In light of the recent Financial Statement and Budgetary Proposals, the international Monetary Fund (IMF) says it is satisfied that the Freundel Stuart administration was moving in the right direction.
However, in response to questions from Barbados TODAY, IMF Mission Chief to Barbados Nicole Laframboise said the IMF was still concerned about the country’s very high deficit and public debt.
She therefore said the IMF would like to see “progress translated into specific budget targets this fiscal year”.
As for the Budget, the IMF was particularly encouraged by the formation of a fiscal planning framework with medium term targets, the beginning of a dialogue on the delivery and funding of social programmes, as well as measures to broaden the tax base.
“Overall we view the Budget as a positive step, both in terms of the direction of fiscal adjustment, and also the move to address, in a more fundamental way, the root causes of fiscal imbalances,” said Laframboise.
“We also welcome the pro-growth reforms to reduce the regulatory costs of doing business in Barbados and to promote private sector investment and competitiveness,” she added.
However, she said despite “the considerable progress” achieved by the Government over the past year, “the deficit and public debt remained very high and fiscal financing needs pressing”.
“This means that overall risks are still elevated. In this context, and, as we noted in our last press release after the Article IV consultation visit in May, a stronger fiscal adjustment is still needed to reduce these vulnerabilities further and put debt on a firm downward trajectory.
“The timing right now is supportive given the positive growth impetus coming from lower oil prices and the tourism rebound,” she indicated.
“To that end, we would encourage the Government to consider reaching a primary surplus of four per cent of GDP starting next year, and not wait until 2018/19. Such a surplus target would put the debt-to-GDP ratio below 100 per cent sooner, by 2018.”
Laframboise explained that with a gross borrowing requirement near 45 per cent of GDP and debt service payments absorbing about 55 per cent of total revenues, fiscal consolidation to put public finances on a sustainable path will be “a multi-year endeavour”.
“In addition, a greater contribution to deficit reduction from the spending side would have been helpful. Current expenditures in Barbados expanded by 10 per cent of GDP over the past decade and need to be downsized to help restore a sustainable fiscal position and promote economic growth,” she said.
“The processes laid out in the Budget to strengthen the performance of public enterprises are very welcome, but actual restructuring should be accelerated and we would have liked to see progress translated into specific budget targets this fiscal year.
“Specific targets on other transfers and civil service reform would be additional areas of focus for expenditure savings. We were also looking for explicit plans to clear payments arrears, important to remove constraints to private sector activity and boost confidence,” she said.
In relation to the Central Bank of Barbados’ losses, which doubled last year, the IMF chief, though not going into details, agreed that it was important that the financial institution was put back on a sound financial footing.
“In recent years, operating expenses at the CBB have remained constant while income has been reduced due to lower yields on local and foreign reserve assets,” she said, acknowledging that the Central Bank was in the process of recruiting an international firm of consultants to review its operations and make recommendations for the long-term improvement of its structure and finances.