IMF Executive Board Concludes 2021 Article IV Consultation and Sixth Review under the IMF’s Extended Arrangement for Barbados

IMF News, December 16, 2021

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Canonical URL: IMF Executive Board Concludes 2021 Article IV Consultation and Sixth Review under the IMF’s Extended Arrangement for Barbados

The Executive Board concluded the sixth review of the IMF’s extended arrangement under the Extended Fund Facility (EFF) for Barbados.
Completion of the review allows the authorities to draw the equivalent of SDR 17 million (about US$24 million).
Total disbursements under the arrangement have reached the equivalent of SDR 305 million (about US$425 million).
The four-year extended arrangement under the EFF was approved on October 1, 2018 and is for an amount equivalent of SDR 322 million (about US$465 million).

Barbados has been implementing the comprehensive Economic Recovery and Transformation (BERT) plan aimed at restoring fiscal sustainability, increasing reserves, and unlocking growth potential through structural reforms.
The economy faces major challenges from the prolonged global coronavirus pandemic and twin natural disaster shocks: volcanic ashfalls from neighboring St. Vincent in April and category 1 hurricane Elsa in July.
Reform efforts include enhancing adaptation measures to address vulnerabilities from climate change and natural disasters.

A temporary relaxation of the primary balance target for fiscal year 2021/22 is deemed appropriate given the lingering impact of the pandemic and unexpected spending needs from Hurricane Elsa and volcanic ashfalls.
Authorities are expected to compensate this short-term fiscal accommodation with higher primary surpluses in the medium term to safeguard debt sustainability.
Medium-term fiscal adjustment should be supported by reforms to state-owned enterprises (SOEs), including:
- Strengthening oversight of SOEs.
- Revenue enhancement.
- Cost reduction.
- Mergers and divestment.
Authorities plan pension system reform and introduction of a fiscal rule to support fiscal sustainability.
Directors encouraged assessment of the impact on fiscal revenues of the recent global agreement on corporate taxation.
Directors noted authorities are exploring how best to use the recent SDR allocation to support key economic objectives.

The authorities took an appropriate monetary and financial policy response to the pandemic.
The Central Bank of Barbados plans to be recapitalized gradually.
Carefully unwinding pandemic-related credit support measures, as conditions allow, is critical to contain financial sector risks.
The Central Bank of Barbados plans to join the Network for Greening the Financial System and intends to gradually integrate climate change risks into financial stability assessments.
Authorities should work in close cooperation with the Financial Action Task Force to further strengthen the AML/CFT framework.
Directors recommended further strengthening the financial supervisory framework.

Medium-term growth prospects depend on accelerating structural reforms to:
- Improve the business climate.
- Diversify the economy.
- Facilitate green and digital transformations.
Strengthening resilience to natural disasters and climate change, combined with an accelerated transition to renewable energy, is key to achieving more sustainable economic growth and reducing vulnerability to international oil price volatility.
Authorities’ target of reaching 100 percent renewable energy by 2030 is described as commendable.

Executive Directors agreed with the thrust of the staff appraisal and commended authorities for sustained good progress in implementing the reform program despite the pandemic and natural disasters.
Directors called for maintaining strong reform momentum to boost potential growth while ensuring a timely transition to fiscal consolidation to preserve debt sustainability.
Directors welcomed monetary and financial policy responses, plans to recapitalize the central bank, and the central bank’s plans to integrate climate risks.
Directors recommended careful unwinding of support measures and strengthening AML/CFT in cooperation with the Financial Action Task Force.

Public Debt (fiscal year)
- Central gov't gross debt /2: 2018: 126.0; 2019: 124.4; 2020: 156.4; 2021: 142.1; 2022: 128.7
- External: 2018: 33.4; 2019: 33.8; 2020: 52.0; 2021: 50.3; 2022: 47.1
- Domestic: 2018: 92.5; 2019: 90.5; 2020: 104.5; 2021: 91.8; 2022: 81.6

IMF Communications Department. Press Release No. 21379. December 16, 2021.