The International Monetary Fund (IMF) has downgraded the projected three per cent economic growth for Barbados for 2021 by one percentage point.

The projected economic growth for Barbados has now been assessed for two per cent, premised on a modest recovery of tourism towards the end of 2021 down from three per cent projected at the time of the fifth Extended Fund Facility (EFF) review yesterday (November 6).  However, the IMF has indicated that the outlook remains highly uncertain and risks are elevated.

International reserves have increased to US$1.4 billion by October 2021. According to the multilateral funding agency, Barbados is targeting a primary deficit of minus one per cent in the current fiscal year (FY2021/22).

The Bajan authorities are expected to resume fiscal consolidation required to achieve long-term financial objectives starting in FY2022/23. While fiscal policy must remain accommodative in FY2021/22 to offset the impact of the pandemic and natural disasters, the IMF has assessed that a gradual economic recovery will facilitate a gradual reduction in the debt-to-GDP ratio over the medium term.

According to the IMF, “The authorities should be able to achieve the debt target of 60 per cent of GDP by FY2035/36 through ambitious primary balances in the medium and long term. Prior to the pandemic, the government met its primary surplus target of six per cent of GDP in FY2019/20.”

Government revenues recovering

Government revenue is showing tentative signs of recovery in 2021, while spending pressures remain high. Prior to the pandemic, the government met its primary surplus target of six per cent of Gross Domestic Product (GDP) in FY2019/20. The impact of the pandemic on government finances reduced the primary balance to -1.0 per cent of GDP in FY2020/21.

The Barbados authorities are targeting a similar primary deficit in the current fiscal year (FY2021/22), with tourism still well below normal levels, and additional spending related to the twin shocks of volcanic ashfall and Hurricane Elsa. The authorities are expected to resume fiscal consolidation required to achieve long-term fiscal objectives starting in FY2022/23.

Structural reforms to transform state-owned enterprise 

Structural reforms to transform the state-owned enterprise (SOE) sector have been undertaken. Reforms under the authorities’ comprehensive economic reform program included upfront cost savings measures as well as strengthened oversight and accountability frameworks to improve SOE performance and limit fiscal risks.

The 2019 Public Financial Management Act requires approval of SOE borrowing and stipulates sanctions for noncompliance with enhanced SOE reporting requirements. Additionally, financial reports on SOE performance are presented to parliament.

These combined efforts were successful in reducing transfers to SOEs by one per cent of GDP prior to the pandemic, but transfers rose in FY2020/21 by 15 per cent to accommodate the national COVID-19 policy response including the implementation of the nationwide vaccination programme. While this increase is transitory, the IMF is reporting that most SOEs struggle with longstanding challenges in terms of weak profitability and high operating costs that give rise to transfer needs.

The introduction of a risk dashboard provides the authorities with a mechanism to analyze the financial performance of priority SOEs and helps to devise targeted reform measures to enhance performance and reduce government dependence.