The International Monetary Fund (IMF) has approved Barbados’ final draw down of US$23 million under its Extended Fund Facility (EFF) saying that the economy is beginning to recover from the COVID-19 pandemic but warning the risk to continued recovery remains elevated with higher global commodity prices pushing up inflation.
In a statement issued on Thursday after its Executive Board concluded the seventh and final EFF review, and while its Managing Director Kristalina Georgieva is on an official visit to Barbados, the IMF said the government continues to make good progress in implementing the Barbados Economic Recovery and Transformation (BERT) programme, despite significant economic shocks associated with the COVID-19 pandemic, natural disasters, and the war in Ukraine.
“Economic activity in Barbados is starting to recover from the COVID-19 shock,” it said, although adding that “risk to the outlook remains high”.
“The key risk to Barbados’ economic outlook is a further lengthening of the pandemic, with the recovery in tourism depending on developments in key source markets. An intensification of the war in Ukraine could further increase global commodity prices.”
The IMF advised that strengthening resilience to natural disasters and climate change, combined with an accelerated transition to renewable energy, is key to achieving more sustainable economic growth and reducing vulnerability to international oil price volatility.
The Fund noted the improvement in the vital tourism sector over the last two years.
Noting that tourism came to a virtual standstill in April 2020 when the COVID-19 pandemic had begun to affect the island, and the economy contracted by 14 per cent that year, the IMF said a gradual economic recovery started in 2021 and has gained momentum in recent months, with tourism now at about 60 per cent of pre-pandemic levels.
“Medium-term growth prospects depend on accelerating structural reforms to improve the business climate, diversify the economy, and facilitate green and digital transformations,” it said.
The IMF said that over the life of Barbados’ four-year programme, which was approved on October 1, 2018, the authorities have steadily moved ahead with their economic reform agenda including the introduction of a revised central bank law, state-owned enterprise (SOE) reform, and reforms of the customs department.
International reserves, which reached a low of US$220 million (5- 6 weeks of import coverage) in May 2018, are now at a comfortable level of US$1.5 billion, it added.
The EFF comes to an end in September and Prime Minister Mia Mottley has indicated that while entering another arrangement with the IMF was not off the table, a decision has not yet been made.
A total of US$435 million in disbursements were made over the life of the programme.