IMF reaches staff level agreement

GOVERNMENT faces significant economic challenges in the short and long-term.

This blunt assessment was made by the International Monetary Fund (IMF) team, led by Bert van Selm, at the conclusion of a mission via videoconferencing during April 27-30, 2020 to discuss implementation of Barbados’ Economic Recovery and Transformation (BERT) plan, supported by the IMF under the Extended Fund Facility (EFF).

van Selm in his concluding remarks stressed that the island faced major economic challenges, which had been brought on by the impacts of COVID-19 and the trailing pressures which it has placed on critical sectors in the economy. “The ongoing global coronavirus pandemic poses a major challenge for the economy, which is heavily dependent on tourism. An economic contraction of more than ten per cent is projected for 2020. The shock will have a large impact on the fiscal accounts and the balance of payments. The Government aims to accommodate the loss of government revenues and additional emergency outlays on health facilities and medical supplies, as well as provide income support to the most vulnerable response to the pandemic, the Government of Barbados is now targeting a primary surplus of 1 percent of GDP for FY2020/21 (compared to 6 percent previously envisaged). Staff supports this easing of the fiscal stance and, subject to approval by the IMF Executive Board, proposes an augmentation of the extended facility in the amount of SDR66 million (about US$90 million)" he added.

His point came hours after Prime Minister and Minister of Finance and Economic Affairs, Mia Amor Mottley pointed to the reality of increased foreign reserves, which she contended placed the island in a stronger position to tackle the virus. "It is the hard work done over the past two years, from debt restructuring to higher land taxes for some and bus fares for all that has enabled us to focus firmly on public health first. Just before COVID-19 struck, our reserves had reached $1.55 billion, the highest level ever recorded on a like- for-like basis. Today, as a result of low–interest borrowing from our partner, the Inter-American Development Bank, reserves are higher still at $1.7bn. It was sticking to the course that has provided us with the reserves, room, credit, and enough standing to now launch the most comprehensive, integrated program this country has ever seen. We focus the program on supporting those who have lost their jobs in this shutdown, and to keep those with jobs in a post" she insisted.

Similar comments were made by van Selm, who pointed to the island's rebound in foreign reserves and debt restructuring success. “Barbados continues to make good progress in implementing its ambitious and comprehensive economic reform program. International reserves, which reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018, have sharply increased since then, to more than US$850 million. The completion of the debt restructuring in December 2019 and meeting the primary surplus target of 6 percent of GDP for FY2019/20 have been very helpful in reducing economic uncertainty and reducing public debt. All program criteria for end-March 2020 under the EFF have been met. The program target for Net International Reserves was met by a wide margin, as was the target for the Central Bank of Barbados’ Net Domestic Assets (NDA)" he added.

To counter the decline in the Barbadian economy, the Prime Minister announced a series of programmes to address the economic challenges. One is a long-discussed public and private sector capital works program. "The first part is the acceleration of $1.7 billion of public and private capital works program across infrastructure, renewable energy, digitalization, affordable housing. Many will focus on what they are familiar with, the construction of hotels, but there is much emphasis here on the new sectors of renewable energy, improving the environment, health and education services, digitalization products, support to entrepreneurs and house building".

One area includes construction. The Prime Minister, again pointed to anticipated projects, inclusive of the Hyatt Ziva project. "The projects that will resume next week include 1) The $400m development at Sam Lords that returned earlier this year. 2) 75 apartments at the Crane, which were being built and should complete this year, 3) The $25m improvements to the Apes Hill Golf Course that had started before, The projects that we are working on to start by the end of June of this year include: 1) The $60m expansion of Sandals Dover 2) The $200m Sagicor Retirement Villages project. 3) The $400m Hyatt Ziva Project _ and we need to start the demolition of the buildings as soon as possible before we are fully operational. I am advised that that may be as early as this weekend"
van Selm also pointed out that Barbados and the IMF had reached agreement related to its third review under the current IMF Programme. “Following productive discussions, the IMF team and the Barbadian authorities reached staff-level agreement on the completion of the third review under the EFF arrangement. The agreement is subject to approval by the IMF Executive Board, which is expected to consider the review in June. Upon completion of the review, SDR101 million (about US$140 million) will be made available to Barbados, bringing total disbursement under the program to SDR 206 million.”