Washington, DC: On December 15, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1]with Barbados. At the same meeting, the Board also completed the sixth review of Barbados' economic reform program supported by an arrangement under the Extended Fund Facility (EFF). The completion of the review allows the authorities to draw the equivalent of SDR 17 million (about US$[24] million), bringing total disbursements to the equivalent of SDR 305 million (about US$[425] million).
The four-year extended arrangement under the EFF was approved on October 1, 2018 (see Press Release No.18/370) and is for an amount equivalent of SDR 322 million (about US$465 million).
Barbados continues its strong implementation of the comprehensive Economic Recovery and Transformation (BERT) plan aimed at restoring fiscal sustainability, increasing reserves, and unlocking growth potential through structural reforms. The prolonged global coronavirus pandemic, along with the twin natural disaster shocks of volcanic ashfalls from neighboring St. Vincent in April and category 1 hurricane Elsa in July, poses a major challenge for the tourism-dependent economy. Reform efforts include enhancing adaptation measures towards increasing vulnerabilities emanating from climate change and natural disasters.
Executive Board Assessment[2]
The Barbadian authorities continue to make good progress in implementing their comprehensive Economic Recovery and Transformation plan, despite the challenges caused by the ongoing global pandemic and two recent natural disasters. Given that the outlook remains uncertain, the authorities need to maintain sound policies and their strong reform momentum to safeguard macroeconomic stability and boost potential growth.
A temporary relaxation of the primary balance target for fiscal year 2021/22 is appropriate given the lingering impact of the pandemic and unexpected spending needs to address the impact of Hurricane Elsa and ashfalls from nearby volcanic eruptions. The authorities will have to compensate this short-term fiscal accommodation with higher primary surpluses in the medium term to safeguard debt sustainability.
Medium-term fiscal adjustment will be supported by reforms to state-owned enterprises (SOEs). To create fiscal space for investment in physical and human capital, transfers to SOEs need to decline by strengthening oversight of SOEs, revenue enhancement, cost reduction, as well as mergers and divestment. The authorities' plans to reform the pension system and introduce a fiscal rule will also support fiscal sustainability.
The authorities took an appropriate monetary and financial policy response to the pandemic. They plan to recapitalize the central bank gradually. Carefully unwinding pandemic-related credit support measures, as conditions allow, will be critical to contain financial sector risks. The Central Bank of Barbados plans to join the Network for Greening the Financial System and intends to gradually integrate climate change risks into its financial stability assessments. Going forward, the authorities should also work, in close cooperation with the Financial Action Task Force, to further strengthen the AML/CFT framework.
Medium-term growth prospects depend on accelerating structural reforms to improve the business climate, diversify the economy, and facilitate green and digital transformations.
Strengthening resilience to natural disasters and climate change, combined with an accelerated transition to renewable energy, is key to achieve more sustainable economic growth and reduce vulnerability to international oil price volatility. In this regard, the authorities' ambitious target of reaching 100 percent renewable energy by 2030 is commendable.
[1]Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
