The Economy

Making good progress, Barbados passes its first IMF test

May 17, 2019

Barbados has passed its first IMF test, says Dr. Bert van Selm, head of the team which spent the last week conducting a review of how the country was meeting the targets agreed under its Extended Fund Facility arrangement.

He said Barbados continued to make “strong progress” in implementing its economic reform goals, and if the IMF board of directors concurs with the findings of the visiting team when it meets in June, another US$49 million will be made available to the country, for a total of US$98 million at that point.

Dr. Van Selm said international reserves, which had reached a low of about US$220 million or five to six weeks of import cover by the end of last May, had more than doubled since then, and the completion of the domestic part of the debt restructuring had been very helpful in reducing economic uncertainty “and the new terms agreed with creditors had put the debt on a clear downward trajectory.”

Reform of state-owned  enterprises had begun with tightened reporting requirements and shedding excess staff. All programmes under the EFF had been met successfully to the end of March, some by wider margins than others, including the target for net international reserves and central bank net domestic assets. The targets for primary surplus, subsidies for state-owned enterprises, central government domestic arrears and social spending were also met.

He noted that in March the Government had adopted a budget for FY2019/20 target a primary surplus of 6 percent of GDP.

Full-year effects of reforms set in motion in the previous year, including new taxes such as the airline travel fee, room levies, fuel tax and health service contribution should all help government to achieve that six percent target, he said.

In addition, a broadening of the VAT and land tax would help bring in more revenue. As a result, he said, the IMF staff team thinks the budget for the current fiscal year provided “a strong basis for the targeted fiscal consolidation,” but the authorities stood ready to take additional initiatives if necessary to reach the six percent target.

Good progress was also being made in implementing structural benchmarks under the EFF, “including those that contribute to an improved business climate,” such as the new planning and development act passed in January, he said, as well as the sandbox regime to regulate fintech startups. The new public financial management act passed in January would strengthen fiscal accountability and transparency, he added, as would the system introduced recently for monitoring the arrears of state-owned enterprises. He said progress was also being made in negotiations with external creditors, adding that a “continuing open dialogue and sharing of information” remained important in reaching an orderly restructuring of the foreign debt.

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