Statement at the Conclusion of an IMF Staff Visit to Barbados
IMF News, June 7, 2018
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- Published: June 7, 2018
Mission purpose and meetings
- IMF team led by Bert van Selm visited Bridgetown on June 5-7 to discuss economic policies and possible IMF financial support of the government’s economic plan.
- During the visit the team met with:
- Prime Minister Mia Mottley
- Minister of Finance, Economic Affairs and Investment
- CBB Governor Haynes
- Other key officials
- Social partners, including labor unions and the private sector
Current economic situation and key indicators
- International reserves have dwindled to US$220 million.
- Central government debt is described as unsustainable.
- The fiscal deficit has decreased over the last few years but remains large, at about 4 percent of GDP in FY2017/18.
- The Central Bank of Barbados (CBB) is reporting a contraction of output of 0.7 percent in the first quarter of 2018 (over the same period last year).
IMF assessment and relevance of prior advice
- The IMF’s recommendations contained in the 2017 Article IV Consultation remain highly relevant to rebuild confidence and address Barbados’ current challenges.
- Substantial fiscal consolidation is needed to:
- place debt on a clear downward trajectory in conjunction with the proposed debt restructuring
- address balance of payments risks
- Since tax and revenues are relatively high, adjustment should focus on the expenditure side.
Policy recommendations and areas for reform
- Expenditure-side measures:
- improve the efficiency and effectiveness of public services
- contain wages
- reform government pensions
- Government transfers to SOEs need to be reduced by:
- reviewing user fees
- exploring options for mergers and privatization
- providing much stronger oversight
- Tax policy and administration:
- review tax policy with a view to broadening the tax base and improving its progressivity
- continue efforts to strengthen tax administration
- Structural reforms:
- improve the business climate to attract investment and develop the private sector
- Monetary and reserve management:
- it will be important for the CBB to limit financing of the government budget given that such practice is not consistent with Barbados’ exchange rate peg
- the large monetary financing over the last few years has contributed to the decline in international reserves
Debt restructuring and creditor engagement
- Authorities decided to seek a restructuring of domestic debt and external debt to commercial creditors.
- An early and open dialogue with the country’s creditors, aiming to achieve an orderly debt restructuring process, is important.
Next steps and outlook
- The IMF team had very positive and candid discussions with the government and expects to continue close dialogue in the coming months.
- The aim is to reach understandings on economic policies that could underpin an IMF supported program.
- The IMF’s stated goal is to help Barbados achieve higher living standards and more inclusive growth for the years ahead.
Statement at the Conclusion of an IMF Staff Visit to Barbados — June 7, 2018. International Monetary Fund.