International Monetary Fund economists have poured fresh cold water on Government’s efforts to fix Barbados’ economic problems.
Following Minister of Finance and Economic Affairs, Chris Sinckler, assertion in Parliament that the economy remained stable and Government’s plan was the right one, the IMF released a new fiscal consolidation and debt reduction paper today, saying Barbados needed to do more on the fiscal front.
In the November 2012 document, which included the results of case studies of Barbados, Jamaica and St. Kitts and Nevis, a six member team of economists including Barbados mission chief Therese Turner-Jones said efforts at fiscal consolidation increased pressure on the island’s public debt.
It also lamented part of the problem was that after its Medium Term Fiscal Strategy “went off track” in its first year because of “weak global conditions and low revenues”, the Freundel Stuart Administration had now “loosened” the programme at a time it needed to reduce spending further.
“Progress on lowering expenditures has been slow and the 2012/13 budget has no expenditure cutting measures as expenditures are projected to broadly remain unchanged as a per cent of GDP,” the working paper stated, noting the IMF “has advised the authorities to discourage direct lending by the NIS to public enterprises”.
“Fiscal consolidation has helped to improve fiscal performance in Barbados. The fiscal year 2011/12 central government deficit narrowed to 4.5 per cent of GDP from 8.3 per cent of GDP in 2010/11,” the economists noted.
“This out turn reflected cuts in capital spending and lower transfers to state-owned enterprises, as a large sum … was taken off budget and replaced by loans from the National Insurance Scheme directly to those enterprises. The 2012/13 budget targets a central government deficit of 4.3 percent of GDP.
“With public debt on an unsustainable path, the fund has advised the authorities to make MTFS more ambitious and, at the minimum, aim at reducing the public debt by about 15 percentage points of GDP over five years. Debt sustainability analysis suggests that the envisaged fiscal target under the MTFS would not be enough to reduce the vulnerability of public debt,” they added.
The group also suggested Barbados would continue to find it hard to reduce public debt in a sustained manner “unless a more ambitious fiscal consolidation plan is implemented to reduce debt further in the medium-to-long term”.
“The fund has also stressed the need for MTFS to cover state enterprises and to be based on realistic macroeconomic assumptions. In particular, the current assumption of average GDP growth of around 2.5 per cent in the medium term seems on the optimistic side,” the document said.
Based on their assessment of the Barbados situation, along with the other two Caribbean countries, the economists concluded that “it would be desirable for the authorities to engage in more fiscal consolidation as they tend to be successful nearly half the time”.
Additionally, with Barbados heavily dependent on the tourism industry, they also noted: “The findings also show that fiscal consolidation has been more successful in commodity exporting countries than in tourism-intensive economies.” (SC)