The International Monetary Fund (IMF) has revised the fiscal targets for Barbados at the end of its fourth review of its Extended Fund Facility (EFF) programme with the Caribbean territory.

The primary balance target for Barbados has been revised to minus one percent of Gross Domestic Product (GDP) for fiscal year 2020/21, down from a surplus of one percent at the time of the third review.

According to the IMF, this revised figure of minus one percent of GDP, “is appropriate to accommodate worse-than-anticipated revenue losses and support spending on public health and social protection. The new fiscal target is financed by additional resources from international financial institutions, including a second augmentation under the Extended Fund Facility.”

The multilateral lending agency states that “the fiscal accommodation will be compensated by higher primary surpluses in the medium term to ensure achievement of the long-term debt target of 60% of GDP. Medium-term fiscal adjustment will be supported by continued reform of state-owned enterprises (SOE) to secure space for investment in physical and human capital.”

Government advised to cut transfers to SOEs

The IMF reports that transfers to SOEs need to decline through a combination of stronger oversight, cost reduction, revenue enhancement, and mergers and divestment. The fund indicated that pension reform and introduction of a fiscal rule will also support medium-term fiscal sustainability.

Despite the challenges posed on the economy by the pandemic, the IMF reports that Barbados continues its strong implementation of the comprehensive Economic Recovery and Transformation (BERT) plan aimed at restoring fiscal and debt sustainability and increasing reserves and growth. However, the fund cautioned that the prolonged global coronavirus pandemic poses a major challenge for the economy, which is heavily dependent on tourism and is expected to have a large impact on the balance of payments and the fiscal accounts.

Commenting on Barbados fourth EFF review, Tao Zhang, Deputy IMF Managing Director and Acting Chair reported that “a strong recovery from the global pandemic will hinge on accelerating structural reform, including improving the business climate and promoting economic diversification. Strengthening resilience to natural disasters and climate change will be key to long-term sustained economic growth.”

He argued that strong progress in restoring fiscal sustainability will further be safe guarded by a new central bank law aimed at limiting financing of the government and strengthening the central bank’s mandate, autonomy, and decision-making structures.

Barbados now allowed to draw down US$94 million

The completion of the fourth review allows the Bajan authorities to draw SDR 65 million (about US$94 million). Access under the extended arrangement has been augmented by SDR 48 million (51 percent of quota, or about US$69 million) to help accommodate the shock.

The four-year extended arrangement under the EFF was approved on October 1, 2018.