The decision by Government to rekindle a relationship with the International Monetary Fund (IMF) in order to pursue a second round of the Barbados Economic Recovery and Transformation (BERT) programme is a positive move for the economy.
This assessment has come from noted economist Marla Dukharan, who explained that the country was still in need of funding that was difficult to access on the capital market due to high interest rates and the bitter taste of the 2018 debt restructuring still lingering in the mouths of investors.
At the same time, however, Dukharan has warned of the need for a new BERT programme to be accompanied by private sector growth, which she said can be done through improvements in the ease and cost of doing business.
“I think that the announcement that there will be a renewal of the relationship with the International Monetary Fund is a positive step. If you think about what would have happened in the absence of that, there would be a lot of questions as to how Barbados will receive the funding that it needs for the kinds of reforms, investments, diversification and fiscal consolidation in the future that it needs, given that Barbados can’t really raise commercial debt at this point, given that the debt restructuring was so recent,” Dukharan explained.
“Let us think about it the other way. If the government announced they were not going to renew the IMF agreement, I think that would have been detrimental to the reputation and to the confidence in the Barbados economy and in the Government of Barbados and in holding Government of Barbados debt. So I think this is a positive thing,” she said.
Last Friday, Prime Minister Mia Mottley announced that she would be approaching the IMF for a new three-year Extended Fund Facility arrangement when the current programme comes to an end on September 30.
Mottley, who also cited rising interest rates as the reason for going back to the IMF for more affordable funding, explained that government needed to complete its restructuring and repurposing of state entities and encourage economic growth.
“We have been of the view that the cheapest money in town is still at the International Monetary Fund. In addition to that, it also unlocks other development funds that may be made available to us as a nation,” said Mottley.
In addition to an approximately US$130 million (BDS$260 million) in financing that the country would receive, the new arrangement would unlock another US$210 million (BDS$420 million) under the Resilience and Sustainability Trust (RST) set up by the IMF in May, to help countries access financing to invest in resilience building.
Dukharan said looking back at the BERT programme that was initially envisioned, a lot of the fiscal and debt targets had to be adjusted due to several events including the COVID-19 pandemic, the ash fall from the La Soufriere volcano and Hurricane Elsa, which required increased government spending.
“The initial targets we had set were valid targets, we had to adjust them but we still have these goals that we have to meet. I think that what we are likely to see is these initial goals being reinforced and readopted,” said Dukharan.
“I think that the fiscal and debt reduction goals and targets are still achievable and I guess the government will be renegotiating and therefore then pursuing the targets, whatever they agree,” she said.
However, the Caribbean economic advisor said in carrying out a second BERT programme, Government should pay careful attention to improving the business climate, which in turn should encourage private sector led growth.
“One of the things the government really needs to pay attention to is the ease of doing business and the cost of doing business in Barbados,” she said.
Acknowledging that the country was still facing a lot of inflationary pressures due to the rising costs associated with imports, Dukharan said there was not a lot that could be done except for the measures taken recently to give Barbadians an ease in the supermarket, at the pumps and on their electricity bills.
“There is not a lot that can be done for the inflationary spike we are seeing, but I really feel that the government needs to pay closer attention to the ease and to the cost of doing business because in the absence of the revival of the private sector in Barbados and a competitive strong, private sector in Barbados we are not going to have growth. I think that is the major challenge,” said Dukharan.
She noted that while the debt would increase with the borrowing from the IMF, that was not a major concern at this stage given that there should also be measurable sustainable economic growth as a result of the BERT programme.
“I think that what’s really the challenge is the growth, because if you have growth, the debt to GDP comes down because your denominator expands. I really feel we need to pick up on the growth element. And how do you grow an economy sustainably? Through private sector led activity, meaning you need ease of doing business reforms and you need the private sector to be as competitive and as active as they can be,” she explained.
