By Marlon Madden, Barbados Today
A top International Monetary Fund (IMF) official is warning that Barbados’ ambitious target of a fiscal surplus of six per cent of gross domestic product (GDP) at the end of the current financial year will not be an easy goal to achieve.
In fact, Assistant Director in the Fiscal Affairs Department of the IMF Cathy Pattillo said while the Mia Mottley-led Government has been implementing important measures to achieve this, it must be prepared to take even more steps if needed.
“The overarching objective of the Barbados programme is obviously to restore debt sustainability and in our view, the proposed adjustment mix, which includes upfront fiscal consolidation, meaningful debt reduction, including a hurricane clause and structural reforms to boost growth, is appropriate,” Pattillo told Barbados TODAY on the sidelines of the IMF/World Bank Spring Meetings in Washington on Wednesday.
“Now, the budget for 2019/2020 does provide a solid basis for reaching the targeted primary surplus, but the Government will need to stand ready to take additional measures if needed,” she warned.
So far, Government has managed to shave the fiscal deficit from over five per cent of GDP to just over four per cent towards the end of last year, as a result of new taxes and reduced spending due to layoffs in the public sector as part of the Barbados Economic Recovery and Transportation (BERT) Programme.
In her marathon Budget presentation last month, Mottley also announced sweeping measures aimed at raking in over $117 million in revenues, including an increase in bus fare and new taxes, in an effort to help drive down the fiscal deficit.
“Barbados is making good progress in implementing its ambitious and comprehensive economic reform programme. So on the fiscal side, achieving a primary surplus of six per cent of GDP in 2019/2020 and maintaining that for several years after is going to be challenging, and reforms of state-owned enterprises is critical to reduce Government transfers to those [agencies],” Pattillo said.
The IMF’s fiscal monitor expert also pointed out that adequate and efficient social spending and an improved social safety net for the most vulnerable should be important priorities for Government’s recovery programme. Additionally, building physical and financial resilience to deal with natural disasters was also critical given the high risks the country faces.
While commending Government for slashing its debt from a staggering 160 per cent of GDP to around 125 per cent in under a year, Pattillo acknowledged that debt levels in Barbados were still too high.
Stating that the sharp reduction in debt levels was mainly due to the swift completion of the domestic debt restructuring, Pattillo said it was important that Government completed the restructuring for external creditors.
Government has missed its March 31 timeline for winding up negotiations and agreeing on a deal with external creditors, and is yet to announce a new date to complete this part of the restructuring.
“Progress is being made by the authorities in furthering good-faith discussions with the external creditors and that is very welcomed. So here we just stress that continuing open dialogue and sharing of information will remain important to the completion of an orderly debt restructuring process,” said Pattillo.
Government’s projection is that debt fall to around 80 per cent of GDP by fiscal year 2027/2028 and to about 60 per cent by 2033/2034.
Commenting on the fiscal situation in Jamaica, the IMF official said that country has managed to maintain fiscal discipline with a primary surplus of about seven per cent, which has helped to place debt on a downward trajectory.
“So public debt is expected to fall below 100 per cent in Jamaica this fiscal year 2018/2019 for the first time since 2000/2001. So it is really falling and the projections are for it to fall close to 66 per cent by 2024,” she pointed out.
Delivering the Fiscal Monitor: Curbing Corruption report this morning, Director of Fiscal Affairs Department of the IMF Victor Gasper stressed that country-specific circumstances required that fiscal policy decision-makers pursue sound policies.
“Governments would be well advised to pursue smarter and more agile fiscal policies to facilitate change in the face of fast-pace technological transformation, globalisation and demographics. Sustainable and inclusive growth requires improving tech systems and more and better investment in people and infrastructure,” Gasper recommended.
“What we do know from historical experience and empirical analysis is that financing conditions are volatile and they can change abruptly. There is no scarcity of financing crisis, some involving advanced economies, some involving emerging market economies and some involving low-income countries,” he said, while advising that ministers of finance carefully manage risks associated with the roll over of high debt levels.