IMF dispenses cash, advice for COVID recovery

The International Monetary Fund on Wednesday announced it is boosting the island’s coffers by nearly $200 million to help it dig out from under the COVID-19 pandemic even as it continues to lend to the island’s two-year-long fiscal revival.

As the pandemic’s economic crisis continues to pose a major challenge for the Barbados economy, the IMF’s number two man suggested the way the island does business and diversifying the economy will drive the country’s recovery.

But in the IMF’s latest review, Deputy Managing Director and Acting Chairman Tao Zhang also eyed further cuts in Government subventions to state-owned enterprises as necessary to restoring fiscal sustainability.

He said a primary balance target of -1 per cent of gross domestic product (GDP) for fiscal year 2020/2021, revised down a surplus of 1 per cent at the time of the third review, was enough to accommodate the worse-than-anticipated revenue losses and higher spending on public health and social protection triggered by the pandemic.

The new fiscal target is financed by additional resources from international financial institutions, including a second augmentation under the Extended Fund Facility (EFF).

Zhang said: “The fiscal accommodation will be compensated by higher primary surpluses in the medium term to ensure achievement of the long-term debt target of 60 per cent of GDP.

“Medium-term fiscal adjustment will be supported by continued reform of state-owned enterprises (SOE) to secure space for investment in physical and human capital.”

But the IMF official warned against further transfers of cash to prop up state agencies. He said payments to  SOEs “need to decline through a combination of stronger oversight, cost reduction, revenue enhancement, and mergers and divestment. Pension reform and introduction of a fiscal rule will also support medium-term fiscal sustainability”.

“Progress in restoring fiscal sustainability will further be safeguarded by a new central bank law aimed at limiting financing of the government and strengthening the central bank’s mandate, autonomy, and decision-making structures,” he said, while adding that strengthening resilience to natural disasters and climate change will also be key to long-term sustained economic growth.

The assessment comes as the executive board of IMF concluded its the fourth review of its four-year Extended Fund Facility (EFF) arrangement for Barbados, which was approved in October 2018.

The completion of the review allows for authorities to draw the equivalent of Special Drawing Rights 65 million (about US$94 million), bringing total disbursements to the equivalent of SDR 271 million (about US$390 million).

Including the augmentation approved by the executive board today, Barbados will be able to access an additional amount equivalent of SDR 322 million (about US$464 million), under the extended arrangement.

Zhang said the country continued to make good progress under the Barbados Economic Recovery and Transformation (BERT) programme aimed at restoring fiscal and debt sustainability and increasing reserves and growth.

However, he pointed out that the prolonged global coronavirus pandemic posed a major challenge for the economy, which is heavily dependent on tourism, and is expected to have a large impact on the balance of payments and the fiscal accounts.

“The Barbadian authorities continue to make excellent progress in implementing their Fund-supported Economic Recovery and Transformation plan and have swiftly responded to address the impact of the pandemic. Prospects for continued strong programme performance are good, but downside risks will continue to pose challenges in the period ahead,” said Zhang. (MM)