IMF: Cuts still needed
AS MUCH AS GOVERNMENT wantsto save the jobs of public servants and workersat state enterprises,the International Monetary Fund (IMF) says expenditure cuts must
It was among the comments following a just concluded visit by an IMF team led by Judith Gold, the fund’s deputy division chief for the Western Hemisphere.
In a release last night, the team said the local economy was recovering on the back of a stronger tourism performance. However, the IMF warned that getting public finances in order “remains a critical challenge”.
According to the team, there was progress in reducing the fiscal deficit in financial year 2016/17 but despite this, large Government financing requirements were burdensome, as banks reduced their sovereign exposure leaving Government to rely on Central Bank financing.
“Continued fiscal discipline, with economic growth, are essential to securing Barbados’ future. They will be critical to bolster international reserves and support the currency peg,” the IMF team said.
“Only a substantial and a sustained reduction in the fiscal deficit, which will put the debt-to-GDP ratio on a solid downward path, will restore the country’s credit rating and attractiveness to investors.”
Commenting on the recent Budget measures, Gold said they accelerated the pace of the fiscal adjustment.
The statement added: “The Budget is primarily focused on raising revenues while shoring up international reserves, including through an increase in the National Social Responsibility Levy (NSRL) – which mostly impacts imported goods – from two per cent to ten per cent.
The NSRL, the IMF noted, is likely to be responsible for a major jump in inflation which it predicts will double from 3.2 per at the end of last year to 6.7 by year end.
The IMF cautioned: “Over the medium-term, further fiscal adjustment would be needed on the expenditure side to decisively reduce debt and debt service costs.
“Transfers to public enterprises of close to eight per cent on an annual basis represent the second largest expenditure item, after the wage bill, and about the same magnitude as the interest bill on the public debt.
“Both expenditure categories weigh heavily on public finances and critical reforms are needed to restore sustainability and confidence. Reduction in transfers to public enterprises must be supported by structural reforms to reduce state-owned enterprises’ operating costs, rationalise their programmes, and raise their revenues.”(GE)