Barbados got an ‘A’ grade as an International Monetary Fund team wrapped up a visit here today, just two months after the multilateral lender approved a $600-million loan under its Extended Fund Facility.
“Barbados has made an excellent start in implementing its ambitious and comprehensive economic reform programme, said IMF Head of Mission Bert Van Selm at the end of consultations with interest groups which began on Tuesday to assess implementation of the Barbados Economic Recovery and Transformation (BERT) plan.
The passing grade is joyful news for the woman spearheading BERT – Prime Minister Mia Mottley.
Welcoming the report, Mottley said she believed all Barbadians would feel proud that “we have made good progress”.
“So we are on track,” said Mottley.
She thanked Barbadians for their support, saying “we could not be here unless everybody agreed to this journey together.
“So I want to thank the people of Barbados – labour, private sector, civil society, businesses individually and households individually. It is not easy,” she said.
On the plus side, a highlight for the IMF team is the doubling of the country’s foreign exchange reserves, which had plummeted below benchmark standards to reach an all-ime low, triggering fears for the stability of the Barbados Dollar.
“The country’s international reserves, which reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018, have more than doubled since then, amounting to more than US$500 million in early December. This has helped to rebuild confidence in the country’s macroeconomic framework,” the IMF team concluded.
Mottley also pointed out that the building back of the reserves, which reached a high of about $1 billion yesterday, was already serving as a catalyst for private sector investment, adding that proposals in the education and tourism sectors have already been coming in.
The Washington-based financial institution’s team also had high praise for the “rapid completion” of the local debt restructuring exercise which will see holders of Government paper taking a haircut in interest and accepting a longer repayment period.
“The rapid completion of the domestic part of the debt restructuring has been very helpful in reducing economic uncertainty, and the terms agreed with creditors will help put public debt on a clear downward trajectory. A much-reduced government interest bill will help create much-needed fiscal space for increased social spending and investment in infrastructure,” the IMF team noted.
But the Van Selm team also noted that negotiations with the external debt creditors were not completed, urging the Mia Mottley administration to continue open dialogue and share information with the group.
“Completion of the debt restructuring exercise would help to further reduce uncertainty,” the IMF officials stressed.
And amid criticism of the Government’s restructuring exercise which has led to painful layoffs in Central Government and at state enterprises, the IMF team gave its approval saying the move will not only improve efficiency and reduce the public sector’s wage bill but would help to “facilitate private sector-led growth” and “reduce central government transfers to state-owned enterprises, from a level that had become unsustainably high”.
Mottley, who described the past six months as “intense” and like being in The Matrix movie, said that once the targets were established the rest of the work for the economic road map fell into place.
She also pointed out that Government was now in a better position to manage its finances, after being able to know how much it was spending and how much it was earning on a daily basis.
“It means if things are looking a little slow this week or this month, we can say slow it down,” she said.
As at the end of November, Government revenue stood at $1.93 billion while spending was $1.87 billion.
But the IMF team was less optimistic about Government’s recent decision to slash corporation taxes for businesses, saying it viewed the move with the caution.
Last month, Prime Minister Mia Mottley announced a reduction in corporation taxes from 25 per cent to as low as between one and 5.5 per cent.
She explained that move would allow local businesses to operate on a level playing field with their international counterparts following Government’s decision to overhaul its tax regime to be compliant with the Organisation for Economic Co-operation and Development (OECD).
The IMF however noted “There are some risks to this reform, including making corporate income tax revenues more dependent on maintaining international competitiveness.”
Van Selm however concluded that “Barbados has also made good progress towards meeting end-December 2018 structural benchmarks under the EFF.”
Immediately after taking control of the government back in May, Mottley had announced a suspension of all debt payments.
Two weeks later she announced a number of austerity measures, which are being introduced over time. The restructuring programme also includes a reform of state-owned entities.
Mottley, who pointed out that one of the last meetings she had on Friday was with a social services agency and the household mitigation unit, gave the assurance that Government “will not rest” until retrenched workers were “relocated”.
“That is what we are working towards,” she promised.
In reaction to the IMF’s report, the president of the Barbados Economic Society (BES), Shane Lowe, also pointed to the progress so far under the restructuring programme, but he maintained that there was still work to be done in order to grow the economy.
“The economic situation is still challenging but certainly improving, albeit slowly. There are a number of issues to tackle,” said Lowe
He argued that low economic growth remained one of the main challenges facing the country, while pointing out that consumption would not lead the kind of growth needed.
“Because of the ongoing austerity, that is not likely to ease up any time soon, there is going to be a need for something else to drive growth, and consumption is probably not going to be the driver over the next four or five years. So that is where investment comes in,” he said, while pointing out that there was also need for an improvement in the ease of doing business.
He also highlighted the need for more opportunities to be created for locals to invest overseas and bring more foreign exchange into Barbados.
“We have to find a way whether it be through diversification, to get our North America tourists stay a bit longer, to extract a bit more value-added in tourism because that sector is not contributing as much as it once did in terms of our economic growth,” he added.
Lowe also recommended that the excess liquidity in the banking system was likely to continue, and that needed to be “put to work”.
“A big part of this is going to be how do we find avenues to take the surplus funds we have in the banking system and allocate them to businesses . . . to further accelerate economic growth,” he said.
The economist also reiterated his call for a timely conclusion of negotiations with external creditors in order to improve the country’s access to international capital beyond the IMF-backed programme.
He was addressing the CIBC FirstCaribbean Barbados Client Economic Forum at Sandals Barbados, where he engaged the Prime Minister in a wide-ranging discussion on the economy.