IMF: Tough times ahead
WASHINGTON, CMC – The International Monetary Fund (IMF) says that the difficult global economic conditions continue to “pummel” Barbados, with growth at “anemic levels” and inflation and unemployment rates “moving up sharply.” After concluding Article IV consultation with Barbadian authorities, the Washington-based financial institution said on Wednesday that real Gross Domestic Product (GDP) growth was only 0.2 per cent in 2010, after two years of decline, while estimates for the first nine months of 2011 show an expansion of 1 per cent due mainly to improved tourism and construction activities. With overall economic activity remaining subdued, the IMF said Barbados’ unemployment rate almost doubled from 6.7 per cent in 2007 to 12.1 per cent in June 2011. It said pressures on prices have increased, with inflation estimated to have reached 10.6 per cent (year-over-year) in August 2011, as commodity prices surged. “Fiscal performance remains under stress, especially in the light of the high public debt,” said the IMF, stating that, in fiscal year (FY) 2010/11, the central government deficit rose to about 8.5 per cent of GDP from 8.2 per cent of GDP in FY 2009/10. It said expenditures increased by 0.5 percentage points of GDP, while revenue weakness, particularly in corporate taxes, implied an overall deficit in excess of the budget target. However, the IMF said budget execution for the first half of 2011/12 fiscal year appears to be on track to achieve an overall central government deficit target of 5.1 per cent of GDP. It said public debt continues to rise, stating that at the end of FY2011, total public sector debt was 117 per cent of GDP, up from about 90 per cent of GDP two years earlier. The IMF said the island’s current account deficit has widened in recent times due to higher oil and food prices, adding that the deficit widened from 5.6 per cent of GDP in 2009 to 8.5 per cent in 2010. “While import volumes contracted in the first nine months of 2011, higher commodity prices pushed up the import bill, further worsening the current account deficit to around an estimated 10.5 percent of GDP in 2011,” it said. The IMF, however, said international reserves reached a “comfortable” 4.5 months of imports at end-September 2011, “having been boosted by public and private capital inflows.” It warned that the economic outlook for 2011 is “weak, with growth expected to remain soft.” The financial institution said while tourism is recovering, the rest of the economy is “sluggish,” pointing out, therefore that real GDP growth is expected to turnout at less than 1 percent this year despite higher tourist arrivals. “The medium term prospects are uncertain, with risks tilted to the downside,” it said. “A strong pick-up in economic activity depends heavily on improvements in labor market conditions in the UK (United Kingdom) and the US (United States) International reserves are projected to come under pressure in the near to medium term.” While cushioning the impact of the global economic crisis, the IMF said the Barbados government’s policy response has “put pressure on public finances and further raised the public debt. “Directors saw as the main challenge the need to undertake a credible fiscal consolidation without jeopardizing the fragile recovery and social cohesion,” the statement said.