Predicting a huge, double-digit slump in the Barbados economy, the Inter-American Development Bank (IDB) on Wednesday warned that the entire Caribbean faces
long-lasting harm from the COVID-19 pandemic.
The IDB said “the economy is projected to contract by 15.3 per cent in 2020”, adding that reduced tourism arrivals and constrained economic activity due to social mobility restrictions put in place to combat COVID-19 have fueled the decline.
In an IDB bulletin issued last month, titled A Pandemic Surge and Evolving Policy, the IDB had projected economic decline of 11.6 per cent, and warned then that the economic downturn resulting from the pandemic was “lengthening and deepening”.
Now in its latest publication, the IDB notes Barbados has had to revise its targets under the International Monetary Fund-backed Barbados Economic Recovery and Transformation (BERT) plan.
Owing to the effects of the COVID-19 pandemic, Government negotiated a reduction of the primary fiscal balance targets of six per cent of GDP in financial year 2020/2021 and financial year 2021/2022 to -one per cent and two per cent of GDP, respectively.
The IDB said the revised fiscal targets this year “will have to be offset with higher primary surpluses in the next few years to ensure the achievement of the long-term debt anchor of 60 per cent of GDP”.
“The fiscal gap is being financed mostly through external borrowing. The debt-to-GDP ratio is projected to increase to 146 per cent of GDP in 2020, compared to 126.3 per cent of GDP at the close of 2019. In 2019, 27.2 percent of this debt was external, while in 2020 external debt reached 34 per cent of total debt,” the IDB said.
It said inflation was projected to fall from 4.1 per cent in 2019 to 2.5 per cent in 2020, reflecting lower consumer demand.
The IDB also pointed out that the effect of the pandemic on the financial sector remained uncertain.
“Moratoriums on credit repayments have been put in place since the onset of the crisis. Overall, in 2020, the demand for credit has slowed and outstanding loans have fallen below 2019 levels. Net lending to utilities, tourism, real estate, and distribution sectors has increased since the economy reopened, but household debt has declined. Provisions for non-performing loans have increased, which is being reflected in worsening profitability indicators,” the IDB said.
In its Caribbean quarterly bulletin for December titled Economic Institutions to Advance Beyond 2020, it said: “The social consequences of the crisis continue to mount, and despite governments’ best efforts to buffer the shock to families, enterprises, and domestic markets, there remains a dire need for continued and more broad- based stimulus to ensure that economic capital — both human and otherwise – remains intact.”
The publication said for most Caribbean economies, the COVID-19 pandemic will translate into the deepest single-year contraction of real gross domestic product (GDP) on record in 2020, adding that with the exception of Guyana, countries have experienced deep recessions, severe increases in unemployment and long-lasting damage to many corporate and household balance sheets
The bulletin also noted that although the quality of public finance management processes and systems is weak in the Caribbean, Barbados is taking active steps to reinforce them.
It highlighted the Mia Mottley administration’s efforts to introduce several key pieces of legislation in recent years.
“The government’s intention to introduce a numerical budget rule remains appropriate, since the consolidation effort will need to be sustained over many years to reduce debt to manageable levels. The authorities might also consider adopting an independent fiscal council to monitor implementation of the rule, as is being done in other countries in the region such as The Bahamas and Jamaica,” the IDB recommended.
It added that although Barbados recently established a debt management committee, promoting a less fragmented legal framework and organizational structure would improve debt management practices.
Singling out the island’s tax structure, the IDB suggested that Government was losing critical revenue due to some exemptions.
“The government carried out several revisions to its tax policy under the BERT Extended Fund Facility programmes, revising the structure of revenue sources – income and corporate tax, introducing new fees and levies, and eliminating some types of taxes such as the road tax. However, the country still suffers from extensive foregone revenues as a result of tax exemptions,” the IDB said.
And while noting that keeping a solid tax data base was a challenge in the region, the IDB acknowledged that Barbados’ tax administration system has undergone reforms in recent years, and that government continued to take the necessary steps towards continued improvement.
“The Barbados Revenue Authority is working on getting information from third parties and asking them to submit their statements on a monthly basis to facilitate reconciliations,” it said, while highlighting that the Tax Administration Management Information System (TAMIS) was introduced in 2018 to support more efficient administration processes.
(marlonmadden@barbadostoday.bb)
