The International Monetary Fund (IMF) has cautioned Barbados about safeguarding its debt sustainability while sanctioning its decision for a temporary relaxation of the primary balance target for fiscal year 2021/22.

The primary balance target has been revised downwards from six per cent to -1 per cent, given the challenges occasioned by the global pandemic and two recent natural disasters.

In its just-concluded Article IV consultation with Barbados, the IMF says lowering of the primary balance target “is appropriate given the lingering impact of the pandemic and unexpected spending needs to address the impact of Hurricane Elsa and ashfalls from nearby volcanic eruptions.”

Need for short-term fiscal accommodation with higher primary surpluses

However, IMF cautions that Barbados will have to compensate for this short-term fiscal accommodation with higher primary surpluses in the medium term to safeguard debt sustainability. The Barbados economy is projected to record a primary surplus of three per cent in 2022.

The multilateral funding agency has hailed the strong implementation of Barbados’ Economic Recovery & Transformation (BERT) plan aimed at restoring fiscal sustainability.  The IMF is projecting a decline in public debt from 156.4 per cent of GDP recorded in 2020 to 142.1 per cent in 2021 and 128.7 per cent in 2022.

Similarly, Gross International Reserves are projected to increase from US$1.33 million in 2020 to US$1.39 million in 2021 but fall to US$1.27 million in 2022. However, this represents a decline in import coverage from 9.3 months in 2020 to 8.0 months in 2021, with a further decline to 6.6 months in 2022.

Given that Barbados has passed its latest Article IV assessment, the IMF is making available to the newly established Caribbean republic US$24 million to continue its BERT plan.

Maintaining sound policies given uncertain global outlook

IMF deputy managing director, Bo Li made the point that given that the global outlook remains uncertain, Bajan authorities need to maintain sound policies and their strong reform momentum to safeguard macroeconomic stability and boost potential growth.

He supported the government’s plans to reform the pension system and introduce a fiscal rule will also support fiscal sustainability adding that the Barbadian authorities took an appropriate monetary and financial policy response to the pandemic and that they plan to recapitalize the central bank gradually.

The IMF official argued that medium-term fiscal adjustment will be supported by reforms to state-owned enterprises (SOEs) and to create fiscal space for investment in physical and human capital, transfers to SOEs need to decline by strengthening oversight of SOEs, revenue enhancement, cost reduction, as well as mergers and divestment.