## Barbados: Staff Concluding Statement of the 2023 Article IV Consultation Mission and Staff Level Agreement for the Second Review under the Extended Fund Facility and the Resilience and Sustainability Facility _IMF News, November 13, 2023_ ## Source details **Canonical URL:** [Barbados: Staff Concluding Statement of the 2023 Article IV Consultation Mission and Staff Level Agreement for the Second Review under the Extended Fund Facility and the Resilience and Sustainability Facility](https://www.imf.org/en/news/articles/2023/11/13/cs111323-barbados-staff-concluding-statement-of-the-2023-article-iv) ## Other formats - [Markdown version](/en/news/articles/2023/11/13/cs111323-barbados-staff-concluding-statement-of-the-2023-article-iv/index.md) - [Structured JSON version](/en/news/articles/2023/11/13/cs111323-barbados-staff-concluding-statement-of-the-2023-article-iv/index.json) - [Bundle manifest](/en/news/articles/2023/11/13/cs111323-barbados-staff-concluding-statement-of-the-2023-article-iv/bundle-manifest.json) ## Bibliographic details - Published: November 13, 2023 --- ### Economic performance and outlook - Ten consecutive quarters of growth, driven by a rebound in tourism. - After a 13.8 percent-rebound in 2022, real GDP is projected to expand by about 4.5 percent in 2023. - The authorities are implementing the updated Economic Recovery and Transformation plan (BERT 2022) and an ambitious climate policy agenda. - Policy focus: achieve inclusive and sustainable growth, increase resilience to climate change, maintain debt sustainability, and preserve social cohesion. ### Inflation and labor market - Inflation fell to 4.3 percent year-over-year as of mid-2023, from a peak of 6.7 percent recorded in May 2022. - Contributing factors to lower inflation: lower international fuel prices and freight costs. - Upward pressure on specific domestic prices from prolonged drought conditions and higher demand for restaurants and recreational activities due to tourism recovery. - Economic recovery associated with higher job growth; unemployment claims and the unemployment rate have reverted to pre-pandemic levels. ### External sector and reserves - Gross international reserves rose to US$1.4 billion as of end-September, equivalent to almost 8 months of imports of goods and services. - Reserve gains supported by improvement in the current account balance and loan disbursements from international financial institutions. - The exchange rate peg remains a key anchor for macroeconomic stability. - Staff’s external sector assessment: external position is broadly in line with the level consistent with medium-term fundamentals and desirable policies. - The new Central Bank Act (2020) strengthened the policy framework for the peg by enhancing central bank autonomy, improving governance, and limiting monetary financing. ### Fiscal outlook and public debt - Authorities met the primary fiscal target set for the first half of FY2023/24. - On track to raise the primary surplus to about 3½ percent of GDP by the end of the fiscal year. - Public debt ratio has fallen to pre-pandemic levels and is projected to continue declining. - Sovereign credit ratings are gradually improving. - Authorities remain committed to reducing public debt to 60 percent of GDP by FY2035/36. - Planned corporate income tax reform aligned with Pillar Two of the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing; revenues expected to be primarily used to increase public investment. - Authorities are gradually restarting domestic capital markets while maintaining adequate social spending and gradually increasing public investment. ### Structural reforms and fiscal governance - Ongoing measures to strengthen revenue administration and modernize the tax exemptions framework. - Implementation of a new procurement framework and enhancements to public financial and investment management and fiscal governance, supported by IMF and development partner technical assistance. - Policy and legislative framework for pension reform completed. - Progress on state-owned enterprises (SOEs) reforms resumed after COVID-related interruption. - Expected outcome: stronger fiscal balances, a more efficient public sector, and higher social and investment spending to support declining debt and sovereign risk, and to promote inclusive, climate-resilient growth. ### Financial system stability and monetary toolkit - Financial system has withstood recent shocks; banking system is well capitalized, has abundant liquidity, and is profitable. - Banks’ non-performing loans have declined to the lowest levels in several years. - High liquidity and long-standing capital controls have kept domestic interest rates broadly stable despite rising international interest rates. - Financial soundness indicators and stress tests suggest the financial system is broadly sound and resilient. - Central Bank of Barbados (CBB) conducted a comprehensive review to enhance its monetary policy toolkit under the fixed exchange rate regime (informed by IMF technical assistance). - Objective of toolkit review: develop liquidity management instruments to enhance CBB capacity to manage monetary conditions and interest rate transmission while maintaining adequate international reserves to support the peg. ### AML/CFT progress - At its October 2023 Plenary, the Financial Action Task Force (FATF) made the initial determination that Barbados has substantially completed its action plan to strengthen the effectiveness of its AML/CFT regime and warrants an on-site assessment to verify implementation. - Verification could allow Barbados to be removed from the FATF Grey List in 2024. ### Growth agenda, digitalization, and private sector development - To raise medium-term growth potential: enhance ease of doing business, boost economic efficiency, and stimulate private investment. - Priority actions: improve trade and business facilitation, invest in skills and education, and promote digital technologies. - The newly created Growth Council is intended to support BERT priorities to unlock growth potential. - Digitalization benefits: increase public sector efficiency and service delivery, facilitate access to credit, enhance labor force participation, and support human capital. ### Climate policy, resilience, and green transition - Barbados highly vulnerable to climate change; authorities aim to make Barbados a green and fossil fuel-free country. - Implementation involves policies and investments to adapt to climate change and adopt renewable energy sources; supported by the RSF arrangement and development partners. - Renewables have gradually increased their share in the energy matrix; progress expected to continue as near-term impediments to adding renewables to the grid are addressed. - Investments in climate-resilient infrastructure intended to reduce capital and output losses from natural disasters and contain adverse impacts on growth, public debt, and external accounts. - Recent climate policy reforms and measures: - Inclusion of a fiscal risk statement discussing climate change risks in the FY2023/24 budget. - Approval of regulations to enhance efficiency and effectiveness of public procurement. - Development of a sustainable/green public procurement framework and guidelines for green/climate budget tagging. - Submission of a bill to Parliament to improve the disaster risk management framework. - Actions to address regulatory gaps in battery storage to facilitate renewable energy investments. - Climate reforms are expected to mobilize private sector resources for climate-related projects; efforts to mobilize and scale up climate financing are underway with development partner support. ### Program review, financing, and IMF engagement - IMF staff and the Barbadian authorities reached staff-level agreement on the completion of the second review of the EFF and the RSF. - All quantitative program targets and structural benchmarks set for the second review under the EFF have been met. - All reform measures set for the second review under the RSF have been implemented. - The staff-level agreement is subject to approval by the IMF Executive Board, expected to consider the review in December. - Completion of the review will make available: - SDR 14.175 million (about US$19 million) under the EFF arrangement. - SDR 42.525 million (about US$56 million) under the RSF arrangement. ### Closing acknowledgement - The mission team thanked the authorities and other counterparts for constructive and candid policy dialogue. *IMF Communications Department — November 13, 2023* --- ## References - [Barbados and the IMF](http://www.imf.org/external/country/BRB/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [IMF-World Bank Debt Sustainability Framework for Low-Income Countries -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/imf-world-bank-debt-sustainability-framework-for-low-income-countries) - [Mission Concluding Statements](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2023/11/13/cs111323-barbados-staff-concluding-statement-of-the-2023-article-iv_