IMF Executive Board Approves US$290 million Extended Arrangement Under the Extended Fund Facility for Barbados
IMF News, October 1, 2018
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- Published: October 1, 2018
Approval, financing, and disbursement
- Executive Board approved a four-year Extended Arrangement under the Extended Fund Facility (EFF) for Barbados equivalent to SDR 208 million (about US$290 million, or 220 percent of Barbados’s quota in the IMF).
- The Board’s decision enables the authorities to purchase the equivalent of SDR 35 million (or about US$49 million) immediately.
- The remainder will be available upon successful completion of seven semiannual reviews.
Program objectives
- Restore debt sustainability.
- Strengthen the external position.
- Improve growth prospects.
- Protect vulnerable groups through strengthened social safety nets.
Fiscal consolidation and public finances
- Program calls for upfront fiscal consolidation and aims to increase the primary surplus to 6 percent of GDP in FY2019/20 and maintain it at that level for several years thereafter.
- Key fiscal measures include:
- Reduced transfers to state-owned enterprises (SOEs).
- Higher taxes on tourism.
- Increased personal income tax and corporate income tax rates.
- Adoption of a fiscal rule and Public Financial Management (PFM) reforms.
- Fiscal context and targets (in percent of GDP unless otherwise indicated):
- Revenue and grants: 25.9 (2015); 28.2 (2016); 28.4 (2017); 29.6 (2018 est.); 31.1 (2019 projection).
- Expenditure: 34.9 (2015); 33.6 (2016); 32.7 (2017); 30.9 (2018 est.); 28.5 (2019 projection).
- Fiscal Balance: -9.1 (2015); -5.3 (2016); -4.3 (2017); -1.3 (2018 est.); (2019 projection not separately listed).
- Interest Expenditure: 7.6 (2015); 3.4 (2016); (2017 onward not fully tabulated).
- Primary Balance: -2.0 (2015); 3.3 (2016); 6.0 (2017).
- Central government gross debt (incl. guaranteed and arrears): 146.7 (2015); 149.1 (2016); 157.3 (2017); 123.6 (2018 est.); 116.7 (2019 projection).
- External debt share: 33.9 (2015); 31.2 (2016); 28.3 (2017); 26.9 (2018 est.); (2019 projection: ).
- Domestic debt share: 112.8 (2015); 117.9 (2016); 129.0 (2017); 96.8 (2018 est.); 90.8 (2019 projection).
State-owned enterprises (SOEs)
- Transfers from central government to SOEs are 7½ percent of GDP.
- Program aims to reduce SOE transfers by about 2 percentage points of GDP using:
- Much stronger oversight of SOEs and improved reporting.
- Cost reduction, including reduction of the wage bill.
- Revenue enhancement, including increases in user fees.
- Mergers and divestment.
- IMF emphasized that reducing transfers to SOEs will be key in reaching the primary surplus targets.
Debt restructuring
- A comprehensive debt restructuring will complement fiscal consolidation.
- Authorities identified parameters intended to provide debt relief without jeopardizing financial stability.
- An exchange offer for domestic debt (Barbados dollar-denominated) to private creditors was launched on September 7, 2018.
- Proposed restructuring includes features, including a natural disaster clause, expected to help authorities stay current on future debt obligations.
- IMF stressed the importance of continuing good faith negotiations with domestic and external creditors.
Structural reforms to boost growth and competitiveness
- Program calls for bold structural reforms to improve growth potential and competitiveness, including:
- Improvements in business facilitation: speeding up provision of construction permits, faster clearing of goods through customs, getting electricity, and registering property.
- Financial and labor market liberalization policies.
- Social priorities:
- Adequate social spending and an improved safety net, with targeted reforms pursued in close collaboration with development partners to improve efficiency and effectiveness of social spending.
Recent economic developments
- New government took office in May 2018 and inherited a precarious economic situation.
- Over the last decade, Barbados experienced very low growth, widening fiscal and external imbalances, very high debt, and very low reserves.
- Public debt increased to 157 percent of GDP; international reserves dropped to 5–6 weeks of import coverage.
- Fiscal deficit remained large at about 4 percent of GDP in FY2017/18.
- Central Bank of Barbados (CBB) reported a contraction of 0.6 percent in the first half of 2018 (over the same period last year).
- Government announced comprehensive debt restructuring, including commercial external debt and treasury bills, on June 1, 2018; significant progress reported with domestic and external creditors.
Selected economic, financial, and social indicators (table highlights)
- Social and demographic (most recent year where indicated):
- Population (2016 est., thousand): 280.4
- Adult literacy rate: 99.7
- Per capita GDP (2016 est., US$ thousand): 17.8
- Poverty rate (individual, 2010): 19.3
- Life expectancy at birth in years (2013): 75.3
- Gini coefficient (2010): 47.0
- Rank in UNDP Development Index (2014): 57
- Unemployment rate (2016 est.): 9.9
- Main products, services and exports: tourism, financial services, rum, sugar, and chemicals.
- Economic indicators (annual percentage change, selected):
- Real GDP: 2.2 (2015); 2.3 (2016); -0.2 (2017); -0.5 (2018 est.); -0.1 (2019 projection).
- CPI inflation (average): -1.1 (2015); 1.5 (2016); 4.4 (2017); 4.2 (2018 est.); 0.8 (2019 projection).
- CPI inflation (end of period): -2.5 (2015); 3.8 (2016); 6.6 (2017); 0.0 (2018 est.); 1.4 (2019 projection).
- Exports of goods and services: 3.2 (2015); 2.9 (2016); 2.8 (2017).
- Imports of goods and services: -3.9 (2015); 0.2 (2016); -0.4 (2017); 4.3 (2018 est.); 3.1 (2019 projection).
- Real effective exchange rate (average): 8.0 (2015); 0.9 (2016); 2.5 (2017).
- Broad money: 3.7 (2015); 3.6 (2016); -0.6 (2017); 4.7 (2018 est.).
- Balance of payments and reserves:
- Current account balance: -6.1 (2015); -3.8 (2016); -3.1 (2017); -3.4 (2018 est.); (2019 projection not separately listed).
- Capital and financial account balance: 4.5 (2015); 5.4 (2016); 6.8 (2017).
- Gross international reserves (US$ million): 478.4 (2015); 358.5 (2016); 227.7 (2017); 342.0 (2018 est.); 516.7 (2019 projection).
- Reserves in months of imports of G&S: 2.1 (2015); 1.3 (2016).
- Reserves in percent of ARA: 105.3 (2015); 72.6 (2016); 43.8 (2017); 65.8 (2018 est.); 95.1 (2019 projection).
- Nominal GDP, CY (BDS$ millions): 9,451 (2015); 9,681 (2016); 9,979 (2017); 10,343 (2018 est.); 10,414 (2019 projection).
- Nominal GDP, FY (BDS$ millions): 9,509 (2015); 9,756 (2016); 10,070 (2017); 10,361 (2018 est.); 10,480 (2019 projection).
Source: Press Release No. 18/370, IMF, October 1, 2018.