The International Monetary Fund (IMF) is urging Government to abandon its “recent weak track record” for enforcing austerity measures and adopt “a more aggressive strategy” that includes a divestment of some state enterprises.
But the IMF, while noting that the Freundel Stuart administration had not implemented several of its recent recommendations, acknowledged that Barbadians were showing “growing signs of frustration following multiple tax increases, a ten per cent Government work force reduction, and a wage freeze since 2009”.
In a 77-page country report issued following Government’s most recent budgetary proposals, and which is based on the Article IV Consultation concluded in May, the IMF also said though Barbados authorities “broadly agreed” with its assessment that more fiscal adjustment was needed, they feared the public’s “growing adjustment fatigue”.
Notwithstanding these concerns, the IMF told Government that it needed to “resuscitate fiscal adjustment” so that it can stabilise debt and reduce funding requirements”.
“Adjustment should focus on renewing structural reform of the public sector and significantly improving implementation, as well as measures to contain expenditure and raise revenue”.
It thinks the “pillars of the proposed adjustment strategy” should be completing and strengthening the Barbados Revenue Authority, a “deeper and comprehensive” reform of state-owned enterprises, elimination of arrears including tax refunds, and maintaining the National Insurance Scheme’s “integrity”.
The IMF said it told Government that in order to start reducing debt following an increase of 7.5 per cent of GDP in financial year 2015/16, and to address the funding challenges, it should implement a fiscal adjustment of at least 3.5 per cent of GDP over the next three years.
“Such adjustment would reduce debt below 100 per cent by FY2019/20, ease the funding burden, support international reserves, and improve the country’s credit ratings. However, the Government’s recent weak track record raises concerns as to whether there is adequate implementation commitment or capacity.”
The financial institution said while the recommended fiscal adjustment “could temporarily inhibit growth”, it “would support higher growth over the medium term”.
“Notwithstanding the potential fiscal drag, a slower pace of fiscal consolidation, in the absence of external funding, would entail significant risks. In this context, an ambitious yet credible strategy may progressively improve business sentiment and increase private investment, as well as ensure that the Government has adequate resources for critical public spending,” it added.
“These factors, together with early steps to tackle business impediments, could broadly offset the negative short-term fiscal impulse while leading to higher medium term growth. Moreover, fiscal reforms would support growth by reducing waste and duplication through a more efficient public sector, rather than further cuts in employment and wages.”
The IMF said Government needed to “urgently” complete the merger of the BRA and Customs and Excise Department, while strengthening the large taxpayers unit, and “resolving outstanding tax arrears issues”.
“Government should also increase the reform of 64 state-owned enterprises, including divestment, and make managers of these entities “accountable for implementation of financial and restructuring plans.”
“A reduction in central government arrears to [state-owned enterprises] and the private sector should improve their liquidity and trigger a broader reduction in arrears, as well as enhance taxpayer ability to pay the BRA,” the IMF added.
And while noting the NIS was “well managed”, it urged Government to “make contributions in a timely manner (rather than providing the equivalent in debentures) to ensure that NIS has sufficient liquidity”. (SC)
