BERT – the Barbados Economic Recovery and Transformation plan has received official approval from the Executive Board of the International Monetary Fund (IMF) paving the way for Barbados’ access to almost $600 million (US$290 million) for economic recovery.
Word of this came just before midday on Monday, following a board meeting between Barbados and the Fund’s management.
This means that Barbados receives funding over a four-year period, beginning with an immediate injection of nearly $100 million (US$49 million), followed by three additional disbursements.
It was on September 8 that the country reached a staff-level agreement with the IMF to borrow the funds under an Extended Fund Facility (EFF) arrangement.
But the IMF disbursement will only come based on its monitoring to ensure the country meets the targets of Barbados’ homegrown plan.
The agreement also opens up $400 million from the Inter-American Development Bank and the Caribbean Development Bank, who both pledged to provide policy-based loans once the IMF approval came.
Economic Advisor on the Barbados Economic Recovery Team, Professor Avinash Persaud told Barbados TODAY that today’s approval meant an immediately boost to the island’s foreign exchange reserves.
“It means overall if you add those numbers [CDB and IDB loans] with the IMF numbers you get close to $1 billion, and those disbursements will all start shortly,” he said.
The economist said he expected confidence to now return to the economy and that the country could now experience growth while Government continues its adjustment with less pain.
“In my view, the most important reason to have the IMF backing your plan is not the money, because we are such an indebted country – borrowing money is not our solution – but it is about having this credibility that if the IMF approves your plan; others [want] to lend to you and your policies don’t have to be over commit, it doesn’t have to be so draconian, it just has to just work, as oppose to catching up and trying to prove yourself because you have no credibility. So that is the real reason we have gone to the IMF,” he explained.
But Bridgetown runs the risk of losing the IMF funding if it does not stick to the measures it has announced in its homegrown plan.
Acknowledging that the country had suffered from an implementation problem for many years, and that it was easier to make a promise of an economic plan than it was to deliver, Persaud suggested that Government would be forced to stick to its plan since the country really needed the financial backing.
“Firstly they [the IMF] don’t disburse all the money up front; it is phased, based on you hitting quarterly targets that we have set out,” he said.
“Secondly they do require us to adopt some fiscal rules which we then make a law. We have already changed the Central Bank [of Barbados Act]; it cannot print money to fund Government; there is now a limit on the ways and means – the amount of the overdraft facility for the Government,” he explained.
Government will now be required to set up an Economic Policy Oversight Committee (EPOC), made up of independent experts, to review its fiscal policy and report on whether the targets set out under the BERT plan are being met.
Persaud could not immediately give a timeline for the establishment of this committee. But he pointed out that there would have to be a number of institutional changes as well.
The biggest challenge for the Mottley administration now, however, is the delicate balance between reducing Government’s spending and obtaining the efficiency needed to help spur economic growth.
This task would have to be mostly led by state-owned enterprises through mergers, privatization or through forming partnerships with private sector entities, Persaud told Barbados TODAY. This would not be an easy task, nor would it happen all at once for all the entities, he added.
“Some will have a difficult job and others will have a easy job,” he said, while singling out the Caves of Barbados as one example that could take a longer time to be streamlined.
“So that is the difficult part. Intellectually we have already achieved what we want to achieve there,” he said, adding that it was now more about implementation.
The Government’s economic advisor gave the assurance that Government would ensure both collection of revenue was improved while cutting back on spending and improving efficiency in all Government departments in order for the plan to work.
In a release this afternoon, Deputy Managing Director and Acting chairman of the IMF’s Executive Mitsuhiro Furusawa said fiscal consolidation was key to the island’s adjustment efforts, while pointing to Government’s ambitious target of six per cent increase in primary surplus of gross domestic product in financial year 2019/2020.
“Reducing transfers to state-owned enterprises will be key in reaching the primary surplus targets. The program aims to reduce these transfers with a combination of much stronger oversight of state-owned enterprises, improved reporting, cost reduction, revenue enhancement, and mergers and divestment. A planned comprehensive review of tax policies is expected to lead to improvements in the tax system. The adoption of a fiscal rule and reforms in public financial management will help sustain the fiscal reform effort,” said the IMF official.
“A comprehensive debt restructuring will complement the fiscal consolidation. The authorities have identified parameters that would provide debt relief without jeopardizing financial stability, and an exchange offer for domestic debt (Barbados dollar-denominated) to private creditors was launched on September 7, 2018.
The proposed debt restructuring includes a natural disaster clause and other features that are expected to help the authorities stay current on their future debt obligations, the IMF, adding that it is important to continue good faith negotiations with domestic and external creditors.
“Bold structural reforms are needed to improve Barbados’s growth potential and competitiveness. There is significant room for improvement in key business facilitation processes, including speeding up the process for providing construction permits and faster clearing of goods through customs,” he added.
Furusawa also noted that adequate social spending and an improved safety net were key priorities for the programme, adding that targeted reforms, to be pursued in close collaboration with development partners, were aimed at improving the efficiency and effectiveness of social spending.