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IMF Gives Barbados a Nod with Comments

The raging Covid 19 pandemic continues to test human and financial resources of all countries especially Small Island Developing States (SIDs). Many have forgotten that before the pandemic the sorry state of the local economy. Despite the nod from IMF Van Selm (Mr. BERT) that “in this very challenging environment, Barbados continues to make good…

The raging Covid 19 pandemic continues to test human and financial resources of all countries especially Small Island Developing States (SIDs). Many have forgotten that before the pandemic the sorry state of the local economy. Despite the nod from IMF Van Selm (Mr. BERT) that “in this very challenging environment, Barbados continues to make good progress in implementing its ambitious and comprehensive economic reform program, while expanding critical investments in social protection.” A simple-minded blogmaster must ask Prime Minister Mottley what is the mid/long term plan to sustain the economic and social well being of the country? The blogmaster acknowledges this is a difficult time.

David, blogmaster

The International Monetary Fund (IMF) has concluded its February virtual visit to Barbados. The IMF team, which held meetings with local officials from February 2 to 5, was led by Bert van Selm.

At the end of the visit, van Selm issued a statement in which he acknowledged the economic impact of the COVID pandemic on Barbados’ economy:

“The prolonged COVID-19 pandemic continues to have a major impact on Barbados. The economy is estimated to have contracted by about 18 percent in 2020, with a gradual recovery projected to start in 2021. Tourism arrivals remain at a fraction of normal levels, and recent increases in COVID-19 cases in key source markets, including the US and the UK, will likely delay the recovery. In addition, a recent outbreak of COVID-19 in Barbados led to an ongoing lockdown that will reduce economic activity in the first quarter of this year.”

The statement noted that “in this very challenging environment, Barbados continues to make good progress in implementing its ambitious and comprehensive economic reform program, while expanding critical investments in social protection.”

Van Selm confirmed that the island had met its December targets under the Enhanced Fund Facility (EFF) programme.

The statement also highlights several of the structural changes that are ongoing or have been completed:

“A new central bank law, aimed at strengthening the autonomy of the bank while limiting the provision of credit to the government, was adopted by parliament in December 2020. An actuarial review of the civil service pension system was completed in November 2020, providing the basis for upcoming public pension reform. A new procurement law to strengthen the fairness, integrity and transparency of the procurement process is expected to be submitted to parliament in February.”

Source: Central Bank of Barbados

Read the full text of the IMF report:-

February 5, 2021

  • The global coronavirus pandemic is causing a deep recession in Barbados. 
  • Implementation of the Barbados Economic Recovery and Transformation (BERT) program remains strong, despite the COVID-19 shock. 
  • Program targets under the Fund-supported program for end-December 2020 were met, and international reserves reached more than US$1.3 billion at the end of December.

Washington, DC – February 5, 2021: At the request of the Government of Barbados, an International Monetary Fund (IMF) team led by Bert van Selm conducted a staff visit via videoconferencing between February 2-5, 2021 to discuss the implementation of Barbados’ Economic Recovery and Transformation (BERT) plan, supported by the IMF under the Extended Fund Facility (EFF). To summarize the mission’s findings, Mr. van Selm made the following statement:

“The prolonged COVID-19 pandemic continues to have a major impact on Barbados. The economy is estimated to have contracted by about 18 percent in 2020, with a gradual recovery projected to start in 2021. Tourism arrivals remain at a fraction of normal levels, and recent increases in COVID-19 cases in key source markets, including the US and the UK, will likely delay the recovery. In addition, a recent outbreak of COVID-19 in Barbados led to an ongoing lockdown that will reduce economic activity in the first quarter of this year. 

“In this very challenging environment, Barbados continues to make good progress in implementing its ambitious and comprehensive economic reform program, while expanding critical investments in social protection. Key indicative targets for end-December under the EFF were met. International reserves, which reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018, increased to more than US$1.3 billion at the end of 2020. 

“Strong steps have been made in implementing structural reforms. A new central bank law, aimed at strengthening the autonomy of the bank while limiting the provision of credit to the government, was adopted by parliament in December 2020. An actuarial review of the civil service pension system was completed in November 2020, providing the basis for upcoming public pension reform. A new procurement law to strengthen the fairness, integrity and transparency of the procurement process is expected to be submitted to parliament in February.

“The team is looking forward to conducting discussions for the fifth review under the EFF in May and would like to thank the authorities and the technical team for their openness and candid discussions.” 

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: RANDA ELNAGAR

PHONE: +1 202 623-7100EMAIL: MEDIA@IMF.ORG

@IMFSpokesperson

83 responses to “IMF Gives Barbados a Nod with Comments”

  1. John A Avatar
    John A

    John2

    I just don’t like other people handling my retirement money especially if the past is going to be an example of the future. Right now no one knows the net asset value of the NIS fund based on market value of the assets. For all we know it could be insolvent in real terms.

  2. John A Avatar
    John A

    @ Artax

    When done it is still a debt service expense don’t matter if it come out the left or right pocket.

  3. John A Avatar
    John A

    @ Hal

    I hear you but where the money will come from to float a new plan? What tangible assets does the NIS have that can even be sold at the price on their books to try and liquidate the fund? Who going buy all Sinkyuh worthless paper?

  4. Hal Austin Avatar
    Hal Austin

    @ John A

    Let us start from the beginning. Does the state pension scheme need reform? If so, let us set about reforming it. The funding will be part of that discussion. That is why a defined contribution scheme, managed collectively and mobile from age 16 to retirement.
    Such a scheme will underpin financialisation of the nation and drag us in to the 21st century.

  5. angela cox Avatar
    angela cox

    Listen soon to hear PM used this proposal from the IMf to reinforce that barbados has an aging population and it would be necessary for govt to implement an immigration policy which attracts easier access more immigrants to live and work on the island
    Remember PM has already sounded that bell
    However if only for govt to ascertain and rebuild a dying NIS system from these newbies
    The writing is on the wall

  6. John A Avatar
    John A

    @ Hal

    Yes we all agree it is in a sad state of audit farless reform. But what you are suggesting will call for serious money and right now we brek! If we say we will liquidate the NIS and start fresh, the right off on the NIS worthless investments in paper alone would be over $1 billion and we have not even touched their overpriced cost overrun real estate holdings yet!

  7. Artax Avatar
    Artax

    John A February 7, 2021 3:20 PM #: “When done it is still a debt service expense don’t matter if it come out the left or right pocket.”

    @ John A

    Remember, you’re the person who raised public sector pensions as being a problem to the NIS.

  8. Hal Austin Avatar
    Hal Austin

    @ John A

    I am not talking about the audit. I am saying the entire NIS scheme is irrelevant for a modern age, even it was was managed by the best managers.
    It is nonsense. It needs replacing, and no there will be no ‘serious’ money apart from contributions (scheme member and employer, state contributions will be fiscal, no cash). It will be a defined contribution scheme.
    What will be different will be the fund management – asset allocation and stock picking. Research will be independent and professional and no political interference. Have a look at the 1981 Chilean scheme and modernise it.
    There are any number of schemes: the Kiwisaver, the Australian superannuation, the UK auto-enrolment or stakeholder, etc. Look at the Norwegian oil fund, or Singapore’s Central Provident Fund.
    Such reforms should be at the heart of our post-CoVid economic plans.

  9. angela cox Avatar
    angela cox

    Nothing would be liqudated
    Mia plan is already put in place to increase and expand economic activity by way of more immigrants

  10. angela cox Avatar
    angela cox

    Look at govt haste to buy more buses although the ones recently bought has not been able to be fully occupied by the locals

  11. Donna Avatar
    Donna

    To be honest with you, Tron’s trash talk about a wooden house under a palm tree is what I think of when I think of an ideallic life. Island life in true style is to me much sweeter than New York style. Ernie Smith’s Life is just for Living is my escape song.

    This is what I mean when I speak of appreciating our own culture. Cuhdear Bajan’s dress code. Mauby, rum, coconut water.

    When did we start our New York impossible dream turned nightmare?

    Whatever happened to the simple life?

  12. Tron Avatar
    Tron

    @ Donna February 7, 2021 4:26 PM

    Exactly. I did not mean the passage with the wooden house in any way demeaning …

    No more copying of USA and UK. If we drink the water from the tap filtered by the refrigerator, buy local food, buy local furniture, drive only small cars (preferably electrified), no longer wear long pants and suits, but align everything with the tropical climate and local conditions, we save a lot of foreign currency and thus a lot of trouble.

    Let us be ourselves. Our paradise must look like Elysium, not like the North. The real luxury is living in Barbados at all.

  13. John A Avatar
    John A

    @ Tron

    I know people who sold massive homes in the UK and have never been happier in what we call wood houses down the islands like Grenada, st Lucia etc

    Sadly we don’t build nothing so here for them we do pigeon hole condos instead.

  14. WURA-War-on-U Avatar
    WURA-War-on-U

    “There has never been a better time for the Black/African to disassociate ourselves entirely and completely from the colonial slave system.” Copyright ⓒ 2021

    only comfortable slaves will continue to accept thefts, racism and multiple other crimes being practiced against themselves.

  15. Donna Avatar
    Donna

    Tron,

    Thanks for the correction. You are not always easy to read.

    But you give me hope! I thought I was mad for dreaming about it. I can see it so clearly. Us being OUR BEAUTIFUL SELVES!

    With your splendid writing style I am sure you could paint the picture for others. Why don’t you try to reach more than just us oldsters on BU?

  16. Hal Austin Avatar
    Hal Austin

    Do the hotels benefiting from the $300m government handout all have business interruption insurance? If so, are they claiming on their insurance policies while still accepting the handout from government. Is this fraud?

  17. David Avatar
    David

    Werner: More IMF funding on table
    THE International Monetary Fund (IMF) is willing to provide more funding to Barbados as Government battles through a recession triggered by the collapse of tourism.
    Alejandro Werner, director of the IMF’s Western Hemisphere Department, said such assistance was on the table as he cautioned that Barbados’ diversification away from tourism, while possible, would be “extremely complex to achieve”.
    The economist was responding to questions from the DAILY NATION on Monday during a press conference where he presented the Regional Economic Outlook Update for Latin America & the Caribbean.
    With COVID-19 still raging in the region and globally, Werner said it was important for Barbados and other Caribbean countries “to continue to provide support to those families that
    have been severely affected from the lack of work in the Caribbean due to the closure of many hotels, the very low rate of operation of the tourism sector, et cetera”.
    “For that it will be important to establish medium-term programmes that basically would guarantee medium-term fiscal sustainability, but that will allow short-term stimulus to be implemented,” he recommended.
    “And I think that’s the key; the more that you can guarantee that in the medium-term your financial situation will be sustainable, the more space you will have today to act in a more aggressive way to support the population. I think that’s something in which some countries in the Caribbean have been moving faster and obviously that throughout 2021 we will see maybe more countries opening up fiscal space in this way,” he said. (SC)

  18. David Avatar
    David

    Finance minister crunches numbers from lockdown losses – Finance minister crunches numbers from lockdown losses: https://barbadostoday.bb/2021/02/11/finance-minister-crunches-numbers-from-lockdown-losses/

  19. David Avatar
    David

    BPSA boss says uncertain times ahead – BPSA boss says uncertain times ahead: https://barbadostoday.bb/2021/02/11/bpsa-boss-says-uncertain-times-ahead/

  20. WURA-War-on-U Avatar
    WURA-War-on-U

    Watch how quickly those arab dudes are going to diversify from both oil and tourism, while the fools that we know will be still clinging to the fake tourism brand in Barbados and the Caribbean, while those who are masters at things important to them will get free oil from Guyana…….😂😂😂🤣🤣

    “The end of a golden age for oil producers
    The search for other types of revenue will accelerate

    Nov 17th 2020
    BY GREGG CARLSTROM: MIDDLE EAST CORRESPONDENT, THE ECONOMIST

    BEIRUT

    FOR DECADES Arab oil producers have been caught in a quandary. When prices fall, they pledge to wean their economies off the black stuff. But low prices mean they cannot afford costly reforms. Then output falls, demand climbs and prices begin their inevitable rebound. Treasuries are once again flush, and the pressure to reform disappears.

    Privately, some officials now wonder if this cycle is over, making the needed reforms unavoidable. The drop in demand caused by covid-19 sent Brent crude as low as $21 a barrel in 2020. Prices will recover a bit in 2021, perhaps crossing the $50 mark. They will not go much higher, though. Most oil states in the Middle East will still be unable to balance their budgets.”

  21. WURA-War-on-U Avatar
    WURA-War-on-U

    Black people who are conscious better open their eyes much wider.

    i understand employers are threatening their employees if they don’t take the vaccine they’ll have no jobs…which is fine, stop working for these parasites on the island, it gives them and the black face sellouts leverage over your lives….let then try bringing in workers from the other islands and treat them like slaves again and get EXPOSED AGAIN…

  22. Hal Austin Avatar
    Hal Austin

    More loans, more begging, more bogus economics. This time it is CoVid to blame.

    The International Monetary Fund (IMF) has approved a further $188 million to help Barbados meet the economic challenges brought on by the global COVID-19 pandemic.
    After completing its fourth review under its Extended Fund Facility (EFF) ending December 31, 2020 for the overarching, home-grown Barbados Economic Recovery and Transformation (BERT) programme, the IMF sanctioned the additional disbursement.
    In its assessment of that same period, the BERT Monitoring Committee also stated in its just-released progress report that this money includes an augmentation of the EFF by an additional $138 million “to address the continuing challenges the Barbados economy face owing to the global coronavirus pandemic.”
    “Concurrent with its review, the IMF executive board agreed with the GOB’s [Government of Barbados] requests for the further modification of performance criteria allowing for a reduced primary surplus target of minus 1 per cent of GDP for fiscal year 2020/21 – down from a positive 1 per cent revised target agreed at the time of the third review,” the BERT Monitoring Committee said.
    According to the group, this change is in recognition of significant revenue losses and the need to support spending on public health and social protection in response to the pandemic.
    “In addition, four new structural benchmarks were introduced, and the due dates for three others were reset due to the impacts of the pandemic on progress,” the committee added.
    This report coincides with the ninth set of targets under the EFF on which the BERT committee has commented.
    “During the period, the IMF executive board completed its fourth review under the EFF agreeing that all performance criteria had been met, all structural benchmarks had been completed,” the local monitors announced.
    For example, the report revealed that the government achieved its performance criteria for all of its fiscal targets including exceeding its minimum goal of $33 million on the primary balance.
    The actual balance reached was $243 million.
    The Government had also met its goal of not accumulating any external debt arrears as well as not making more than $338 million in transfers and grants to public institutions. It actually made transfers and grants of only $297 million.
    According to the monitoring committee, the ceiling on public debt also ended up some $330 million within the target set.
    The maximum debt which the Mia Mottley administration had established it did not want to exceed was $13.1 billion. It accumulated debt of $12.8 billion.
    With reference to the monetary targets, the BERT monitors disclosed that the administration had established a target of just over $1 billion for the country’s international reserves; instead, it accumulated $2.1 billion.
    The committee also assessed the primary balance which represents total revenues and grants less all expenditure, but excluding interest.
    “While overall revenue collection fell short of the target under the BERT plan, expenditure was sufficiently contained allowing the adjusted primary balance minimum target of $33 million to be achieved,” the report declared.
    Regarding government’s revenue collection, the monitoring team noted that total revenue for the first three quarters ended December 31, 2020 was $1,873 million, representing a decrease of $265 million on the total of $2,138 million collected in the same period in the prior year. The report said that tax revenue was $1,796 million versus $2,014 million in the prior year, a decline of 10.8 per cent.
    The team also noted that the primary contributors to the shortfall in revenue versus the prior year included $118 million from income tax due to the significant lay-offs arising from the pandemic and two reductions in the personal tax rates that became effective in July 2019 and January 2020. The committee also pointed to the $26 million related to land tax due to a delay in the invoicing compared to the previous year and the $309 million on various indirect taxes including VAT, excise tax, import duties, fuel taxes and tourism levies because of reduced economic activity due to the pandemic.
    The BERT committee said that total spending in the first three quarters of the fiscal year was $1,909 million, which was $92 million or 5.1 per cent higher than the $1,817 million in the prior year.
    “The majority of the additional expenditure ($89 million) related to interest now that the restructured debt is being serviced again. Twenty-five million dollars of the increase was on grants to public institutions and a further $22 million on capital expenditure primarily in the Ministry of Energy and Water Resources on infrastructure upgrades and in the Ministry of Health and Wellness related to COVID-19 management,” declared the committee.
    “These increases were partly offset by reductions in spending on goods and services which has so far been $35 million lower than the prior year. It should be noted that the additional interest expense has no impact on the primary balance,” it contended……(Quote)

  23. angela cox Avatar
    angela cox

    Where there is no vision the people suffer
    Yet the media dare not ask relevant questions about these massive loans

  24. Hal Austin Avatar
    Hal Austin

    @ Angela

    Not only the media, the academics and politicians do not know what relevant questions to ask. We are in a mess as a nation.
    A loan to get out out of the CoVid doo-doo, yet the so-called economic task force appointed last year has not yet reported in public.
    We know the president has not been as transparent or honest with us as she claims, since they must have put a convincing case to the IMF. What was that case?
    She is a political chameleon.

  25. TLSN Avatar
    TLSN

    @ Hal,
    You are not supposed to discuss these issues in public. What ever you say keep it private.

  26. Hal Austin Avatar
    Hal Austin

    @TLSN

    I know. I live in hope that the quality of the public discussion will move from personal abuse to a serious one about ideas.
    The good thing about Barbados is that black or white, the talent pool is very limited.

  27. Hal Austin Avatar
    Hal Austin

    Who are the lenders at this rate? The base rate in most developed nations is running at about 0.5-1 per cent. So, Barbados appears to be getting loans at base rate? This for a nation that defaulted on its debt less than three years ago.
    If it is borrowing from regional banks, even Breton Woods organisations, does this mean they are paying Barbados to borrow their money?
    This needs further explanation. Two further questions. First, what about White Oaks? Has the debt restructuring been FINALLY settled?
    Also, why does an adviser have to explain government economic policy? Where is the elected minister?

    Government has been borrowing at a dramatically low-interest rate of just one per cent, the senior economic advisor to the Mia Mottley administration, Kevin Greenidge, has disclosed.
    Greenidge, a Barbados-born International Monetary Fund (IMF) economist who has been seconded to Government in its Barbados Economic Recovery and Transformation (BERT) programme, did not say if the very low-interest rate was across the board.
    But he explained that given the island’s unusually high debt in recent years, it was only able to borrow at interest rates above 10 per cent prior to the BERT programme, which was implemented in October 2018.
    Greenidge made the comments during an interview with the CBC’s Lisa Lorde on the island’s ability to grow foreign exchange levels from an all-time low of just under $420 million or about six weeks of import cover in 2018 to a “healthy” $2.66 billion by the end of last year.
    “People will say, ‘that is borrowing’. Of course, it is borrowed, but you borrowed at one per cent in order to do what you need to do. Every developing country must borrow,” said Greenidge, adding that as a result of the borrowing, a number of infrastructure upgrades and investments were taking place.
    “So it is important, the interest rate. Prior to the BERT programme, because the debt was unsustainable, people were only willing to lend at astronomical rates like 12 and 13 and 14 per cent, but now it is one per cent,” said Greenidge.
    He added: “Because of that we have been able to fix the fiscal, fix the debt and you have the adequate reserves and then you start to deal with the impediments to growth.”
    Last year, Government borrowed $968 million in policy-based loans from four institutions including the IMF.
    Highlighting Government’s digitalisation programme and Customs’ new ASYCUDA system, which is central to Government’s revenue collection, as examples of development from borrowed funds, he said it was necessary to continue to improve the business environment so that the private sector could lead the required economic growth.
    “Government don’t get growth, Government creates a conducive environment for the private sector to invest and the economy to grow,” Greenidge declared. “Government has to use its powers to remove the things that would stop growth.”
    The economic advisor also pointed to the need for diversification of the Barbados economy away from tourism.
    “Whether in a crisis or not in a crisis we should always be looking to broaden the economic base,” he said, as he highlighted agriculture as a critical area on which to focus in coming years.
    “The focus on agriculture is not because it is a foreign exchange earner, it is because of food security – if anything happens you got to be able to feed yourself.
    “So I am not saying we should be thinking about abandoning tourism, but think about widening the base into other areas – agriculture, other manufacturing like moving the value chain from bulk sugar to direct consumption; moving into other energy sources and production like solar panels – and even within tourism, diversify the way we do things.”
    Greenidge also took the opportunity to insist that the IMF was not in the business of telling countries what to do but would simply put forward the available options.
    And asked if devaluation of the Barbados dollar, which is pegged to the US currency at $2 to US$1, was ever an option, Greenidge said Government took the decision “to protect the exchange rate and focus the bulk of the reform on fixing the fiscal, fixing the local economy and remaining committed to that process”.
    He said: “The IMF has a duty to advise countries on all the options they have so they will say [if] devaluation is an option,” he added. He said that in some cases countries would have no choice but to devalue because of not having adequate foreign exchange reserves to protect their exchange rate.
    “The key is to develop policies that help you to earn foreign exchange while people are investing and you are earning.”…..(Quote)

  28. TheOGazerts Avatar
    TheOGazerts

    Mr Williams reporting in

    Is this a criticism, a compliment or a question all nice into one …
    “We know the president has not been as transparent or honest with us as she claims, since they must have put a convincing case to the IMF. What was that case?”

    Criticism: “We know the president has not been as transparent or honest with us as she claims,”

    Compliment: “since they must have put a convincing case to the IMF.”

    Question: “What was that case?’

  29. TheOGazerts Avatar
    TheOGazerts

    It has also been fun to see AC talking out of the four sides of her mouth. When pinned to the mat, she somehow manages to throw a red herring into the ring.

  30. David Avatar
    David

    Because she is disingenuous and a liar.

  31. angela cox Avatar
    angela cox

    I have never endorse govt going to IMF with cup in hand for a 1 percent loan
    I know the price the people have to pay in govt securing the loan from the IMF is much heavier on the shoulders of the people than the 1 percent govt received in having the IMF service the loan

    David so i am a liar
    Why because i dare call out Mia dismal leadership

  32. Hal Austin Avatar
    Hal Austin

    Now another Bretton Woods organisation has called out the Barbados social security system. It is chaotic, not fit for purpose, and out world class policy-makers do not have a clue what to do.

    WITH public sector pensions in Barbados deemed the highest among Caribbean countries, the Inter-American Development Bank (IDB) is calling for action to lower the costs of such payouts.
    And it is warning that unless something is done, the country can face real challenges going forward in this area of Government expenditure, and to the National Insurance Scheme (NIS).
    Laura Giles Alvarez and Ariel McCaskie highlighted the views of the IDB in its latest Caribbean Quarterly Bulletin dated December 2020.
    The position by the IDB comes as uncertainty surfaces among Barbadians fearful as to what the Government of Barbados will do with the pensions. It appears a commitment has been given to the International Monetary Fund (IMF) to make the adjustments.
    However, two weekends ago, Government’s Senior Economic Adviser, Dr. Kevin Greenidge, was quoted in the media as suggesting no dictate to reform public officers’ pensions has come from the IMF, and that reforms are unlikely.
    “Rising costs going forward could be a challenge, particularly given the impact of debt restructuring and the pressure of COVID-19 on the National Insurance Scheme,” said the IDB officials, who prepared the Barbados report in the bulletin.
    “Policymakers should also periodically review the design of multi-pillar systems and assess … what changes in the pension scheme are required to achieve adequate benefits, expanded coverage, and financial sustainability of the system,” they recommended.
    They said that Barbados has the highest pension expenses among Caribbean countries.
    “The disbursement of pension expenses for civil servants as a share of total expenses is also the largest in the Caribbean at 32.2 per cent,” said the IDB officials.
    In addition, it was pointed out that in 2019, Barbados had the highest level of public pension spending among Caribbean countries, reaching 7.7 per cent of GDP, followed by Trinidad and Tobago with 5.59 per cent, Guyana 5.28 per cent, and Suriname 4.05 per cent.
    For the current financial year which ends March 31, 2021, pensions and other benefits are expected to reach $297.8 million, according to the Draft Estimates of Revenue and Expenditure.
    Forward projections by the same Estimates were put at $335.7 million for the forthcoming financial year, staring April 1, and $369.3 million for the following year….(Quote)

  33. Hal Austin Avatar
    Hal Austin

    If long-term interest rates look likely to rise, and Dr Greenidge has told us that Barbados is securing loans at one per cent, then why not lock in all our debt at one per cent?

        Jay Powell, the chair of the Federal Reserve, has told Congress there was “hope for a return to more normal conditions” this year but signalled that the central bank intended to maintain its heavy support of the economy.

    His comments pointed to no early Fed tightening of monetary policy or drawdown of asset purchases even with a brighter economic outlook — and initially helped contain a second straight day of losses for shares of fast growing technology shares.
    Lofty valuations on tech companies have been supported by rock-bottom interest rates from the Fed and other central banks. But as economic momentum has gathered in the US, real interest rates have climbed, triggering unease in parts of the US equity market. The Nasdaq Composite was 2.2 per cent lower at 1pm in New York, while the benchmark S&P 500 was down 0.8 per cent.
    Speaking to the Senate banking committee, Powell offered one of his more optimistic assessments of economic conditions since the start of the pandemic, but stressed that there were still big downside risks to the recovery that justified the Fed’s ultra-easy stance.
    “In recent weeks, the number of new cases and hospitalisation has been falling, and ongoing vaccinations offer hope for a return to more normal conditions later this year. However, the economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” the Fed chair said in his opening remarks.
    “While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year,” he added. 
    The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved
    The prospect for an improvement in the US Covid-19 situation — combined with new large-scale fiscal stimulus backed by congressional Democrats and US president Joe Biden — has prompted many economists to upgrade their growth forecasts for 2021. 
    Some economists have warned that a burst in economic activity could trigger an unhealthy jump in inflation, which would force the Fed to start tightening its monetary policy sooner and more abruptly than expected.
    However, Fed officials have played down the threat of a spike in prices, saying it was unlikely to be sustained. During the question-and-answer period with the senators, Powell said inflation dynamics did “not change on a dime” and said “there really hasn’t been lately” a strong connection between budget deficits and inflation.
    Powell also pointed to unused capacity in the labour market, with nearly 10m fewer Americans employed compared to a year ago, as one of the most worrying aspects of the US economy.
    The Fed has said it would not raise interest rates from their current level close to zero until it achieved full employment, inflation hit 2 per cent and was “on track” to exceed that target. It also said it would not begin to wind down its bond-buying programme until “substantial further progress” was made towards its objectives. 
    “The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved. We will continue to clearly communicate our assessment of progress toward our goals well in advance of any change in the pace of purchases,” Powell said.

    1.36%
    Yield on the 10-year Treasury note on Tuesday, up from 0.91 per cent at the end of 2020
    During the testimony, Powell was repeatedly pressed by senators on the merits of President Joe Biden’s $1.9tn stimulus plan, but declined to take a position.
    Financial markets have already started to factor in a rosier outlook. A sell-off in US government bonds accelerated sharply last week. The 10-year Treasury note yielded 1.36 per cent on Tuesday, up from 0.91 per cent at the end of last year. Volatility in the Treasury market has risen, underlining the potential for larger swings in the weeks ahead.
    Inflation-adjusted Treasury yields have also spiked, sparking concern among investors that too swift a rise could jolt risky assets and threaten Wall Street’s record stock market run.
    “It really is not the absolute yield [levels] that would be concerning, it is more the speed of the movement,” said Anders Persson, chief investment officer of fixed income at Nuveen, adding that a 0.5 to 0.75 percentage point move higher in 10-year Treasury yields over a short period of time could “spook” investors.
    Eric Stein, chief investment officer of fixed income at Eaton Vance, said the Fed is also likely watching Treasury gyrations closely, especially if it prompts a tightening of financial conditions that disrupts the flow of credit to businesses and consumers.
    “Multiple weeks like [last] week, and the Fed may start to get concerned,” he said.
    On inflation, Powell stressed that lingering low inflation was a bigger economic factor than the possibility of higher inflation.
    “Following large declines in the spring, consumer prices partially rebounded over the rest of last year. However, for some of the sectors that have been most adversely affected by the pandemic, prices remain particularly soft. Overall, on a 12-month basis, inflation remains below our 2 per cent longer-run objective,” the Fed chair said.
    “Well-anchored inflation expectations enhance our ability to meet both our employment and inflation goals, particularly in the current low interest rate environment in which our main policy tool is likely to be more frequently constrained by the lower bound,” he added…..(Quote)

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