Off target

IMF warns that the national deficit is still too high

The chances that the Freundel Stuart administration will achieve its deficit target this year following Minister of Finance Chris Sinckler’s presentation of a $542 million austerity package back in May, are slim to none, according to the International Monetary Fund (IMF), which today warned of the need for “urgent” corrective action.

Following its two-week Article IV Consultation which ended yesterday, the IMF team, led by Deputy Division Chief Judith Gold, issued its preliminary report, in which it also cautioned that Government’s programme was simply too “ambitious”, while pointing out that the overall deficit was likely to fall by a mere two percentage points by the end of this fiscal year.

Back in May when Sinckler announced the programme he had said that Government was aiming to wipe out the deficit of $537.6 million and achieve a small surplus of $4.4 million.

However, Gold and her team warned today that without divestment proceeds, the deficit would only decline to 4.1 per cent of gross domestic product (GDP) in financial year 2017/2018.

“The larger than expected fiscal deficit is increasing funding challenges,” Gold warned.

At the same time, while Government is seemingly intent on achieving a surplus of 4.4 per cent of GDP in financial year 2018/2019, the IMF is suggesting that it aims instead for a 7.5 per cent GDP surplus by financial year 2020/2021.

“The sizeable fiscal adjustment would put the debt-to-GDP ratio on a clear downward path toward debt sustainability,” Gold said.

In terms of the performance of the actual measures, which included a whopping increase in the National Social Responsibility Levy (NSRL) from two to ten per cent, an introduction of a new sales tax on foreign currency transactions and a hike in the excise duty on fuel, the IMF reported that due to exemptions to the NSRL, lower-than-expected non-oil imports, shortfalls in some other revenues, and high transfers, Government was likely to fall short of its overall target.

The lending agency also warned that the country’s international reserves, which stood well below the 12 weeks benchmark at just 8.6 weeks of import cover or $549.7 million at the end of September, were likely to dip even further by yearend as Government continues to service its debt, and private foreign inflows remain weak.

While the island’s long-stay tourism performance remains strong, the IMF said fiscal tightening was contributing to an overall slowdown of the economy, with real growth now projected at 0.9 per cent this year, down from last year’s improved performance of 1.6 per cent.

In this context, it reiterated its willingness to help Government, “including through continued policy dialogue and technical assistance”.

But with the Freundel Stuart administration currently not entertaining suggestions of a borrowing relationship with the Washington-based financial institution, the Fund said it welcomed progress in formulating the Barbados Sustainable Recovery Programme (BSRP), while emphasizing the need for immediate structural reforms, as well as reform of state-owned enterprises, which it said should include improved management, mergers, closures, and privatization.

With Government currently wrestling with a ballooning national debt in excess of 100 per cent of GDP, a high fiscal deficit of 5.5 per cent of GDP and dwindling international reserves of below $600 million, the IMF also warned that “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 [state-owned enterprises’] reforms to facilitate a significant and durable reduction in transfers,” Gold said, adding that structural reforms to support growth and improve the business climate for domestic and foreign investment were 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,” she added.

With no mention of general elections, due here by the middle of next year, Gold said any adjustment strategy “should focus on addressing the high transfers, containing other current expenditures and maintaining a strong revenue effort”.

“Reforms of state owned enterprises should include improved management, cost recovery, reduced services, mergers, closures, and privatization. Containing other current expenditures, including the wage bill, and Government pensions is also critical,” she said.

The Washington-based financial institution also called for a review of domestic tax policy “with a view to broadening the tax base and improving its progressivity, while suggesting that efforts to strengthen tax administration must continue.

During their visit from November 7 to 21, the IMF team held meetings with Sinckler and other senior Government officials, as well as the Opposition and key members of the private sector.

In light of those talks, it is urging Government to immediately settle its arrears to the private sector and to remain current with its payments to the business community.

“Further, arrears to the private sector should be cleared, and remaining current should be a Government priority. A concentrated effort to improve implementation capacity, including by providing clear direction and clarifying expectations, is also needed,” Gold said, while commending plans by the authorities to enact a new Financial Management and Audit Act, which could help address some of the implementation gaps.

12 Responses to Off target

  1. Leroy November 23, 2017 at 1:59 am

    Right out the horses mouth, the plan sinckler have devised wont reach its target.

    We really didnt need the imf to tell us what common sense should
    Imagine they are trying to get $500 mil in new taxes from an already stalling exonomy, it just wasnt practical or sensible, trying to hv reason to declare right before elections that they have eliminated the deficit and recorded a surplus to win the election while bajans suffering even worse than 5 yrs ago? Give me a break…

    Bajans are maxed out as it relates to taxes..all sinckler can do now is broaden the tax take, trying to raise taxes further would be tantamount to suicide.
    So broaden tax base and cut spending and take the $ from the imf to restructure and invest in the airport, sea port, sewage project and the city.

  2. Saga Boy November 23, 2017 at 4:54 am

    How do you clear the arrears in the private sector and reduce transfers while cutting your spending at the same time? Is the IMF for real?

    • Leroy November 23, 2017 at 8:25 am

      Saga Boy, yes they are, more real than Mr. Sinckler.

      Question, is what Judith Gold is saying is unreasonable or un-attainable? Its not political convenient for Dem or you to do what she says, thats why its not a viable alternative in your tainted opinion.

  3. luther thorne November 23, 2017 at 5:05 am

    Cut out wastage. Privatize what needs to be privatized and collect outstanding monies owed to Government. Make doing business easy for everyone.

    I am excited by the prospect of a new BLP Government.
    So so excited.

  4. David Hall November 23, 2017 at 6:26 am

    The current administration cannot be trusted to provide any solution or fix any problem. Everyone knows this, including the IMF. They are simply being politically correct in not telling the government to resign.

  5. Carson C Cadogan November 23, 2017 at 7:08 am

    More talk about cutting Govt. spending.

    Ok, cut spending.

    Lets see, Should we cut Health care spending, should we cut social services spending, should we cut spending on pensions, should we further cut spending on University education, should we cut spending on the security services, should we sell the NCC, should we sell the SSA, should we sell the Port, should we sell the Airport, should we sell the Transport Board, should we cut the public sector wages bill as the IMF recommended recently to the Jamaica Govt. by laying off 5,000 public servants????

    The IMF mentioned being current with arrears to the private sector but it failed to mention the private sector should be current with arrears to the Govt.

    • Leroy November 23, 2017 at 8:36 am

      Every-time people speak of cuts persons like you and Saga and Harry Turn seem to present extreme scenarios(blindly cutting programs, sending home people ect) to deter this ave of action.

      Carson, what the Gov has to do(should hv done) is setup a group in Gov to go through each department and identify the wastage, unnecessary duplication,and improve productivity based on technology, why dont you understand this.

      Carson answer me, why didnt the DLP do this in 2008/09/10/11/12/13/14/15/16/17?

      • Carson C Cadogan November 23, 2017 at 11:16 am

        The Govt. has the best interests of Barbados at heart and it is doing a very good job keeping the ship of state afloat.

  6. Greengiant November 23, 2017 at 9:15 am

    I’m for privatising some entities, but not to companies who already owe government money.

    Our Statutory corporations are up for sale to reduce the country’s deficit, but those who want to purchase will first have to pay every cent they owe the state first. If the state owes them VAT, they pay the state first, make the purchase of the entity and of course the employees who wish to transfer to the private sector. Those who don’t wish to transfer can go home, then and only then will government be refunding the V A T or any other revenue owed the private sector.

  7. milli watt November 23, 2017 at 11:01 am

    chris had a 2.5 million dollar house….said it wasn’t his. he got a 542 million budget who am I to doubt that.

  8. jennifer November 23, 2017 at 11:48 am

    I am all for selling and privitising every state entity. The oil terminal, natural gas and the loc, stock and barrel of all of it.

  9. luther thorne November 23, 2017 at 4:08 pm

    @ Leroy
    Carson would represent in that way because she/ he has no ideas to go forward. No vision. Stuck in the past with a Prime Minister who sleeps and sleeps and wakes up only to suck the blood out of our hopes and dreams. Garlic and a wooden stake on order so Ring the bell in December.


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