Barbados economy slowing – warns IMF

The Barbados economy is slowing down.

This stern warning today from the International Monetary Fund (IMF), which said it remained concerned about the country’s large fiscal deficit, its high debt, and low foreign reserves.

“Following the economic recovery in 2016, GDP growth is slowing reflecting increased pace of fiscal consolidation. Real growth reached 1.6 per cent in 2016, as a result of continued robust long-stay tourism arrival and spending. It is projected to slow to 0.9 per cent in 2017 and 0.5 per cent in 2018 due to the ongoing fiscal adjustment and policy uncertainty related to the forthcoming elections,” the IMF said, while warning of a pending rise in the cost of living.

“Inflation is projected to rise by year end to 5.5 per cent as a result of recent tax increases but return to its historical norm in the medium term,|” the IMF added.

Following its recent Article 1V Consultation, the Washington-based financial institution emphasized the need for a stronger macroeconomic framework and bolder structural reforms “to achieve fiscal and debt sustainability, address the large financing needs, build adequate international reserves, and boost growth”.

In particular it called for comprehensive reform of the state-owned enterprises (SOEs).  It also said that efforts should be made to contain the public sector wage bill and reform Government pensions, while improving revenue administration and broadening the tax base, including by reducing exemptions.

“Progress with these reforms could allow for a partial reversal of the increase in the National Social Responsibility Levy,” the IMF added.

Following is the full text of the IMF statement released today:

“On January 26, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Barbados.

Following the economic recovery in 2016, GDP growth is slowing reflecting increased pace of fiscal consolidation. Real growth reached 1.6 percent in 2016, as a result of continued robust long-stay tourism arrival and spending. It is projected to slow to 0.9 percent in 2017 and 0.5 percent in 2018 due to the ongoing fiscal adjustment and policy uncertainty related to the forthcoming elections. Inflation is projected to rise by year end to 5.5 percent as a result of recent tax increases but return to its historical norm in the medium term.

The current account balance continues to narrow but international reserves are falling. The current account deficit declined to 4.4 percent of GDP in 2016, about of half that in 2014, due to lower energy prices and a recovery in export earnings. Notwithstanding, NIR continued to decline with lower official and private capital inflows, to about US$275 million at end-September (1.6 months of imports). The current account deficit is projected to continue to narrow to 3.7 percent in 2017, and to 2.9 percent of GDP in 2018 as a result of lower imports, but continued weakness in the financial account and delayed privatization will contribute to weak reserves.

There has been progress with fiscal consolidation but the deficit and debt remain high. The fiscal deficit is estimated to have declined to 5.5 percent of GDP in FY2016/17 reflecting stronger revenue performance, including the introduction of the National Social Responsibility Levy (NSRL) and one-off factors. The government also reduced total expenditure, despite a large increase in debt service, reflecting efforts to contain spending across the board. Staff project further progress in reducing the fiscal deficit, to 4.1 percent of GDP in FY2017/18 without divestment proceeds. However, this is less than planned as a result of shortfalls in NSRL revenues and higher transfers to SOEs. Central government debt at end-FY2016/17 was 137 percent of GDP or 101 percent of GDP excluding securities held by the National Insurance Scheme (NIS).

The larger than expected fiscal deficit is increasing funding challenges. While the central bank significantly reduced its funding of the government in the first half of FY2017/18, the commercial banks’ reserve requirements for holding government securities have been increased, increasing banks’ exposure to sovereign risk. The financial sector remains stable with banks well capitalized. Financial soundness indicators show further progress in reducing NPLs by commercial banks and credit unions. However, private sector credit growth continued to be subdued and banks’ profitability remains weak.

Executive Board Assessment 

Executive Directors noted that after an improved economic performance in 2016, the Barbados economy is slowing down. Large fiscal deficits, high debt, and low reserves are posing challenges. Directors emphasized that a stronger macroeconomic framework and bolder structural reforms are needed to achieve fiscal and debt sustainability, address the large financing needs, build adequate international reserves, and boost growth.

Directors welcomed the authorities’ consolidation efforts over the past two fiscal years. They stressed that additional efforts will be necessary to balance the budget over the medium term, given the urgency in tackling the high debt, meeting the funding requirements, and addressing the balance of payment needs. They recommended that adjustment measures should focus on expenditure, primarily supported by reform of the State‑Owned Enterprises (SOEs). Efforts to contain the wage bill and reform of government pensions, while improving revenue administration and broadening the tax base, including by reducing exemptions, would also be important. Progress with these reforms could allow for a partial reversal of the increase in the National Social Responsibility Levy.

Directors emphasized that a comprehensive restructuring of SOE operations is critical to address the structural imbalance in the public sector, in particular by reducing government transfers. Priority should be given to defining clear objectives for SOE reform and implementing the Public Financial Management and Audit Act, as well as other measures. Directors also underscored the importance of making changes to the size and delivery of social programs to contain their cost and ensure their long‑term viability.

Directors encouraged the authorities to continue efforts to phase out direct financing of the government by the central bank and to reorient monetary policy towards supporting the fixed exchange rate regime. They also called for steps to ease the recent increase in statutory requirements for banks to hold government securities. Directors noted that banks remain well capitalized and that NPLs have been declining. They encouraged the authorities to enhance regulatory and supervisory frameworks, especially for non‑bank financial institutions, to strengthen the AML/CFT regime, and to proceed with legislative amendments to increase Central Bank independence. Directors also called for sustained action to bolster reserves.

Directors emphasized that stronger and deeper structural reforms are critical to unlock the economy’s growth potential and maintain macroeconomic stability. They underscored that reforms should focus on strengthening the business environment, facilitating economic diversification, and improving the efficiency and effectiveness of public service delivery. Directors supported the authorities’ efforts in improving the timeliness and quality of economic data.” (ENDS)

19 Responses to Barbados economy slowing – warns IMF

  1. Alex Alleyne January 31, 2018 at 11:38 am

    WELL CHRIS , YOU JUST GOT TO FIND SOMETHING ELSE TO TAX………..go check it out.

    Reply
  2. seagul January 31, 2018 at 11:59 am

    Arguably, the most dangerous deficiency in a leader is the absence of strategic direction. In our particular case this is partially true, but no one never highlights these 900 million owed to us. We need a new governance of accountability to begin with….

    Reply
  3. Mack January 31, 2018 at 11:59 am

    We all know that the job of finance minister is too big for Chris. However we continue with him at the lead and Frundel following him .

    Year after year we continue to increas taxes and expect the econamy to grow. These two gentlemen don’t have a clue of financial matters. Or leadership.

    Reply
  4. Richard Johnston January 31, 2018 at 12:04 pm

    Wheels coming off.

    Reply
  5. seagul January 31, 2018 at 12:09 pm

    It is now crystal clear to the lettered mind that our leaders are either not wholly ready for the task they have been ‘accidentally’ entrusted and therefore lacks collective political imagination to steer the country. It’s time to activate before it’s too late…
    http://www.suncreed.com

    Reply
  6. luther thorne January 31, 2018 at 12:14 pm

    CALL THE ELECTIONS

    Stop dithering

    Where are the Intellectuals ?
    Why are they not voicing concerns and calling for elections ?
    This is not about Party now
    This is about Country

    Come on Stuart !
    Fall on your sword
    Save Barbados
    Come on Sinckler
    Come on Inniss
    Come on Sealy
    Come on Estwick
    Come on Lashley 1 and 2
    Come on !

    Reply
  7. Beresford Leon Phillips January 31, 2018 at 12:38 pm

    Barbados needs strong Leadership now, more than ever
    Is the Eager eleven not eager anymore?
    16-11=5
    Thee Governor General not too busy right now

    Reply
  8. John Everatt January 31, 2018 at 12:49 pm

    This IMF report, like the auditor general’s report, repeats each time but is never followed. Our economic scholars scream the same message from every tree top but their knowledge and experience also goes unheeded. Decisions seems to be make for political purposes as opposed to for the good of the country. I hope things change quickly as we are sliding downhill fast right now.

    Reply
  9. petra January 31, 2018 at 12:52 pm

    this ship is sinking. Frenduel forget about party and put country first. do the right thing. don’t disgrace us

    Reply
  10. Roverp January 31, 2018 at 1:09 pm

    This is expected with a tourism leakage rate of 74% that any good tourism book will tell you will cause real problems for a heavily tourism dependent small open economy.

    Reply
    • Mark Rosmar January 31, 2018 at 5:32 pm

      What does tourism leakage rate mean? And where did you get this figure.

      Reply
  11. Roverp January 31, 2018 at 1:57 pm

    The heaping of patched solutions to problems have lead us here.

    Reply
  12. Greengiant January 31, 2018 at 4:05 pm

    We are still to hear from the B L P what they will do to tackle the economic imbalance. The U P P and Solutions Barbados have declared their hands on their deficit financing solutions, and economic reform respectively. The B L P on the other hand wants voters to vote for them based on the historical swing analysis.

    I really hope that Barbadians see the B L P for what they really are, ‘a group of uncertain, cocky, overrated human beings with no clue of what real change means’.

    Reply
  13. luther thorne January 31, 2018 at 4:21 pm

    You have heard from the BLP
    Yuh not paying attention or what

    You think a party with Stalwarts like Toppin, Payne, Walcott, Prescod, Forde and all the other candidates and advisers would not have a Plan to rescue Barbados?
    Come On !
    Wait till elections call and the date is known

    THIS IS BARE FOOLISHNESS THOUGH
    A failing Government holding onto Power at all costs needs to
    CALL ELECTIONS.
    History will judge PM Stuart appropriately.

    Reply
  14. Roverp January 31, 2018 at 4:24 pm

    Tek yah time Greengiant ….no body ain’t forcing your PM and your people can not force the BLP.

    Reply
  15. Lorenzo January 31, 2018 at 5:12 pm

    GreenGiant why would Ms Mottley reveal her plans before an election is called for you Dems to create another old lady on the bus.You really believe Ms Mottley stupid you are areal Dem yardfowl in truth.Look at the amount of homegrown strategies the Dems had all failed why you do not speak about that or you too ashamed.All will be revealed in good time,so you can carry on with this Dems strategy of trying to force Ms Mottley,s hand it will not work J/A,as nothing can be worse that this group we have now.

    Reply
    • John Everatt January 31, 2018 at 5:32 pm

      Lorenzo, I think you need to read correctly. Greengiant is not advocating for DEMs or BEEs here. Put your glasses on and try reading it again.

      Reply
  16. Lorenzo January 31, 2018 at 7:01 pm

    John Everatt,i know you maybe new to this blog but do not be fooled GreenGiant claims he is no longer a Dem but as soon as the DLP is attacked he is among the first to defend themand attack the BLP.He can fool you but he cannot fool me,i know exactly the game he is playing and I advise you to follow his arguments carefully,as he knows neither new party is going to win nothing hence his strategy is to pull down the Bees to the advantage of the Dems.

    Reply
  17. milli.watt January 31, 2018 at 8:41 pm

    slowing down…………..stupse this is news to me. SUSPECT FAKE NEWS!

    Reply

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