IMF programme limits ability to invest in growth, warns economist

Top economist Professor Don Marshall has called for the upcoming national Budget to prioritise targeted stimulus measures for agriculture, industry, and exports, warning that without such interventions, the country risks stalling its economic transformation.

He warned that the country’s ongoing arrangement with the International Monetary Fund (IMF) continues to limit the government’s ability to implement specific growth-driven policies.

Barbados remains under an IMF-supported programme through the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF), which guide the country’s economic policies.

The EFF, approved in December 2022, provides $226 million (US$113m) under the Barbados Economic Recovery and Transformation (BERT) 2022 plan, aimed at reducing debt, stabilising public finances, and supporting economic growth.

The $378m (US$189m) RSF focuses on strengthening resilience to climate change and external shocks.

These arrangements require strict fiscal management, shaping government spending and limit room for additional stimulus outside the programme’s framework, according to Professor Marshall.

Speaking to Barbados TODAY ahead of Minister Ryan Straughn’s March 10 Budget speech, Professor Marshall, the director of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), stressed that policies should focus on reducing imports and increasing export earnings rather than relying on consumer-driven growth.

“We want growth, but we want the growth to be rooted in import savings and in export earning potentials,” he said.

“But growth that is driven largely by consumption is not going to be experienced on the ground in terms of how people live their ordinary lives. In other words, we wouldn’t see a reduction in the borrowings and so on that we are witnessing.”

Professor Marshall underscored the importance of incentivising small businesses and productive industries, noting that targeted support in these areas is “especially required at this time.”

“A stimulus in the productive sectors is especially required at this time and some relief in terms of mitigation from high cost of living will also be welcome,” he said.

He questioned the extent to which the government could provide such support given the constraints of the IMF agreement.

The economist was particularly critical of what he said were the limitations placed on fiscal policy under the IMF arrangement, suggesting that it restricts the government’s ability to invest in key areas needed for long-term economic growth.

Marshall expressed further scepticism about the Budget: “We go through these annual rituals that more correspond to a constrained policy space, largely because we are in an arrangement with the IMF and I think it is time that Barbados recognises that the constraints on our fiscal policy space mean that the kind of creative expenditures that we can get involved in to stimulate innovation-mediated production, manufacturing and agricultural output wouldn’t happen.

“I’m always very resistant about the annual exercise in the context of an IMF programme. I’m very resistant about what it can do outside of the constraints of fiscal consolidation.”

shannamoore@barbadostoday.bb