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BDS | Nov 2, 2020

IMF announces Barbados met all quantitative targets under latest EFF review

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The International Monetary Fund offices.

 By Durrant Pate

The International Monetary Fund (IMF) has announced that Barbados has met all quantitative targets set for the end of September under its Extended Fund Facility (EFF) with the multilateral lending agency.

In making the announcement on the weekend, the IMF disclosed that the programme target for Net International Reserves was met by a wide margin. The target was exceeded US$1 billion.

The IMF mission team, which conducted the EFF quarterly review was led by Bert van Selm. The virtual mission was conducted between October 26-30, 2020 to discuss implementation of Barbados’ Economic Recovery and Transformation plan, supported by the IMF under its EFF.

New primary balance targeted

Given the success of its latest review, Barbados is now targeting a primary balance of minus-one per cent of GDP for FY2020/21 (compared to a surplus of six per cent of Gross Domestic Product (GDP) envisaged prior to the pandemic, and a surplus of one per cent of GDP at the time of the 3rd EFF review). The IMF has indicated its acceptance of an easing of the fiscal stance.

“Tbling of a revised central bank law to parliament is expected shortly; this is a critical safeguard for continued macroeconomic stability and will be a prior action for the completion of this EFF review.”

International Monetary Fund

The IMF has proposed the augmentation of the existing EFF by Special Drawing Rights (SDR) of 48 million (US$66 million) to help finance the emerging fiscal deficit. However, the fund has  noted that the “tabling of a revised central bank law to parliament is expected shortly; this is a critical safeguard for continued macroeconomic stability and will be a prior action for the completion of this EFF review.”

In his report to the IMF, van Selm states that the IMF team and the Barbadian authorities have reached staff-level agreement on the completion of the fourth review under the EFF arrangement. The agreement is subject to approval by the IMF Executive Board, which is expected to consider the review in December.

US$90 million to be available

Upon completion of the review, SDR 65 million (69 per cent of quota, or about US$90 million) will be made available to Barbados. According to the IMF Mission Chief, “the COVID-19 pandemic has had a major impact on Barbados’ economy, with a double-digit decline in economic activity projected for 2020.”

Bert van Selm, head of the IMF mission team.

He pointed out that tourism came to a virtual standstill between March and June 2020, as airlift declined precipitously, most hotels closed, and occupancy plummeted at facilities that remained open. In early July, the island cautiously started reopening the economy for international tourists, after the authorities there effectively halted local transmission of the disease.

However, tourism arrivals remain at a fraction of normal levels. “In this very challenging environment, Barbados continues to make good progress in implementing its ambitious and comprehensive economic reform program. International reserves, which reached a low of US$220 million (5-6 weeks of import coverage) at end-May 2018, are now in excess of US$1 billion,” van Selm declares.

He adds that, “In response to the pandemic, the Government of Barbados is now targeting a primary balance of minus-one per cent of GDP for FY2020/21 (compared to a surplus of six per cent of GDP envisaged prior to the pandemic, and a surplus of one per cent of GDP at the time of the third EFF review). The lowered primary balance target accommodates the loss of government revenues stemming from the pandemic and facilitates emergency outlays on health facilities, medical supplies, and income support to the most vulnerable.”

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