The International Monetary Fund (IMF) Monday approved US$48.7 million for Barbados after indicating that the island has made a strong start in implementing its ambitious and home-grown economic reform programme.
The executive board of the Washington-based financial institution, said that it had completed its first review of the US$290 million Extended Fund facility (EFF) and that the completion enabled an immediate disbursement of US$48.70 million.
Barbados had entered into a four-year EFF arrangement with the IMF on October 1, 2018 and the IMF said that the Mia Mottley government is implementing a fiscal adjustment programme targeting a primary surplus of six per cent of gross domestic product (GDP) in the financial year 2019-20 and several years thereafter.
“A public debt restructuring is complementing the fiscal consolidation. The restructuring of domestic public debt completed in November 2018 has helped to substantially reduce the public debt burden. The authorities are engaging in good faith negotiations with external commercial creditors,” the IMF said.
Barbados has embarked on a comprehensive Economic Recovery and Transformation (BERT) plan aimed at restoring fiscal and debt sustainability, addressing falling reserves, and increasing growth. The programme seeks to protect vulnerable groups through strengthened social safety nets.
IMF Deputy managing director, Tao Zhang, said Barbados has made a strong start in implementing its ambitious and home-grown economic reform programme and that all performance criteria for March 2019 were met, and all structural benchmarks have been implemented, although a few with minor delays.
He said the 019-20 national budget “provides a solid basis for the targeted fiscal consolidation of six per cent percent of GDP.
“The adjustment effort is supported by several new taxes, ongoing reforms in public financial management, a reduction of transfers to State‑Owned Enterprises (SOEs), and adequate provisions for social safety nets and capital expenditure. If necessary, the authorities stand ready to take additional measures to reach the targeted primary surplus. The planned adoption of a fiscal rule in 2020 will help sustain the adjustment effort over the medium and long term.”
Zhang said that reform of SOEs is critical for achieving the primary surplus target and maintaining it over the medium term.
“To secure fiscal space for investment in physical and human capital, transfers to SOEs are envisaged to significantly decline by a combination of stronger oversight of SOEs, cost reduction, revenue enhancement, and mergers and divestment,” he said.
The IMF official said that a comprehensive public debt restructuring complements the fiscal consolidation.
“The domestic debt restructuring completed in November 2018 has significantly reduced Barbados’s public debt burden without jeopardizing financial stability. The authorities are continuing good faith negotiations with external commercial creditors, which together with the domestic debt restructuring, should help restore debt sustainability.
““The fixed exchange rate has served as a key anchor for macroeconomic stability and international reserves have increased. The exchange rate peg and monetary regime would be further bolstered by the planned reforms to strengthen the central bank’s mandate, autonomy, and decision‑making structures.
““Structural reforms target improvements in the business environment to increase growth over the medium term. With the adoption of a new Town and Country Planning Law in January 2019, the process for providing construction permits has been streamlined. Going forward, the authorities intend to carefully review and address the different obstacles to growth,’ Zhang added.
He said that adequate social spending and an improved safety net are key priorities for the programme.
“The authorities have launched a training and outplacement program to mitigate the impact on unemployment from layoffs at the central government and SOEs.”