Barbadians need not fear the Washington-based International Monetary Fund (IMF) as if it were the “boogeyman”, says Director of Economics at the Caribbean Development Bank (CDB) Dr Justin Ram.
Speaking to Barbados TODAY on the sidelines of the Caribbean Tourism Organisation’s State of the Tourism Industry Conference at the Grenada Radisson Hotel, Ram today lauded Grenada’s recovery after entering into an arrangement with the Fund.
He also sought to assure that the IMF was a much-reformed organization compared to the one that was synonymous in the past with unbearable fiscal medicine, while suggesting that it was an option that should be considered by Barbados for “concessional resources”.
“People think that the IMF is some sort of boogeyman and that is entirely not the case. The IMF is a much reformed organization and some countries, as they go through their period of fiscal consolidation, would require the support of the IMF and being within some type of an IMF programme is not a bad thing,” the CDB economist said.
Echoing some of the advice tendered by former Prime Minister Owen Arthur and other leading economists, he further suggested that “being in a programme like that can make access to concessional resources easier” for a country like Barbados.
At the same time, Ram acknowledged that an IMF solution might not work for a country like Trinidad and Tobago, amid its current economic challenges.
“For some countries that may not be necessary. A country like Trinidad and Tobago can put in the proper fiscal reforms now. They do not have to go to the IMF because they have sufficient foreign exchange buffers to weather the storm,’’ Ram said.
And without making specific reference to last month’s downgrade of Barbados by international ratings agency Standard & Poor’s (S&P), who lowered the country’s long-term local currency sovereign credit rating to ‘CCC’ from ‘CCC+’, the regional economist warned that continuous downgrades were definitely not a good fiscal sign.
“We have to ensure that we have the correct rules and laws in place; that we are no longer in a situation where the debt to GDP ratio is unsustainably high, because that’s not good for anyone, because it means that credit ratings are affected negatively and that then has an effect on financial and lending institutions,” the CDB official explained.
The IMF has all but told the Freundel Stuart administration that it needs to enter into a formal programme sooner rather than later, but so far Government has been sticking to its homegrown economic stabilization and growth strategy, the most recent iteration of which has been a $542 million austerity package announced by Minister of Finance Chris Sinckler in his May 30 Budget with a view to eliminating the island’s worrying fiscal deficit, which is currently estimated at six per cent of Gross Domestic Product (GDP).
However, without passing judgment on the Budget itself, the IMF has made it clear the island’s economic problems are not over by any measure.
Following a visit to the island back in June, the Washington-based financial institution issued a very detailed assessment in which it pointed out that the economy, which registered 1.6 per cent growth in 2016 and a further two per cent acceleration in the first quarter of 2017, was likely to falter as a direct result of Sinckler’s programme.
The IMF also warned at the time that domestic inflation, which stood at 3.2 per cent at the end of last year, was likely to accelerate to 6.7 per cent by the end of 2017.
To make matters worse, the island’s foreign reserves have plummeted to well below the 12-weeks benchmark, while the national debt soars at well over 140 per cent of GDP.
With the situation as it stands, Ram further cautioned that “Barbados needs to have a proper plan for getting the fiscal books back onto a sustainable path, but also, more importantly, when I speak about debt to GDP ratio there is a nominator and a denominator and we have to tackle both of them.
“So of course we are looking at the fiscal nominator but what about the denominator on GDP, we need to ensure that we are having a growth impact,” the economist said, while stressing that “growth is important because there is still a high level of unemployment and you need to have that growth to allow companies to expand and take on more individuals”.
With the Stuart administration currently sticking to its homegrown programme and seemingly dead set against entering into any formal arrangement with the IMF, Ram acknowledged that as a sovereign country, Barbados was well within its rights to do so.
However, he suggested that Government “can also decide to go within an IMF programme and perhaps unlock concessional resources that make the [required fiscal] adjustment a lot easier.
“Really it is the choice of the Barbadian people and the Government of Barbados which path they want to choose, but I am saying to you here that being in an IMF programme is no bad thing.
“The fact remains that adjustment is still required in Barbados,” he stressed.