Jul 2015 Financial News

IMF encourages B’dos to sell assets

Jul 22, 2015

The country faces daunting challenges, including external risks, high fiscal deficit and debt levels, and competitiveness challenges

Barbados should sell some state assets to raise money to repay and lower its public debt, executive directors of the International Monetary Fund (IMF) have said.

The IMF ended its Article IV consultation with Barbados on June 19.

Almost a month later, a press release was issued by the IMF in Washington, DC, USA on July 17.

The IMF “encouraged the (Barbados) authorities to consider divesting some state assets in order to lower debt,” the statement said.

Central government debt excluding securities held by the National Insurance Scheme (NIS) rose to 101 per cent of gross domestic product (GDP) at the end of March 2015, up from 76 per cent of GDP in March 2011.

The IMF said: “The country faces daunting challenges, including external risks, high fiscal deficit and debt levels, and competitiveness challenges.” Against this backdrop, the IMF urged the authorities to implement “a comprehensive reform program that includes strong fiscal adjustment and structural reforms to foster growth and external and debt sustainability.”

The IMF stressed the “need for continued ambitious adjustment efforts, which could be supported by a simple fiscal anchor as an interim step toward the development of a more comprehensive fiscal rule.” IMF staff also said it is important that Barbados reduce its current spending and address “the stock of government arrears, while securing room to increase public investment.” The IMF said Barbados needs “to improve some universal social programs to ensure they are reaching the most vulnerable.”

On revenue, the IMF “welcomed recent tax measures, and encouraged the authorities to broaden the tax base further and remove tax waivers.” IMF staff also “encouraged the Central Bank (of Barbados) to phase out direct financing of the government and reorient monetary policy toward supporting the fixed exchange rate regime.” Barbados has been printing money by selling securities to the central government to partly finance the same government.

The IMF staff agreed that, “if financing sources are not sufficient, the central bank should allow domestic interest rates to rise to a level that reflects a credible country risk premium”.

To achieve economic growth the IMF recommended the strategy to focus “on strengthening the business environment and improving the efficiency and effectiveness of public services.”

As it has with Trinidad and Tobago, IMF staff complained about the data provided by the Barbados authorities.

IMF directors noted the “inconsistency in GDP data, and encouraged the authorities to quickly resolve these issues, with help from IMF technical experts”.

Barbados economy to grow 1 per cent

Barbados' real GDP growth remained weak in 2014, and was weighed down by fiscal drag and stagnant tourism inflows, the IMF said. Unemployment averaged 12.3 per cent at the end of 2014, the IMF said. However, tourism arrivals jumped over the winter season and real GDP is projected to expand by 1.0 per cent in 2015 as stronger growth in key markets underpins arrivals, the IMF said. Barbados' economy is estimated by the IMF to have expanded 0.2 per cent last year.

Lower oil prices and new tourism investment will provide a boost to demand, though ongoing fiscal adjustment will dampen the growth upside, the IMF said. Inflation is forecast to fall to 0.9 per cent by year end, reflecting lower energy and commodity prices.

Barbados' balance of payments improved in 2014. The current account deficit (which tells how much more a country is importing than exporting) fell slightly to 8.5 per cent of GDP as export growth was flat and imports declined slightly, said the IMF. With oil prices low, the current account deficit is projected to fall to 5 per cent of GDP in 2015.

Stronger private capital inflows helped support a small increase in international reserves to US$563 million (or 3.4 months of import cover) as at the end of March (2015).

Private capital flows are expected to stabilize, leaving foreign reserves at about US$545 million at the end of 2015 (3.3 months of imports), the IMF forecasts.

The central government deficit (which tells how much more the government is spending than it is earning) fell from 11.2 per cent of GDP in 2013/14 (year ending March) to 6.6 per cent of GDP in 2014/15, though domestic arrears continued to accumulate, the IMF said.

 

Source:
By Aleem Khan
Trinidad Express
Wednesday July 22, 2015

http://www.trinidadexpress.com/20150721/business/imf-encourages-b8217dos-to-sell-assets