On October 1, 2018, the Executive Board of the International Monetary Fund
(IMF) approved a four-year Extended Arrangement under the Extended Fund
Facility (EFF) for Barbados for an amount 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.
The EFF-supported program aims to help Barbados: restore debt sustainability,
strengthen the external position, and improve growth prospects.
Upfront fiscal consolidation, meaningful debt restructuring, and structural
measures to support growth should put debt on a clear downward trajectory.
The program will seek to protect vulnerable groups through strengthened
social safety nets.
Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy
Managing Director and Acting Chair, said:
“The Barbadian authorities have developed a homegrown economic program
to address longstanding challenges, which will be supported under the
IMF’s Extended Fund Facility. Over the last decade, Barbados’s economy
has experienced low growth, while fiscal and external imbalances have
gradually widened to reach an unsustainable situation, with very high
debt and very low reserves. The authorities’ reform program seeks to
address these challenges with a combination of front-loaded fiscal
consolidation, measures to boost growth, and debt restructuring, while
protecting social spending.
“Fiscal consolidation is key to the adjustment effort. The authorities aim
to increase the primary surplus to 6 percent of GDP in FY2019/20 and
maintain it at that level for several years thereafter.
Reducing transfers to state-owned enterprises will be key in reaching
the primary surplus targets. The program aims to reduce these transfers
with a combination of much stronger oversight of state-owned
enterprises, improved reporting, cost reduction, revenue enhancement,
and mergers and divestment.
A planned comprehensive review of tax policies is expected to lead to
improvements in the tax system. The adoption of a fiscal rule and reforms
in public financial management will help sustain the fiscal reform effort.
“A comprehensive debt restructuring will complement the fiscal
consolidation. The authorities have identified parameters that would
provide debt relief without jeopardizing financial stability,
and an exchange offer for domestic debt (Barbados dollar-denominated) to
private creditors was launched on September 7, 2018. The proposed debt
restructuring includes features, including a natural disaster clause, that
are expected to help the authorities stay current on their future debt
obligations. It is important to continue good faith negotiations with
domestic and external creditors.
“Bold structural reforms are needed to improve Barbados’s growth potential
and competitiveness. There is significant room for improvement in key
business facilitation processes, including speeding up the process for
providing construction permits and faster clearing of goods through
customs.
Adequate social spending and an improved safety net are key priorities
for the program. Targeted reforms, to be pursued in close collaboration with development
partners, aim at improving the efficiency and effectiveness of social
spending.”
ANNEX
Recent Developments
A new government that took office in May 2018 has inherited a precarious
economic situation. Over the last decade, Barbados’ economy has experienced
very low growth, and fiscal and external imbalances have gradually led to
an unsustainable situation, with very high debt, and very low reserves.
Public debt has increased to 157 percent of GDP, while international
reserves dropped to 5-6 weeks of import coverage.
Although the fiscal deficit has decreased over the last few years, it
remains large, at about 4 percent of GDP in FY2017/18. In 2017 and early
2018, the economy slowed owing to measure taken by the previous government
to tighten the fiscal stance and uncertainty about the road ahead, with the
Central Bank of Barbados (CBB) reporting a contraction of 0.6 percent in
the first half of 2018 (over the same period last year).
The new government announced a comprehensive debt restructuring, including
commercial external debt and treasury bills, on June 1, 2018. Significant
progress has been made in discussions with domestic and external creditors,
and an exchange offer for domestic debt (Barbados dollar-denominated) was
launched on September 7, 2018.
Program Summary
Key element of the authorities’ homegrown economic reform program are:
(i) upfront fiscal adjustment: the authorities aim to
increase the primary surplus by 2½ percent of GDP to reach 6 percent of GDP
in 2019/20 and maintain it at that level for several years thereafter,
while protecting vulnerable groups through strengthened social safety nets.
Adjustment measures include reduced transfers to state-owned enterprises,
higher taxes on tourism, and increased personal income tax and corporate
income tax rate rates. The fiscal adjustment effort will be supported by
the adoption of a fiscal rule, and Public Financial Management (PFM)
reforms.
(ii) reform of state-owned enterprises (SOEs). At 7½
percent of GDP, transfers from the central government to state-owned
enterprises are very high, and a major contributor to fiscal risks. The
program aims to reduce transfers by about 2 percentage points of GDP, by a
combination of much stronger oversight of SOEs, supported by improved
reporting; cost reduction, including reduction of the wage bill; revenue
enhancement, including an increase in user fees; and mergers and
divestment.
(iii) structural reforms to support growth. The program
seeks to address weaknesses in the business climate, including slow
processes for obtaining construction permits, getting electricity, and
registering property, and will include financial and labor market
liberalization policies.
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Table 1. Barbados: Selected Economic, Financial, and
Social Indicators
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I. Social and Demographic Indicators (most recent year)
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Population (2016 est., thousand)
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280.4
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Adult literacy rate
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99.7
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Per capita GDP (2016 est., US$ thousand)
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17.8
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Poverty rate (individual, 2010)
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19.3
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Life expectancy at birth in years (2013)
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75.3
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Gini coefficient (2010)
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47.0
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Rank in UNDP Development Index (2014)
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57
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Unemployment rate (2016 est.)
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9.9
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Main products, services and exports: tourism, financial
services, rum, sugar, and chemicals.
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|
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II. Economic Indicators
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|
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Est.
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Projection
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|
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2015
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2016
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2017
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2018
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2019
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|
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(Annual percentage change)
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Output, prices, and employment
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|
|
|
|
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Real GDP
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2.2
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2.3
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-0.2
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-0.5
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-0.1
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CPI inflation (average)
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-1.1
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1.5
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4.4
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4.2
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0.8
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CPI inflation (end of period)
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-2.5
|
3.8
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6.6
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0.0
|
1.4
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External sector
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|
|
|
|
|
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Exports of goods and services
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3.2
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6.6
|
0.8
|
2.9
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2.8
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Imports of goods and services
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-3.9
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0.2
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-0.4
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4.3
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3.1
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Real effective exchange rate (average)
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8.0
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0.9
|
2.5
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…
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…
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Money and credit
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|
|
|
|
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Net domestic assets
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3.0
|
7.1
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2.6
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1.7
|
3.1
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Of which:
Private sector credit
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0.5
|
1.1
|
3.0
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1.0
|
3.5
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Broad money
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3.7
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3.6
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-0.6
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3.0
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4.7
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(In percent of GDP, unless otherwise indicated)
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CG Public finances (fiscal year) 1/
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|
|
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Revenue and grants
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25.9
|
28.2
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28.4
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29.6
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31.1
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Expenditure
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34.9
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33.6
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32.7
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30.9
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28.5
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Fiscal Balance
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-9.1
|
-5.3
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-4.3
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-1.3
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2.6
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Interest Expenditure
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7.1
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7.6
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7.6
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4.7
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3.4
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Primary Balance
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-2.0
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2.2
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3.3
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3.3
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6.0
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Public Debt (fiscal year) 1/
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|
|
|
|
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Central gov't gross debt (incl. guaranteed and arrears)
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146.7
|
149.1
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157.3
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123.6
|
116.7
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External
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33.9
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31.2
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28.3
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26.9
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25.9
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Domestic
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112.8
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117.9
|
129.0
|
96.8
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90.8
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Balance of payments
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|
|
|
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Current account balance
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-6.1
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-4.3
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-3.8
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-3.1
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-3.4
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Capital and financial account balance
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4.5
|
0.8
|
0.8
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5.4
|
6.8
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o/w Public Sector
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-0.8
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-1.8
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-1.4
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2.0
|
3.2
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o/w IMF disbursement
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0.0
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0.0
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0.0
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0.9
|
1.9
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Private Sector
|
5.4
|
2.6
|
2.2
|
3.4
|
3.6
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o/w FDI
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5.5
|
3.4
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3.1
|
3.4
|
3.6
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Net Errors and Omissions
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0.0
|
1.0
|
0.3
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0.0
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0.0
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Overall balance
|
-1.6
|
-2.5
|
-2.6
|
2.2
|
3.4
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Memorandum items:
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|
|
|
|
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Exchange rate (BDS$/US$)
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2.0
|
2.0
|
2.0
|
…
|
…
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Gross international reserves (US$ million)
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478.4
|
358.5
|
227.7
|
342.0
|
516.7
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In months of imports of G&S
|
2.8
|
2.1
|
1.3
|
1.9
|
2.8
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In percent of ARA
|
105.3
|
72.6
|
43.8
|
65.8
|
95.1
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Nominal GDP, CY (BDS$ millions)
|
9,451
|
9,681
|
9,979
|
10,343
|
10,414
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Nominal GDP, FY (BDS$ millions)
|
9,509
|
9,756
|
10,070
|
10,361
|
10,480
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Sources: Barbados authorities; UNDP Human Development
Report; Barbados Country Assessment of Living Conditions
2010 (December 2012); and Fund staff estimates and
projections.
1/ Fiscal year is from April to March.
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