Despite “minor delays”, Barbados has managed to make a strong start in implementing its economic austerity programme, the International Monetary Fund said today, prompting the IMF’s second release of credit to Bridgetown.
The IMF said the country passed its first quarter review, triggering an immediate injection of about $97.40 million (US$48.70) into its growing international reserves.
This takes the total disbursement so far to $194.80 million (US$97.40 million). The first was in December last year.
Under the four-year EFF arrangement, Barbados is to receive an amount equivalent to about $578.8 million (US$289.41 million), or 220 per cent of island’s quota in the IMF, which was approved by its Executive Board on October 1, 2018.
The nod of approval for the second disbursement came just over a month after an IMF team carried out a review of the island’s BERT programme under the Extended Fund Facility (EFF).
In its release today, the IMF described the BERT programme as comprehensive, pointing out that it was aimed at restoring fiscal and debt sustainability, addressing falling reserves, and increasing growth while protecting vulnerable groups through strengthened social safety nets.
In the statement following the Executive Board discussion, IMF Deputy Managing Director and Acting Chair Tao Zhang said: “Barbados has made a strong start in implementing its ambitious and homegrown economic reform programme. All performance criteria for March 2019 were met, and all structural benchmarks have been implemented, although a few with minor delays.”
The IMF official said the financial year 2019/2020 provided a solid basis for the targeted fiscal consolidation of six per cent of gross domestic product (GDP).
Tao said: “The adjustment effort is supported by several new taxes, ongoing reforms in public financial management, a reduction of transfers to state-owned enterprises (SOEs), and adequate provisions for social safety nets and capital expenditure.”
Tao added that authorities were even ready to take additional measures to reach the targeted primary surplus if necessary.
“The planned adoption of a fiscal rule in 2020 will help sustain the adjustment effort over the medium and long-term,” he added.
He said the reform of the SOEs was critical for achieving the primary surplus target and maintaining it over the medium-term, adding that to secure fiscal space for investment in physical and human capital, transfers to SOEs “are envisaged to significantly decline by a combination of stronger oversight of SOEs, cost reduction, revenue enhancement, and mergers and divestment”.
Pointing to Government’s Retooling and Empowering, Retraining and Enfranchisement (RE RE) programme, he also stated that adequate social spending and an improved safety net were key priorities for the BERT programme.
Further welcoming the one-year administration’s efforts in stabilizing the ailing economy, Zhang said a comprehensive public debt restructuring complements the fiscal consolidation and the domestic debt restructuring completed in November 2018 has significantly reduced the island’s public debt burden without jeopardizing financial stability.
But he advised that Bridgetown reaching a decision with external creditors would help to restore debt sustainability.
Government has been engaged in a standoff with external creditors’ representatives over the past several months, as both sides fail to give in to each other’s proposals.
Pointing to the island’s fixed exchange rate of US$1 to BD$2, the IMF senior official said it had served as a key anchor for macroeconomic stability.
He said: “The exchange rate peg and monetary regime would be further bolstered by the planned reforms to strengthen the central bank’s mandate, autonomy, and decision‑making structures”.
“Structural reforms target improvements in the business environment to increase growth over the medium-term. With the adoption of a new Town and Country Planning Law in January 2019, the process for providing construction permits has been streamlined. Going forward, the authorities intend to carefully review and address the different obstacles to growth.”