IMF says B’dos debt levels could stabilize by 2016

By Admin Wednesday February 19 2014 in Caribbean
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BRIDGETOWN: The International Monetary Fund (IMF) says fiscal measures recently introduced by the Barbados government will, if fully implemented, stabilize debt levels by 2016.

 

“However, downside risks are considerable and failure to implement corrective policies could result in a disorderly adjustment process. Even with full implementation, fiscal financing pressures and external sector sustainability would remain challenging,” the U.S.-based financial institution said last week.

 

It noted that the island’s economic performance has been weak and public debt is high.

 

“Foreign reserves are under pressure as fiscal and external imbalances widened in 2012 and further in 2013,” the IMF said. “Recognizing the need for urgent action, the authorities announced ambitious budget consolidation proposals in 2013 aimed at strengthening the fiscal position and arresting the slide in reserves.”

 

It said the Freundel Stuart administration “stated clearly their desire and intention to preserve the exchange rate, a position supported strongly by the private sector and civil society in Barbados”.

 

The IMF said that as a result of this strategy, the discussions with the IMF delegation focused on the fiscal measures needed to address immediate pressures, making monetary policy consistent with the nominal exchange rate anchor, a medium-term fiscal framework, and reforms to boost competitiveness.

 

The IMF said “a comprehensive and sustained fiscal effort” was needed to reduce vulnerabilities and lower public debt.

 

“There is scope to raise tax revenues by strengthening revenue and customs administration and by reducing widespread exemptions. However, spending reductions will be critical, especially targeting the wage bill and inefficiencies in public enterprises where stronger governance is needed.”

 

The lending agency said that the social safety net must be preserved, but benefits should be better targeted to strengthen protection for the most vulnerable, raise efficiency and lower costs.

 

“A medium-term fiscal anchor is needed to guide policy formulation and accountability. A debt-to-GDP target of 85 per cent is recommended by 2018/19. Monetary policy should be more consistent with the fixed exchange rate regime,” the IMF said, adding that closer monitoring of the financial system is required in view of elevated non-performing loans (NPLs) and the risk of a deeper sovereign-financial feedback loop.

 

It said that the growth strategy should focus on reducing business and labour costs.

 

The Stuart government has adopted a strategy of laying off at least 3,000 public servants this year as it seeks to reverse the ailing economy. In addition, the government has said it would reduce expenditure in other areas.

 

Meanwhile, the Barbados Central Bank said that the recommendations outlined by the IMF were in keeping with the policies of the Barbados government.

 

The Central Bank said revenue administration was being strengthened with the establishment of the Barbados Revenue Authority and that non-statutory revenue exemptions – which do not support foreign exchange earning sectors or support the most vulnerable – were being reduced.

 

It said the public sector wage bill is being reduced as a result of the layoffs and a program of attrition and that a medium-term strategy for the further reduction in the fiscal deficit remains in place.

 

“The Central Bank of Barbados’ lending to Government will be reduced as the lower deficit is funded from domestic liquidity,” the bank stated, adding that monitoring of the financial system was being intensified in line with the recommendations of the Financial Sector Stability Assessment (FSSA).

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