UWI Dean speaks on IMF option
WHY not an IMF programme?
That’s the question put on the table by Dean of the Faculty of Social Sciences of the University of the West Indies, Dr. Justin Robinson, as he weighed in on the recent visit from a team from the International Monetary Fund (IMF) and the subsequent report issued.
Speaking on the talk show Walter.2 yesterday morning, Dr. Robinson said that the team stated in its report that, if implemented as envisaged, the 2017 Budget would lead to substantial gains toward improving the public finances. It also outlined the fact that the economy continues its recovery on the back of a stronger tourism programme, however improving the public finances remains a critical challenge.
According to Robinson, the report also stated that government financing requirements were challenged as banks reduced their sovereign exposure. He said this added to the fact that foreign reserves fell below 12 weeks cover with no way to access funding other than through the Central Bank. To this end he said Government essentially went into the Budget in a crisis.
He explained that when a country finds itself in that position, a strong response is needed. “One of the options on the table is to go into an IMF programme.” “If you do an IMF programme you get access to financing, so it solves that problem. You also get that financing in foreign exchange so it helps boost the reserves. So one of the questions we might have to speculate is why not an IMF programme?” he queried
“…The fact that you are in a programme also unlocks other types of programmes. IADB and others are likely to come on board. We can only speculate, but we usually look at these reports to get some guidelines.”
He stressed however that in looking at the benefits, to go the route of the IMF, the details of the package must be fully assessed.
“The IMF is saying you have an urgent problem. We think the package you have brought here will go a long way in reducing the problem, but they are of the view that in the longer term you have to deal with the transfers and your debt service.
“In my own judgement, IMF programmes tend to focus a lot on debt sustainability. I suspect that an IMF programme would likely like between $300-350 million a year cut out of transfers. In Barbados that is not easy to get. Getting that is going to require a big transformation, a lot of sacrifice.”
He said these transfers can be found in major social programmes including QEH, Education, support for the tourism sector, and sanitation to name a few.
“If you are to get 300-350 million out of that … that’s a lot of pain … a lot of these social services define Barbados,” he said. “I can only speculate that the required cuts in the social services and likely adjustments to the debt might be reasons why the government is steering away.
“If you were to go into an IMF programme, government would have to be prepared to make some cuts in the social sector and there would have to be some adjustment on the debt. It is difficult for me to see how we get to debt sustainability without a more aggressive debt structuring programme where you are going to cutting the principle on the debt.”
He cautioned that while the home-grown programme is “tough”, an IMF programme would be equally as painful or more so. “I think the two packages would be the same size, what would differ is the mix of measures.”
In the final analysis, the Dean opined that the home-grown option or taking an IMF package are the only two alternatives to be taken.
The Dean also told the moderators that what jumped out at him from the IMF statement was the expectation that inflation would move from 3.2 to about 6.7 per cent because of the National Social Responsibility Levy and the expectation that it would return to normal in about two years. He said this figure is a lot less than what some pundits have been predicting, going as high as ten and 15 per cent inflation. “I think that is something the authorities need to keep their eye on,” he warned.
Dr. Robinson also asserted that as the country seeks to deal with the fiscal challenges, the Government should now focus seriously on the investment side of the economy. “That is the way they can try to cushion, they need to get projects, get investments going,” he said.
The Dean commended the Finance Minister Christopher Sinckler for being forthright in the 2017 Budget, acknowledging that there has been frustration in the society, after seeing different versions of programmes rolled out over the years that were not enough to address the scale of the problem. (JH)