IMF Executive Board Concludes 2017 Article IV Consultation with Barbados
IMF News, January 31, 2018
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- Published: January 31, 2018
Economic performance and outlook
- Real GDP growth reached 1.6 percent in 2016, projected to slow to 0.9 percent in 2017 and 0.5 percent in 2018.
- CPI inflation (average) was 1.5 percent in 2016, projected at 4.5 percent in 2017 and 5.1 percent in 2018.
- CPI inflation (end of period) was 3.8 percent in 2016, projected at 7.4 percent in 2017 and 3.0 percent in 2018.
- Slower growth reflects increased pace of fiscal consolidation and policy uncertainty related to forthcoming elections.
- Inflation is projected to rise by year end to 5.5 percent as a result of recent tax increases but return to its historical norm in the medium term.
External sector and international reserves
- Current account deficit declined to 4.4 percent of GDP in 2016, about half that in 2014.
- Current account deficit projected at 3.7 percent in 2017 and 2.9 percent of GDP in 2018.
- Net international reserves (NIR) declined to about US$275 million at end-September (1.6 months of imports).
- Net international reserves (US$ millions) by year: 526.0 (2014), 463.0 (2015), 340.5 (2016), 275.3 (2017), 331.7 (2018).
- Weakness in the financial account and delayed privatization expected to contribute to continued weak reserves.
- Exports of goods and services: -3.6 (2014), 3.2 (2015), 6.5 (2016), -0.3 (2017), 2.5 (2018).
- Imports of goods and services: -1.5 (2014), -3.9 (2015), 0.2 (2016), -1.7 (2017), 2.9 (2018).
Fiscal consolidation, deficit, and debt
- Fiscal deficit (Central Government, percent of GDP, fiscal year): -7.5 (2014), -8.9 (2015), -5.5 (2016), -4.1 (2017), -3.0 (2018).
- Revenue and grants (percent of GDP): 25.7 (2014), 26.1 (2015), 28.5 (2016), 29.1 (2017), 29.8 (2018).
- Expenditure (percent of GDP): 33.3 (2014), 35.0 (2015), 34.0 (2016), 33.1 (2017), 32.8 (2018).
- Interest Expenditure (percent of GDP): 7.0 (2014), 7.7 (2015), 7.3 (2016).
- Primary Balance (percent of GDP): -0.5 (2014), -1.8 (2015), 2.2 (2016).
- Central government gross debt (excludes NIS holdings, percent of GDP): 93.4 (2014), 101.0 (2015), 100.9 (2016), 97.2 (2017), 93.9 (2018).
- Central government gross debt (includes NIS holdings, percent of GDP): 125.4 (2014), 134.7 (2015), 137.0 (2016), 132.8 (2017), 128.7 (2018).
- Central government debt at end-FY2016/17 was 137 percent of GDP or 101 percent of GDP excluding securities held by the National Insurance Scheme (NIS).
- Fiscal deficit estimated to have declined to 5.5 percent of GDP in FY2016/17 reflecting stronger revenue performance, including the introduction of the National Social Responsibility Levy (NSRL) and one-off factors.
- Staff project fiscal deficit of 4.1 percent of GDP in FY2017/18 without divestment proceeds; shortfalls in NSRL revenues and higher transfers to SOEs reduced planned consolidation.
- Larger than expected fiscal deficit is increasing funding challenges; commercial banks’ reserve requirements for holding government securities have been increased, increasing banks’ exposure to sovereign risk.
Financial sector and monetary policy
- Financial sector remains stable with banks well capitalized.
- Financial soundness indicators show progress in reducing NPLs by commercial banks and credit unions.
- Private sector credit growth remained subdued and banks’ profitability remains weak.
- Central bank significantly reduced its funding of the government in the first half of FY2017/18.
- Directors encouraged continued efforts to phase out direct financing of the government by the central bank and to reorient monetary policy towards supporting the fixed exchange rate regime.
- Directors called for steps to ease the recent increase in statutory requirements for banks to hold government securities.
- Directors encouraged enhancement of regulatory and supervisory frameworks, especially for non‑bank financial institutions, strengthening the AML/CFT regime, and legislative amendments to increase Central Bank independence.
Executive Board assessment and policy recommendations
- Executive Directors noted the economy is slowing after improved performance in 2016; large fiscal deficits, high debt, and low reserves pose challenges.
- Directors emphasized need for a stronger macroeconomic framework and bolder structural reforms to achieve fiscal and debt sustainability, meet financing needs, build adequate international reserves, and boost growth.
- Recommended that adjustment measures focus on expenditure, primarily supported by reform of State‑Owned Enterprises (SOEs).
- Priority reform actions and fiscal measures recommended:
- Comprehensive restructuring of SOE operations to reduce government transfers.
- Define clear objectives for SOE reform and implement the Public Financial Management and Audit Act.
- Contain the wage bill and reform government pensions.
- Improve revenue administration and broaden the tax base, including by reducing exemptions.
- Consider partial reversal of the increase in the National Social Responsibility Levy if progress is made on reforms.
- Make changes to the size and delivery of social programs to contain cost and ensure long‑term viability.
- Enhance timeliness and quality of economic data.
Key demographic and social indicators
- Population (2017 est. thousand): 280.4
- Adult literacy rate: 99.7
- Per capita GDP (2016 est., US$ thousand): 17.0
- Poverty rate (individual, 2010): 19.3
- Life expectancy at birth in years (2013): 75.3
- Gini coefficient (2010): 47
- Rank in UNDP Human Development Index (2014): 57
- Unemployment rate (2016 est.): 9.9
- Main Products: tourism, financial services, rum, and chemicals
Selected macroeconomic aggregates (nominal and levels)
- Nominal GDP (BDS$ millions): 9,343 (2014), 9,390 (2015), 9,528 (2016), 10,045 (2017), 10,609 (2018).
- Exchange rate (BDS$/US$) — memorandum item listed (value not provided in table).
- Memorandum: Net international reserves in months of imports: 1.9 (year not specified in table but NIR levels provided above).
Press Release No. 18/33 — IMF Communications Department, January 31, 2018
