Barbados is set to receive $48 million from the International Monetary Fund possibly by next month, bringing total disbursements under its Extended Fund Facility (EFF) to 305 million special drawing rights (SDR).
This follows the completion of a virtual Article IV Mission and Sixth Review under the $580 million ($US$290 million) EFF, the Washington-based financial institution said.
The IMF team and fiscal authorities here reached a staff-level agreement which is now subject to the approval of the IMF Executive Board, which is expected to consider the review in December.
“Upon completion of the review, 17 million special drawing rights (SDR) – approximately US$24 million – will be made available to Barbados, bringing the total disbursement under the EFF to SDR 305 million.”
IMF projections are for the economy to grow by two per cent this year, down from a predicted three per cent. But it said that the island continues to make “good progress” in implementing its comprehensive economic reform programme, BERT. [The Barbados Economic and Recovery Transformation Plan]
“The authorities’ BERT programme, supported by the IMF’s Extended Fund Facility, is on track,” said the IMF statement. “All quantitative programme targets for end-June and end-September 2021 have been met. Further, all structural benchmarks for the sixth review have been met, with the exception of the adoption of the Fair Credit Reporting Act, planned for end-October 2021 and slightly delayed.”
The IMF highlighted that international reserves have increased to US$1.4 billion ($2.8 billion) by last month and that “this and a successful 2018-19 public debt restructuring, have helped rebuild confidence in the country’s macroeconomic framework”.
But it noted that the reform programme faces economic challenges owing to the ongoing coronavirus pandemic.
“However, a virtual standstill in the tourism sector during the pandemic took a significant toll in 2020, with the economy contracting by 18 per cent,” said the IMF team. “While Barbados was successful in containing the outbreak during 2020, renewed COVID-19 waves weigh on a nascent economic recovery.”
The IMF also acknowledged that Barbados has been hit this year by two natural disaster shocks — volcanic ash falls from neighbouring St. Vincent in April and the Category One Hurricane Elsa in July.
It said: “Economic growth is projected at two per cent for 2021 premised on a modest recovery of tourism towards the end of 2021—down from three per cent projected at the time of the fifth EFF review. The outlook remains highly uncertain, and risks are elevated.”
It said that government revenue shows tentative signs of recovery this year, while spending pressures remain high.
Before the pandemic, Government met its primary surplus target of six per cent of gross domestic product (GDP) in the financial year 2019-20. But the IMF said that the impact of the pandemic on government finances reduced the primary balance to minus one per cent of GDP in FY 2020-21.
“The authorities are targeting a similar primary deficit in the current fiscal year (FY2021-22), with tourism still well below normal levels, and additional spending related to the twin shocks of volcanic ash falls and Hurricane Elsa,” said the team. “The authorities are expected to resume fiscal consolidation required to achieve long-term fiscal objectives starting in FY2022-23.”
Barbadian authorities remain firmly committed to unwinding the temporary fiscal accommodation caused by the COVID-19, the IMF said, noting that while fiscal policy must remain “accommodative” this financial year to offset the impact of the pandemic and natural disasters, a gradual economic recovery will lead to a gradual reduction in the debt-to-GDP ratio over the medium term.
The IMF said: “The authorities should be able to achieve the debt target of 60 per cent of GDP by FY2035/36 through ambitious primary balances in the medium and long-term. The projected improvement in the fiscal position is supported by a cyclical recovery in revenues, phasing out of COVID-related expenditures, continued state-owned enterprise (SOE) reform, and the expected introduction of a fiscal rule.”
Structural reforms to transform state-owned enterprises have been undertaken, said the fund. Reforms under the BERT included upfront cost savings measures as well as strengthened oversight and accountability frameworks to improve SOE performance and limit fiscal risks, it added. (SD/CMC)
