BRIDGETOWN, Barbados, Friday June 30, 2017 – The International Monetary Fund (IMF) is extending a helping hand to Barbados, as it warns that the island’s economic picture remains grim – with an inevitable hike in the cost of living and minimal economic growth in sight.
And the Washington-based financial body says the recent Budget in which Finance Minister Chris Sinckler announced a 400 percent increase in the National Social Responsibility Levy (NSRL), the introduction of a two per cent levy on foreign exchange, and a hike in the excise tax on gasoline and diesel is directly to blame.
It said that inflation, which stood at 3.2 percent at the end of last year, is expected to more than double by the end of 2017.
“Inflation is expected to continue to accelerate to 6.7 per cent by year end because of the increase in the National Social Responsibility Levy (NSRL) and other taxes and fees, but revert to more historical norm in 2018 and subsequent years,” it said in its statement, following just concluded talks.
“Growth in 2017 is projected to slow to less than one per cent, reflecting the fiscal consolidation efforts introduced in the FY2017/18 Budget.”
The IMF team was here from June 20 until yesterday, at the request of the government to review recent economic developments and discuss the 2017 budget, and was led by the fund’s deputy division chief for the Western Hemisphere Judith Gold.
The Freundel Stuart administration has remained adamant that it will not seek to enter an IMF programme, despite recent warnings from noted economists that it could not fix the ailing economy on its own.
Former Prime Minister Owen Arthur, backed by several other respected economists, have sounded the alarm that Sinckler’s half-billion-dollar adjustment programme would effectively trigger a devaluation of the Barbados dollar, and that an IMF adjustment would have been far easier for the entire country to swallow.
However, with Government currently sticking to its homegrown strategy, the IMF advised the country that continued fiscal discipline with economic growth would be essential to securing Barbados’ future.
It warned that over the medium-term, further fiscal adjustment would be needed on the expenditure side to decisively reduce its debt and debt service costs.
“Transfers to public enterprises of close to eight per cent on an annual basis represent the second largest expenditure item, after the wage bill, and about the same magnitude as the interest bill on the public debt.
“Both expenditure categories weigh heavily on public finances and critical reforms are needed over the to restore sustainability and confidence,” the IMF said, adding that a reduction in transfers to public enterprises must be supported by structural reforms to reduce state agencies’ operating costs, rationalize their programmes, and raise their revenues.
The IMF also urged Barbados to be mindful of possible external shocks as Britain continues its exit from the European Union.
“There are important downside risks related to the increase in domestic and global uncertainty, including the impact of the Brexit on the British pound,” the IMF said.
It stressed that while the Barbadian economy continues its recovery on the back of stronger tourism performance, improving public finances remains a critical challenge.