IMF: deficit declining
THE International Monetary Fund (IMF) has given Barbados a somewhat favourable assessment following its 2017 Article IV Consultation.
While also pointing to some positive indicators and others that call for attention, the Fund Staff, which did the consultations, is also urging Government to deal with falling reserves, stimulate growth and tackle the country’s debt.
The Article IV Consultations were done earlier this month.
The IMF, which said it stands ready to assist Barbados, has pointed to strong growth in long-stay visitor arrivals – which has supported this country’s economic growth – although fiscal tightening is contributing to a slowdown.
It said as well that the current account balance is improving, fiscal performance in 2016/2017, and the fiscal deficit declined more than anticipated to 5.5 per cent as at March 31 this year, reflecting improvement in revenue collection. The fiscal deficit is projected to decline to 4.1 per cent by next year, and it wants the authorities to pursue measures to tackle the country’s high debt.
The IMF has also noted that while credit growth remains subdued, financial soundness indicators suggest a relatively healthy banking sector.
However, the IMF has said that although the current account balance is improving, net international reserves have fallen further. It attributed this to Government’s debt service exceeding new funding and weak, private foreign inflows.
“The current account deficit narrowed to 4.4 per cent of GDP in 2016 and is expected to narrow further in 2017, as non-oil imports fall in response to the May 2017 budget measures,” according to the IMF.
However, according to the Fund, “Substantial further fiscal effort is needed to decisively place the debt on a downward trajectory. Given the urgency in addressing funding, balance of payment risks, the high debt, and the limited policy options, the fiscal adjustment must continue, with a focus on accelerating SOEs’ reforms to facilitate a significant and durable reduction in transfers.”
The team also believes that the adjustment strategy should focus on addressing the high transfers, containing other current expenditures and maintaining a strong revenue effort, and the reforms of state owned enterprises.
The Fund officials recommended that containing other current expenditures including the wage bill and government pensions is also critical. On this score, they said that tax policy should be reviewed with a view to broadening the tax base and improving its progressivity, while efforts to strengthen tax administration must continue.
It suggested that structural reforms to support growth and improve the business climate for domestic and foreign investment are also urgent.
“These reforms would aim to improve business processes, such as significantly reducing clearance times for immigration and customs, accelerating approval of building permits, and streamlining legal procedures,” the IMF officials said while welcoming progress in formulating the Barbados Sustainable Recovery Programme (BSRP), which is being drafted in consultation with the Social Partnership, and encourages the authorities to continue to closely collaborate to develop a consensus on a strategy for reform.
“The IMF stands ready to assist the Government of Barbados, including through continued policy dialogue and technical assistance,” it added.