The International Monetary Fund (IMF) Monday announced that it had approved US$290 million under an Extended Fund Facility (EFF) for Barbados as the island seeks to revitalise an ailing economy.
The Washington-based financial institution said that the programme will help Barbados restore debt sustainability, strengthen the external position, and improve growth prospects.
It said that the approval of the EFF makes Barbados eligible to receive US$49 million in assistance immediately and that a comprehensive debt restructuring will complement the fiscal consolidation.
The IMF said that the new Mia Amor Mottley government has identified parameters that would provide debt relief without jeopardizing financial stability.
The IMF said that the remainder of the funds will become available once the island successful completes the seven semi-annual reviews.
“The EFF-supported programme aims to help Barbados: restore debt sustainability, strengthen the external position, and improve growth prospects. Upfront fiscal consolidation, meaningful debt restructuring, and structural measures to support growth should put debt on a clear downward trajectory. The programme will seek to protect vulnerable groups through strengthened social safety nets,” the IMf said.
IMF Deputy Managing Director, Mitsuhiro Furusawa, said the Barbadian authorities have developed a home-grown economic programme to address longstanding challenges, which will be supported under the IMF’s Extended Fund Facility.
“Over the last decade, Barbados’s economy has experienced low growth, while fiscal and external imbalances have gradually widened to reach an unsustainable situation, with very high debt and very low reserves. The authorities’ reform programme seeks to address these challenges with a combination of front-loaded fiscal consolidation, measures to boost growth, and debt restructuring, while protecting social spending,” he said.
Furusawa said the fiscal consolidation is key to the adjustment effort and that the Barbados authorities aim to increase the primary surplus to six per cent of gross domestic product (GDP) in the financial year 2019-20 and maintain it at that level for several years thereafter.
“Reducing transfers to state-owned enterprises will be key in reaching the primary surplus targets. The programme aims to reduce these transfers with a combination of much stronger oversight of state-owned enterprises, improved reporting, cost reduction, revenue enhancement, and mergers and divestment,” he said, adding a planned comprehensive review of tax policies is expected to lead to improvements in the tax system.
He said the adoption of a fiscal rule and reforms in public financial management will help sustain the fiscal reform effort.
“A comprehensive debt restructuring will complement the fiscal consolidation. The authorities have identified parameters that would provide debt relief without jeopardizing financial stability and an exchange offer for domestic debt (Barbados dollar-denominated) to private creditors was launched on September 7, 2018.
“The proposed debt restructuring includes features, including a natural disaster clause, that are expected to help the authorities stay current on their future debt obligations. It is important to continue good faith negotiations with domestic and external creditors,” Furusawa said, adding that “bold structural reforms are needed to improve Barbados’s growth potential and competitiveness.
“There is significant room for improvement in key business facilitation processes, including speeding up the process for providing construction permits and faster clearing of goods through customs. Adequate social spending and an improved safety net are key priorities for the programme.”
The IMF official said that targeted reforms, to be pursued in close collaboration with development partners, aim at improving the efficiency and effectiveness of social spending.