IMF Staff Concludes Visit to Barbados

IMF News, December 7, 2018

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IMF team led by Bert van Selm visited Bridgetown from December 4-7 to discuss implementation of Barbados’ Economic Recovery and Transformation (BERT) plan, supported by the IMF under the Extended Fund Facility (EFF).
End-of-Mission press release date: December 7, 2018.
Statement conveys preliminary findings of IMF staff; the mission will not result in a Board meeting.

Barbados’ international reserves reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018.
Reserves have more than doubled since end-May 2018, amounting to more than US$500 million in early December.
Rebuilt reserves have helped to rebuild confidence in the country’s macroeconomic framework.

A comprehensive debt restructuring was announced on June 1, 2018.
An exchange offer for domestic debt (Barbados dollar-denominated) was launched in early September.
On October 15, the government announced reaching agreement with an overwhelming majority of domestic creditors, with support of all commercial banks, general and life insurers, the National Insurance Scheme, the Central Bank of Barbados, and smaller creditors.
The domestic debt exchange operation was finalized on November 19.
Rapid completion of the domestic part of the debt restructuring has been very helpful in reducing economic uncertainty.
The terms agreed with creditors are expected to help put public debt on a clear downward trajectory and reduce the government interest bill, creating fiscal space for increased social spending and investment in infrastructure.
Progress in good-faith discussions with external creditors is welcome; completing the external debt restructuring would help further reduce uncertainty.

The government reported a primary surplus of 2½ percent of (annual) GDP in the first six months of FY2018/19 (April-September 2018).
In October, authorities launched a program to improve efficiency and reduce the public wage bill by laying off and retraining workers in the central government and public entities.
- Objective: create a leaner, more efficient public sector to facilitate private sector-led growth.
- Expected to reduce central government transfers to state-owned enterprises, which had become unsustainably high.
In November, authorities announced plans to modify the corporate income tax (CIT) framework, seeking to unify rates that apply to the international business sector and local enterprises.
- Noted risk: making corporate income tax revenues more dependent on maintaining international competitiveness.

Barbados has made good progress towards meeting end-December 2018 structural benchmarks under the EFF.
October actions:
- Creation of a regulatory sandbox for fintech start-ups to test new technologies in a well-defined and controlled space.
Legislation underway to:
- Facilitate a more efficient process for providing construction permits.
- Support a more efficient budget process.
- Strengthen oversight of SOEs.

Following IMF Executive Board approval of the EFF on October 1, 2018, both the Caribbean Development Bank and the Inter-American Development Bank approved policy-based loans.
Loan amounts: US$75 million and U$100 million respectively.
Combined size: 3½ percent of GDP.
Purpose: help finance the government, rebuild reserves, and support the reform process with policy advice.

The government has engaged in intensive consultations with the Social Partnership to build public support for its economic reform program.
In October, a BERT Monitoring Committee was set up and tasked to report to the Social Partnership and the public.
Strong ownership and broad societal support are judged to bode well for successful program implementation and improving living standards.

“Barbados has made an excellent start in implementing its ambitious and comprehensive economic reform program.”
The IMF team thanked Barbados’ authorities and the technical team for their openness and candid discussions.

Press Release No. 18/460