So far, so good.
That, essentially, is the International Monetary Fund’s (IMF) verdict on Barbados’ efforts to fix its ailing economy.
The commendation came from IMF economist Bert van Selm, who headed a team here to conduct a three-day fact-finding visit to discuss implementation of the Barbados Economic Recovery and Transformation (BERT) plan. That visit concluded today.
In an end-of-mission statement, van Selm commended the Mia Mottley administration for moving with haste to complete local public debt restructuring, saying this, along with the all-embracing BERT plan, has helped to rebuild confidence in the country’s fiscal situation.
“Barbados has made an excellent start in implementing its ambitious and comprehensive economic reform programme. The country’s international reserves, which reached a low of US$220 million (five to six weeks of import coverage) at end-May 2018, have more than doubled since then, amounting to more than US$500 million in early December. This has helped to rebuild confidence in the country’s macroeconomic framework,” stated van Selm.
He added that “the rapid completion of the domestic part of the debt restructuring has been very helpful in reducing economic uncertainty, and the terms agreed with creditors will help put public debt on a clear downward trajectory. A much-reduced Government interest bill will help create much-needed fiscal space for increased social spending and investment in infrastructure”.
The IMF mission head was also pleased with the administration’s efforts so far to reduce its costs which had become unsustainable, revealing that a primary surplus of two-and-a-half per cent of (annual) GDP in the first six months of FY2018/19 (April-September 2018).
“In October, the authorities launched a programme to improve efficiency and reduce the public wage bill by laying off and retraining workers in the central government and public entities. This should help create a leaner, more efficient public sector, geared towards facilitating private sector-led growth. It should also help reduce central government transfers to state-owned enterprises, from a level that had become unsustainably high.
“In November, the authorities announced plans to modify the corporate income tax (CIT) framework, seeking to unify rates that apply to the international business sector and local enterprises. There are some risks to this reform, including making corporate income tax revenues more dependent on maintaining international competitiveness,” said van Selm.
The action of establishing a BERT Monitoring Committee to report to the Social Partnership and the public on the plan’s progress was lauded as a step in the right direction by van Selm.
He argued that strong ownership and broad societal support bode well for the successful implementation of BERT, and in so doing, helping Barbados to achieve better living standards for all its citizens.
Speaking specifically to Barbados’ agreement with the IMF for a US$290 million lifeline over four years under the Extended Fund Facility (EFF), van Selm said the country had “made good progress” towards meeting its end of year structural benchmark targets.
“Following IMF Executive Board approval of the EFF on October 1, 2018, both the Caribbean Development Bank and the Inter-American Development Bank approved policy-based loans. These operations, worth US$75 million and U$100 million respectively (a combined three-and-a-half per cent of GDP), will help finance the government, rebuild reserves, and support the reform process with policy advice,” said van Selm.
He was pleased as well about the introduction in October of a regulatory sandbox for fintech (financial technology) start-ups to allow them to try out new technologies in a well-defined and controlled space.
van Selm admired too, the fact that legislation to facilitate a more efficient process for providing construction permits is underway, so as legislation to support a more efficient budget process, and stronger oversight of SOEs (state owned enterprises).
The IMF mission head’s main concern was the need for government to settle its debt restructuring with Barbados’ external creditors. “Continuing open dialogue and sharing of information will remain important in concluding an orderly debt restructuring process; completion of the external debt restructuring would help further reduce uncertainty,” he said.
The end-of-mission statement stressed that the views expressed by van Selm on behalf of the IMF staff who visited, does not necessarily represent those of the IMF’s Executive Board. It further pointed out that the mission will not result in a Board meeting. (SP)
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