel and port development projects launched; amendment to Tourism Development Act to permit eligible hotel property owners access to concessions for multi-year refurbishment and renovation projects.
  - Capital markets: launch in March of an international securities market under the Barbados Stock Exchange aimed at smaller firms, with low listing fees and a comprehensive governance and regulatory framework tailored to small and mid-sized firms.
  - Renewable energy: legislation passed to support producers and consumers; fiscal incentives to install solar photovoltaic systems introduced; a floor price for power generated by independent producers of renewable energy established.
  - Business environment: fees and licenses for business operations reduced by 50 percent; new policy framework for small and medium-size business development being finalized; a reimbursable grant of up to BDS$50,000 to be established to help local companies improve product and service quality to international standards.
  - Infrastructure: 5-year plan to improve several major roads and connectivity across the island being launched with financial support from the Inter-American Development Bank and the Latin American Development Bank.

### Conclusion and policy stance
- Barbados economy is gaining strength after many challenging years; prior fiscal actions are taking hold while safeguarding growth potential and maintaining social consensus.  
- The August Budget and Financial Statement demonstrates further movement toward improving Barbados’ position and reinforces commitment to fiscal, financial, and structural adjustments to significantly reduce the deficit while protecting the ability to generate strong, sustainable growth.  
- Authorities stand ready to take additional measures should adverse developments threaten the adjustment program; success will require careful, measured progress supported through Barbados’ strong social partnership framework to minimize impacts on living standards and protect the vulnerable.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16279.pdf_