IMF: COUNTRY MAKING PROGRESS

Caution was, however, issued over the continuing budget deficit. That challenge was highlighted through what was termed as Government’s revenue-raising measures and implementation delays resulting in expectations and targets not being met. “On the expenditure side, progress on reducing transfers to State Owned Enterprises was also slower than anticipated, partially attributable to the unbudgeted debt service of one enterprise and transfers to support infrastructure investment financed by external sources. At end-FY2015/16, central government debt excluding (including) securities held by the National Insurance Scheme (NIS) reached the equivalent of 105.5 (141.6) per cent of GDP, from 98.0 (132.3) per cent in FY2014/15. The large funding requirements, totalling about 45 per cent of GDP, have been mostly met by the Central Bank of Barbados (CBB), the NIS, and growing arrears.”

 

The IMF maintained that seriously addressing the large fiscal deficit and driving down the public debt should remain a priority. To that end, it called for fiscal adjustment to continue coupled with public sector reforms to “preserve external sustainability, and improve investor sentiment”.

 

While praising the measures contained in the 2016 Budgetary proposals, the IMF maintained that more had to be done to reduce expenditure, but insisted that any further increase in tax exemptions could erode revenues. It was also stated that reform of the revenue authority must be completed to improve tax administration and compliance. Reforms of the existing state-owned enterprises was advised to be further advanced “through better governance, consideration of user fees, and potential divestment and consolidation of public entities”.

 

In the recent presentation of the 2016 Budget, Minister of Finance and Economic Affairs, Christopher Sinckler maintained that Government remained committed to addressing the economic challenges. “Managing in these times has been difficult. Difficult Sir, because contrary to popular belief, solutions are few and far between, fiscal space is limited, economic diversification is practically non-existent, preferential market access is a thing of the past, structural debt is high, development assistance is low and social protection and development – the spring board of our post-Independence success – is becoming increasingly more burdensome to carry in the face of declining revenues.”

 

Leader of the Opposition, Mia Mottley, during her response to the Budget, last week had argued that the measures were designed to present a good picture to the IMF before its Board met to discuss the Article IV report. “All that this Budget will achieve, Sir, is to give the Government and the country a little more time before the international community steps in and says enough is enough... The Government wanted therefore to show progress given the commitment that it made the International Monetary Fund. This is the most amazing thing. They trumpet a home-grown programme, but in December 2013, we had to meet in here on Black Friday, the same day the IMF was leaving, in order to show that they were prepared to send home people. We are meeting today now to show the IMF that we are prepared to impose another $140 million in taxes, a 160 overall, but a $140 million driven by a tax on imports and most people don’t even realise it is on domestic production too,” she said.

 

The IMF expressed concern over the financing of the fiscal deficit by the Central Bank of Barbados, stating that it was inconsistent with the maintenance of the exchange rate anchor. They also encouraged the Central Bank to “allow domestic interest rates to rise in line with increases in US interest rates and ensure adequate international reserve buffers”.

 

Former Prime Minister and Member of Parliament for St. Peter, Owen Arthur, issued similar warnings last Thursday during the Budget debate. “Therefore, in Barbados, we have a situation where, because of the general problems in the buoyancy of the economy, the Government has run out of financial options and it has increasingly utilised the printing of money, on a scale that has caused our reserves to fall by 600 million dollars. The only thing of which the Government can be sure, is that it cannot continue this policy of having the printing of money by the Central Bank, as the means by which it intends to finance its operations,” he stressed then.  

 

Other recommendations from the IMF included continued close supervision of the financial sector including non-banking institutions. This would include credit unions and insurance companies. Also the need for a comprehensive growth strategy to lift long-term competitiveness in the key tourism sector, while ensuring “implementation of tourism investment and infrastructure projects, improving public service efficiency and streamlining business regulation, increasing labour market flexibility, and unlocking agriculture’s growth potential” were also suggested.