Barbados is set to receive US$302 million in support from the International Monetary Fund (IMF) as it officially becomes one of the first countries in the world to receive funding from the institution’s new loan facility.
The IMF announced in a statement on Wednesday that its executive board had approved US$189 million under the Resilience and Sustainability Fund (RSF) along with US$113 million under a 36-month Extended Fund Facility (EFF) that will, among other things, support Government’s second Barbados Economic Recovery Transformation (BERT 2022) programme.
The Washington-headquartered financial institution said the loan package was being provided to maintain and strengthen macroeconomic stability, support the structural reform agenda, and increase resilience to climate change.
Barbados had in September become the first country to reach a staff-level agreement to access the RSF which was set up by the IMF in April, but Costa Rica last month was the first to actually receive a loan from the facility.
In the IMF statement, Deputy Managing Director and Acting Chair of the IMF board Kenji Okamura said the loan under the RSF will provide financing to “support the country’s climate change adaptation and mitigation efforts, and support Barbados’ ambitious goal of transitioning to a fully renewable-based economy by 2030”.
“Reforms under the RSF include the mainstreaming of climate change in the budget, the introduction of green public financial management, including in procurement, and measures that would incentivise private sector investments in climate resilient infrastructure and into renewable energy projects,” he said, noting that the measures were identified in close coordination with the World Bank and other international partners.
The RSL loan is to be repaid over a 20-year period and includes a 10-year moratorium on repayment of the principal.
Okamura said that despite a series of global economic shocks, Barbados continued to make good progress in implementing its first homegrown BERT plan, which was supported by a four-year EFF and ended in September this year, and the new IMF-supported programme would build on those achievements.
“Building on the successful completion of a 2018-22 Extended Fund Facility, the new EFF arrangement aims to maintain and strengthen hard-won macroeconomic stability and promote the unfinished structural reform agenda,” he said.
“Key elements of the programme would be the gradual and sustained increase in primary surpluses and ambitious structural reforms, such as strengthening of tax and customs administration as well as public financial management, adoption and implementation of pension reform, the rationalisation and consolidation of State-Owned Enterprises (SOEs), and growth-enhancing measures including additional steps to improve the business climate.”
The second BERT programme targets a primary surplus of two per cent of gross domestic product (GDP) in financial year 2022/23, up from -1 per cent of GDP recorded in 2020/21 and 2021/22.
Okamura noted that under the first BERT plan, macroeconomic stability was restored in 2018 and 2019 with a combination of fiscal consolidation, comprehensive debt restructuring, and structural reforms to support growth. He noted that this created space for a countercyclical policy response to the COVID-19 pandemic in 2020 and 2021, adding that public debt was put back on a clear downward trajectory starting 2021/22.
According to the IMF, economic recovery is expected to continue over the medium term,
“While Barbados continues to confront challenges owing to the global pandemic and Russia’s invasion of Ukraine, the economic recovery is now well underway,” Okamura said.
However, according to the IMF, downside risks to the outlook remain high.
It said the pandemic and higher global commodity prices, along with Barbados’ exposure to climate change and natural disasters still pose major challenges for the island’s tourism-dependent economy.
“Inflation has been rising since the second half of 2021 owing to supply chain disruptions and increasing global food and oil prices,” Okamura noted.