STAFF APPRAISAL
30. Over the last decade, Barbados economy has experienced very low growth, and fiscal and external imbalances have gradually led to an unsustainable situation, with very high debt, and very low reserves. These challenges must be addressed by a combination of fiscal consolidation, measures to boost growth, and debt restructuring. The authorities’ Economic Reform and Transformation program seeks to address these long- standing structural imbalances and implement an aggressive front-loaded and comprehensive reform agenda – extracted from p.18 of the IMF Report 2018
The 77 page IMF package detailing the REQUEST FOR AN EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY; STAFF REPORT; STAFF SUPPLEMENT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BARBADOS was posted to the International Monetary Fund website on October 4, 2018. It is no surprise the traditional media has not seen the value in unpacking the details of the arrangement secreted in the voluminous and technically worded documents.
What has been widely communicated is that in record time the new Mottley government has been able to secure the approval of SDR 208 million or USD290 million. The government’s PR has been quick to point out that the draw down from the IMF represents 220% of Barbados’ IMF quota and is a ‘homegrown’ program.
Key elements of the program are:
- Fiscal adjustment: increase primary surplus to achieve 6% by 2019/20
- Reform state owned enterprises (SOEs): reduce transfers to SOEs by 2%
- Structural reforms to support growth: improve business facilitation
- Debt restructuring: debt is deemed unsustainable and government has aggressively moved to administer ‘haircuts’ to bond holders
In the background section of the document (p.7) the IMF delivers a negative synopsis of the performance of the Barbados economy post the 2008 global financial crisis. One of the program objectives of interest to the blogmaster is item 8, p.9: “Increased investment demand can restore growth and increase its potential. Restored credibility in the macroeconomic framework is expected to increase investment. Higher net FDI inflows will contribute to improving the stock of capital and, through this channel, actual and potential growth could reach close to 2 percent by the end of the program“.
Other key deliverables of the IMF program:
- Fiscal discipline will help address external imbalances and rebuild international reserves.
- Fiscal reforms over the program period aim to address structural weaknesses in Barbados’ fiscal framework.
- Streamlining, restructuring, and privatizing SOEs will substantially reduce transfers to public institutions
- Vulnerable groups will be protected by strengthening social safety nets
- The authorities remain strongly committed to the exchange rate peg, which has been in place since 1975 and has provided a key anchor for macroeconomic policies.
- The program will lay out a roadmap for normalization of monetary policy.
- The CBB Act will be amended, with the help of IMF TA, to strengthen the autonomy of the CBB and the limitation on CBB financing of the government, among other enhancements
- The authorities have made progress in identifying debt restructuring parameters that would provide debt relief without jeopardizing financial stability.
- Significant progress has also been made in discussions with domestic and external creditors.
- Debt management capacity will be strengthened.
- To promote long term and potential growth, labor, product and service markets will be liberalized
- The authorities intend to establish an Economic Program Oversight Committee (EPOC) to strengthen societal ownership and build public support for the measures in the program.
- Data inadequacies continue to hamper understanding of key macroeconomic aggregates.
The part of an IMF agreement that raises the most concern are the condition or in the case of Barbados what are the targets we will have to meet to be able to draw down on the SDRs approved.
Quantitative performance criteria:
- Floor on the central government primary balance (excluding repayment of central government arrears)
- Ceiling on the stock of Net Domestic Assets of the CBB
- Floor on the Net International Reserves of the CBB
- Non-accumulation of central government external arrears (excluding arrears resulting from nonpayment of debt service for which the government is pursuing a debt restructuring).
- Ceiling on grants and transfers to public institutions
- Ceiling on the stock of public debt
Indicative targets:
- Ceiling on the stock of central government domestic arrears
- Floor on CG social spending Structural benchmarks
Structural benchmarks
- These will focus on SOE reforms, growth and business climate, CBB autonomy, tax policy and revenue administration, public sector reform, and public financial management (Table 2 MEFP). The structural benchmarks will be critical to underpin the adjustment effort.
The average citizen will not read the IMF report and others will ‘scan’ to satisfy a mild curiosity. It is obvious to the blogmaster after reading the report that there are significant changes still to come that will drastically affect Barbadians from all walks of life. As a people are we ready to be that chanage?
Link to Barbados : Request for an Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for Barbados
The blogmaster invites you to join the discussion.