An IMF team, which has ended a two-week visit to the island, said that the adjustment strategy should focus on addressing the high transfers, containing other current expenditures and maintaining a strong revenue effort.
It said that urgent structural reforms are needed to support growth and improve the business climate for domestic and foreign investment.
The team, led by Judith Gold, the deputy division chief at the Washington-based financial institution, said that following last year's improved performance of 1.6 per cent, real growth is projected to slow to 0.9 per cent for the year, reflecting ongoing fiscal consolidation efforts.
It said long-stay tourist arrivals continue to expand at a healthy pace. Inflation is projected to rise by year end to 5.5 per cent, from 3.6 per cent at end-2016. While credit growth remains subdued, financial soundness indicators suggest a relatively healthy banking sector.
She noted, however, NIR continue to decline as government debt service exceeds new funding, and private foreign inflows remain weak. At end-September, NIR stood at BDS$550 million (One Barbados dollar=US$0.50 cents).
She said that the fiscal performance in the financial year 2016/17 improved, but the deficit remains large. “The fiscal deficit declined more than anticipated in financial year 2016/17 to 5.5 per cent of GDP, reflecting improvement in revenue performance, including one-off factors and lower current expenditure.”
The IMF official said that with the growing financing challenges and falling reserves, the Government introduced an ambitious budget on May 30, 2017, aimed at significantly reducing the fiscal deficit and shoring up international reserves.
However, exemptions to the NSRL, lower-than-expected non-oil imports, shortfalls in some other revenues, and high transfers indicate that the government is likely to fall short of its target, she said.
The IMF is recommending that the government seeks to increase the primary surplus from the 4.4 per cent of GDP expected in financial year 2018/19 to 7.5 per cent of GDP by financial year 2020/21, corresponding to an overall budget close to balance.
Gold said that structural reforms to support growth and improve the business climate for domestic and foreign investment are also urgent.
“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.”
- Countries: Barbados