Thursday, 8 December 2011

IMF Executive Board Concludes 2011 Article IV Consultation with Barbados

Executive Board Assessment
Executive Directors noted that Barbados was hit hard by the global crisis and has yet to fully recover. Growth remains tepid despite a rebound in tourism, and risks persist from the weak and uncertain global economic environment. While cushioning the impact of the crisis, the authorities’ policy response has put pressure on public finances and further raised the public debt. Directors saw as the main challenge the need to undertake a credible fiscal consolidation without jeopardizing the fragile recovery and social cohesion.
Directors commended the authorities for adopting a revised Medium Term Fiscal Strategy aimed at generating a balanced budget and reducing the high public debt-to-GDP ratio. They emphasized that fiscal consolidation should focus on expenditure reduction, including lowering the wage bill, reducing transfers to public enterprises, and minimizing tax exemptions. To bring the debt on a firm downward trajectory, Directors encouraged the authorities to make further sustained efforts to curtail and prioritize government spending, and enhance revenue, including by broadening the tax base and making permanent the temporary hike in the Value-Added Tax. They also recommended expanding the coverage of the fiscal strategy to include public enterprises. In view of uncertainties in the global and domestic environment, Directors encouraged the authorities to develop contingency plans to ensure achievement of the fiscal targets. Directors welcomed the authorities’ plan to engage social partners in a national debate on the level of social spending.
Directors noted that the banking system is stable and healthy. Nonetheless, the recent increase in nonperforming loans, coupled with low loan-loss provisioning, requires close monitoring and improved risk management. They welcomed the consolidation of supervision of the nonbank financial sector under the newly operational Financial Services Commission, and recommended strengthening its supervisory capacity. Directors encouraged the authorities to minimize fiscal costs in any plan to resolve CLICO and to seek a private sector solution. They noted that the CLICO failure underlines the importance of a coordinated regional approach to financial sector supervision and a mechanism for establishing a framework for crisis resolution.

Read the full IMF 2011 Article IV Consultation below