The latest International Monetary Fund (IMF) report on the performance of the Barbados economy has received the thumbs up from a leading economist.
The global financial institution’s report issued yesterday said the local economy appeared to have turned the corner with activity picking up. However it warned that the country continued to face serious challenges.
The report pointed out that even though growth had resumed and short-term prospects were positive, imbalances persisted between available resources and Government programmes.
It further warned that the island remained “highly vulnerable” and may not realize its potential without “deep-seated reforms” to align revenues and expenditures, and reduce debt.
“Real GDP [gross domestic product] grew by 0.8 per cent in 2015—underpinned by a surge in tourism arrivals—relative to 0.2 per cent in 2014 and an average of -0.3 per cent in 2008–14, while employment increased by two per cent and unemployment fell. Inflation is low, reflecting a sharp drop in import prices,” the global funding agency said.
The Washington-based institution noted that the economy was projected to grow by 2.1 per cent in 2016, reflecting higher private and public investment, mainly in refurbishing and expanding the tourism stock.
The IMF said that while favourable terms of trade developments supported a stronger outlook, Government financing requirements and possible delays in Government-backed projects were a source of risk.
It also raised concern about the threats of de-risking of local banks by their international counterparts and weak growth in key tourism markets, adding that over the medium term, growth prospects hinged on fiscal adjustment that was sufficient to reduce debt and maintain private sector confidence.
In response, Dean of the Faculty of Social Sciences at the Cave Hill Campus of the University of the West Indies Dr Justin Robinson described the report as a positive one.
Robinson said the report addressed three aspects of the economy.
“The report provides further confirmation [of what] the Central Bank reported earlier that the real economy is showing signs of picking up and returning to the normal growth levels for Barbados of between two and three per cent. So the metrics for the real economy are generally quite positive. Growth in real GDP, a two per cent drop in the unemployment rate, low inflation . . . those metrics do show some definite improvement,” the university lecturer told Barbados TODAY.
He said that the positive shock from lower oil prices added to the good news, considering the country experienced high inflation rates when oil prices spiked.
Robinson acknowledged the risk in the growth outlook in the medium term which the IMF pointed to.
“The Governent really needs to focus on implementing its own projects that it has in the pipeline and facilitating any private sector. Certainly, that investment side of the economy will certainly bolster the growth provided by the tourism arrivals. Then there is de-risking that is happening with the global financial institutions and the threat to correspondent banking and how it could affect our international business and financial sector,” he noted.
Robinson suggested that this was more of a political issue, and urged the Freundel Stuart administration to keep its political lobbying up in this area, as the country seeks to preserve and grow the vital international business and financial services sector.
The economist agreed with the IMF that the Fiscal Consolidation Programme was not yet done and that Government needed to keep on this path so it would not have the debt and deficit overhanging.
“So I know it is not pleasant and it is not something anybody wants to hear, but the Government still needs to stick to its guns in really completing that fiscal adjustment programme . . . with the first target of having a deficit that is at least in line with the growth rate so we can stabilize the debt ratio and then begin to bring those down,” the Dean of the Faculty of Social Sciences suggested.
In fact, Robinson contended that speeding up the implementation of the various capital works projects, was more important than the consolidation programme.
He advised Government to use all the tools at its disposal to bring about quick and early growth, continued expenditure cuts and improved revenues.
“The Government must make that big push to continue growth . . . laser focus on early implementation of its own projects and facilitate private sector projects . . . place more emphasis on getting these projects going,” he emphasized.
The IMF report said that to reverse large increases in debt and place it on a downward trajectory, the mission recommended fiscal adjustment of at least 3.5 per cent of GDP over the next three years.