Barbados must cut spending or risk rising debt, says IMF

24 Nov 17

Barbados should cut spending or risk its debt problems rising, according to the International Monetary Fund.

The IMF said the government’s “ambitious” budget introduced in May was at risk of falling short of its targets following financing challenges and falling reserves.

Judith Gold, IMF team leader, following a two-week visit to Barbados, said: “Substantial further fiscal effort is needed to decisively place the debt on a downward trajectory.

“Given the urgency in addressing funding, balance of payment risks, the high debt, and the limited policy options, the fiscal adjustment must continue, with a focus on accelerating state-owned enterprises’ reforms to facilitate a significant and durable reduction in transfers.”

The reforms of state-owned enterprises should include improved management, cost recovery, reduced services, mergers, closures, and privatisation, according to the IMF.

This comes as the IMF noted that real growth is projected to slow to 0.9% for the year, compared with last year’s improved performance of 1.6%. It said “ongoing fiscal consolidation efforts” had slowed down the economy.

Gold said it was “critical” to contain other current expenditures including the wage bill and government pensions.

She also highlighted the need to expand the tax base.

The economist noted that central government debt increased to 137.1% of GDP, up from 134.7% in the financial year 2015-16, and 99.4% of GDP in the financial year 2011-12. Excluding national insurance scheme holdings, central government debt was 101% of GDP in the financial year 2016-17.

The Caribbean nation was also advised to carry out “urgent” structural reforms to support growth and improve the business climate investment.

Gold stated: “These reforms would aim to improve business processes, such as significantly reducing clearance times for immigration and customs, accelerating approval of building permits, and streamlining legal procedures.”

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