Barbados set to get more funding after successful EFF, RSF review

Barbados is in line to receive another US$75 million (BDS$150 million) after passing its latest International Monetary Fund (IMF) test.

The country has hit all targets under the second review of the arrangements under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF).

Following the 2023 Article IV consultation with the Barbadian authorities, which ended on Monday, an IMF mission reported reaching a staff-level agreement on Barbados’ success.

“All quantitative programme targets and structural benchmarks set for the second review under the EFF have been met. In addition, all reform measures set for the second review under the RSF have been implemented,” it said in a statement.
“The staff-level agreement is subject to approval by the IMF Executive Board, which is expected to consider the review in December.

The completion of the review will make available SDR 14.175 million (about US$19 million) under the EFF arrangement and SDR 42.525 million (about US$56 million) under the RSF arrangement.”

The IMF approved US$113 million (BDS$226 million) under the 36-month EFF programme and US$189 million (BDS$378 million) RSF for Barbados on December 7, 2022, to improve macroeconomic stability, support structural reforms, and make the country more resistant to climate change.

According to a statement issued by the head of the delegation, Pablo Morra, Barbados continues to advance the implementation of its comprehensive economic reform programme and authorities are implementing their updated Economic Recovery and Transformation plan (BERT 2022) and an ambitious climate policy agenda.

He said Barbados has weathered the COVID-19 pandemic and other recent shocks well and has preserved macroeconomic stability.

“The economy has recovered strongly, with ten consecutive quarters of growth, driven by a rebound in tourism. In the context of an expanding economy, the authorities are placing renewed focus on structural reforms with the aim of achieving inclusive and sustainable growth and increasing resilience to climate change while maintaining debt sustainability and social cohesion,” Morra said.

The IMF official noted that after a 13.8 per cent rebound in 2022, real gross domestic product (GDP) is projected to expand by about 4.5 per cent in 2023. Inflation fell to 4.3 per cent year-over-year as of mid-2023, from a peak of 6.7 per cent recorded in May 2022.

Lower international fuel prices and freight costs contributed to the reduction in overall inflation, while domestic factors such as prolonged drought conditions and higher demand for restaurants and recreational activities as a result of the recovery in tourism pushed up the prices of some food items and domestic services.

Morra said the economic recovery resulted in higher job growth, with unemployment claims and the unemployment rate reverting to pre-pandemic levels.

Gross international reserves rose to US$1.4 billion as of end-September, equivalent to almost eight months of imports of goods and services, supported by the improvement in the current account balance and loan disbursements from international financial institutions, he added.

Morra said the exchange rate peg continues to provide a key anchor for macroeconomic stability.

“Staff’s external sector assessment suggests that the external position is broadly in line with the level consistent with medium-term fundamentals and desirable policies. The new Central Bank Act in 2020 further strengthened the policy framework underpinning the exchange rate peg by enhancing the autonomy of the central bank, improving its governance, and limiting monetary financing.”

The Barbadian authorities met the primary fiscal target set for the first half of the financial year 2023/24 and are on track to raise the primary surplus to about 3.5 per cent of GDP by the end of the fiscal year.
The IMF official said the public debt ratio has fallen to pre-pandemic levels and is projected to continue declining, while sovereign credit ratings are gradually improving.

“The authorities are advancing their fiscal consolidation plans envisaged under the BERT programme while maintaining adequate social spending and gradually increasing public investment.

“They are reforming the corporate income tax regime in line with Pillar Two of the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing. The revenues arising from the reform are expected to be primarily used to increase public investment.
The authorities are also gradually restarting the domestic capital markets and remain committed to reducing the public debt to 60 per cent of GDP by financial year 2035/36.”

Morra said steady implementation of structural reforms is essential to support fiscal sustainability and create fiscal space for public investment.

The IMF official highlighted that the authorities are taking important steps to strengthen revenue administration, modernise the tax exemptions framework, implement a new procurement framework, and enhance public financial and investment management and fiscal governance.

“They have completed the policy and legislative framework for pension reform and are making progress on state-owned enterprises (SOEs) reforms, which had been interrupted as a result of the COVID pandemic.

“The combination of strong fiscal balances, a more efficient public sector, and higher social and investment spending can support a virtuous cycle of declining debt and sovereign risk, higher and more efficient investment, and stronger, inclusive, and more climate-resilient growth,” Morra added.

The head of the IMF delegation said conditions in the financial system remain stable and that the island’s financial system withstood well the shocks of recent years. (BT)