Amidst opposition concerns about the level of debt being undertaken by the current administration, a staff mission from the International Monetary Fund (IMF) has expressed confidence that the Government has the situation under control for now, although risks remain.
In their report on Barbados, made public on Tuesday following the Seventh Review Under the Extended Fund Facility (EFF) Arrangement conducted last month, the team said the Government should be able to meet its public debt targets within the next 12 to 13 years.
“The Debt Sustainability Analysis suggests the debt target of 60 per cent of GDP can be achieved by FY2035/36 as previously envisaged, premised on consistently meeting the high primary surplus target,” the team led by the Fund’s Mission Chief for Barbados Bert van Selm said, noting that starting in the 2022/23 financial year, a steady improvement in the primary balance is needed to preserve debt sustainability.
“Staff’s assessment is that Barbados’ public debt remains sustainable but subject to high risks.”
The main risks, they added, include a slower-than-expected economic recovery as well as a delay in economic and fiscal reforms to generate primary surpluses.
However, the staff reported said those risks were mitigated by the country’s strong track record under the EFF-supported Barbados Economic Recovery and Transformation (BERT) programme, the authorities’ strong commitment to long-term fiscal adjustment, and the favorable debt service terms after Government’s comprehensive debt restructuring.
In addition, the report stated, market perception of country risk has improved after ticking up in April 2020.
Meantime, the IMF staff mission reported that the Barbados economy is expected to gradually recover over the medium term with growth projected at 11 per cent in 2022, supported by a recovery in tourism.
Tourist arrivals are expected to recover to about 60 per cent of pre-pandemic levels this year and return to pre-pandemic levels in 2024.
The staff mission from the Washington-based financial institution noted that the NIS unemployment claims which surged nearly five-fold at the height of the COVID-19 pandemic, when it reached about two per cent of GDP, are now back to pre-pandemic levels.
It also noted that the Unemployment Benefit Fund recapitalization programme, which envisions an infusion of $143 million over the period 2021/22 to 2023/24, is underway.
“Along with the anticipated recovery of contributions, financing pressures from unemployment and severance outlays are not anticipated in the near term,” the staff mission said.
“The NIS, however, is actively engaged in cash management operations to meet National Insurance Fund (Pension Fund) obligations, highlighting an urgent need for the authorities to articulate a NIF recapitalisation plan. Progress in this area has lagged due to pandemic-related disruptions,” it added, though acknowledging that the authorities indicated reforms to safeguard the sustainability of the NIF will be considered alongside the public service pension reform programme now underway as part of a broad-based pension reform initiative.
In the report, the Barbados Government was advised to accelerate reforms of state-owned enterprises (SOEs) once the COVID-19 pandemic wanes.
It said while the planned deepening of SOE reform announced by Prime Minister Mia Mottley during her Budget address in May is a welcome step forward, addressing the pervasive inefficiencies within the SOE sector is a process that will require a sustained and evolving reform effort.
“To contain government expenditures and secure needed fiscal space for investment including into transformation towards a greener economy, transfers to SOEs need to resume declining by a combination of: phasing out of COVID-related additional transfers; stronger oversight of SOEs, supported by improved reporting and analysis including through the newly introduced SOE dashboard; adjustments to SOE cost structures and revenue frameworks, including an increase in user fees; and mergers and divestment,” the IMF team advised.