The International Monetary Fund (IMF) has revised upwards its 2015 economic forecast for Barbados, following a visit by a mission this past week to conduct the annual Article IV Consultation.
The Washington-based financial institution is now saying that the island’s gross domestic product (GDP) will grow this year by one per cent, up from a previous 0.8 per cent forecast.
Acknowledging that the Freundel Stuart administration was making some strides in bringing down the fiscal deficit, Nicole Laframboise, who headed the IMF mission, however said a greater effort was needed to reform the public sector and reduce the country’s wage bill.
Speaking to Barbados TODAY shortly before departing the island this afternoon, the IMF official said despite some progress in its fiscal consolidation efforts, the Government still had “a lot of work ahead”. The IMF team was on the island from April 27 to May 8. Meetings were held with Government officials and representatives of the Opposition, the academic community, private sector and labour movement.
Laframboise said there was a pick-up in economic activity mainly related to tourism and lower oil prices. She explained that the previous 0.8 per cent growth forecast, published in the IMF’s recent Regional Economic Outlook for the Western Hemisphere, was as a result of not having all the data for December 2014, as well as the first three months of this year.
“We submitted those projections a couple months ago before we had any data on the last three or four months . . . . We did not have hard facts in terms of tourism arrivals and expenditures. So we have revised our forecast a little bit,” she said. “So there is some good news. There is strengthening of the economy and the Government has made progress reducing the deficit. It was too high.”
The slightly improved forecast follows concerns expressed this week by Prime Minister Freundel Stuart over the suggestion that Barbados was now at the bottom of the regional economic “totem pole”.
However, even with the revised estimate for growth this year, Barbados still compares poorly in terms of the IMF’s projection of 3.3 per cent growth in 2015 for Haiti and 3.8 per cent for Guyana this year.
Laframboise said that while the focus should remain on bringing down the deficit, which stood at about 6.6 per cent of GDP as of the end of 2014, there was a need for reform.
“There is a lot of need for reform of Government; restructuring and making things work better, making public services and goods more effective and efficient. That should happen at the same time as the fiscal consolidation,” the IMF official said.
“Our key message is that this is the time to push the reform because when you have growth, it makes that job much easier. The wage bill, not so much the number of people, but how much they spend on wages, is one of the highest in the Caribbean. They started reducing that, but over a long period it will be good to get that down to make the economy work more efficiently.
“We definitely advise that they need to lower the wage bill further to levels that it was in the mid-2000s and more in line with regional averages,” she stressed.
Laframboise pointed out that there was also a need to reduce interest payments and transfers to individuals and public enterprises.
She said while it was critical for Government to “stay the course”, it also needed to “communicate the course”.
“That really needs to happen as transparently as possible to build support in the country and reduce uncertainty and build confidence. That is our big picture,” she said.
Acknowledging that it will take some time before results were seen in some areas and pointing out that in some entities some “good things” were going on, Laframboise said central government needed to better control its finances.
“The Minister is trying hard to rein that in, but at the same time, because of the lack of strategic direction of those entities, they need restructuring,” she said.
Pointing to Government’s plan for retrenchment followed by attrition, Laframboise said the only thing the IMF recommended was that they “stick to that plan and they need to undertake some reform of the civil service”
“When you have attrition, you need to manage it effectively so as to make sure you have the people with the right skills in the right jobs. It is not something you can just sit back and make happen.”
She maintained that some social programmes provided by the Government should be reviewed to ensure that they were fulfilling the goals and functions they were set out to do decades ago.
“We did recommend not cutting or increasing some of the programmes going to the most vulnerable under the Ministry of Social Care. In times of fiscal correction, you need to ensure that the most vulnerable people are supported and that is important for overall social stability too,” she said.
She said one of the big problems facing the Government included outstanding arrears from the private sector to Government and vice versa. She added that “a number of administrative changes”, including the creation of the Barbados Revenue Authority, may have complicated the issue.
“It will take some time to iron out any kinks and that is underway. You have some accounting changes in the public finances. We are recommending that they move more aggressively to address it, which means take stock, set up a programme transparently for resolving these, so that you can build some confidence among the private sector. Those things can really tend to impede business activity and investment. So you need to address those head-on and the Government agrees with this,” she said.
The IMF mission chief said while they had some discussions relating to education and health care, it was up to the country and the Government to reassess and decide what measures should be taken. She said that the private sector continued to be concerned about inefficiencies within Government agencies and the time it takes to get decisions from the judicial system.
“Those are things that will improve with the restructuring of Government,” she said.