The EFF-Upfront fiscal consolidation, meaningful debt restructuring, and structural measures to support growth should put debt on a clear downward trajectory. The program will seek to protect vulnerable groups through strengthened social safety nets.
IMF Deputy Managing Director and Acting Chair, Mr. Mitsuhiro Furusawa said : “Fiscal consolidation is key to the adjustment effort. The authorities aim to increase the primary surplus to 6 percent of GDP in FY2019/20 and maintain it at that level for several years thereafter. A planned comprehensive review of tax policies is expected to lead to improvements in the tax system. The adoption of a fiscal rule and reforms in public financial management will help sustain the fiscal reform effort.
“and an exchange offer for domestic debt (Barbados dollar-denominated) to private creditors was launched on September 7, 2018. The proposed debt restructuring includes features, including a natural disaster clause, that are expected to help the authorities stay current on their future debt obligations. It is important to continue good faith negotiations with domestic and external creditors.
“Bold structural reforms are needed to improve Barbados’s growth potential and competitiveness. There is significant room for improvement in key business facilitation processes, including speeding up the process for providing construction permits and faster clearing of goods through customs.
“. Targeted reforms, to be pursued in close collaboration with development partners, aim at improving the efficiency and effectiveness of social spending.”
The IMF noted that the Mia Mottley administration that took office in May 2018 "inherited a precarious economic situation. Over the last decade, Barbados’ economy has experienced very low growth, and fiscal and external imbalances have gradually led to an unsustainable situation, with very high debt, and very low reserves. Public debt has increased to 157 percent of GDP, while international reserves dropped to 5-6 weeks of import coverage."
Although the fiscal deficit has decreased over the last few years, it remains large, at about 4 percent of GDP in FY2017/18. In 2017 and early 2018, the economy slowed owing to measure taken by the previous government to tighten the fiscal stance and uncertainty about the road ahead, with the Central Bank of Barbados (CBB) reporting a contraction of 0.6 percent in the first half of 2018 (over the same period last year).
The new government announced a comprehensive debt restructuring, including commercial external debt and treasury bills, on June 1, 2018. Significant progress has been made in discussions with domestic and external creditors, and an exchange offer for domestic debt (Barbados dollar-denominated) was launched on September 7, 2018.
Key element of the authorities’ homegrown economic reform program include:
(i) upfront fiscal adjustment: the authorities aim to increase the primary surplus by 2½ percent of GDP to reach 6 percent of GDP in 2019/20 and maintain it at that level for several years thereafter, while protecting vulnerable groups through strengthened social safety nets. Adjustment measures include reduced transfers to state-owned enterprises, higher taxes on tourism, and increased personal income tax and corporate income tax rate rates. The fiscal adjustment effort will be supported by the adoption of a fiscal rule, and Public Financial Management (PFM) reforms.
(ii) reform of state-owned enterprises (SOEs). At 7½ percent of GDP, transfers from the central government to state-owned enterprises are very high, and a major contributor to fiscal risks. The program aims to reduce transfers by about 2 percentage points of GDP, by a combination of much stronger oversight of SOEs, supported by improved reporting; cost reduction, including reduction of the wage bill; revenue enhancement, including an increase in user fees; and mergers and divestment.
(iii) structural reforms to support growth. The program seeks to address weaknesses in the business climate, including slow processes for obtaining construction permits, getting electricity, and registering property, and will include financial and labor market liberalization policies.
- Countries: Barbados