May 2016 Financial News

IMF says Barbados turning corner but challenges remain

May 20, 2016

BRIDGETOWN, Barbados, Friday May 20, 2016 – The International Monetary Fund (IMF) says the Barbados economy still faces serious challenges although it appears to have turned the corner.

In a statement issued yesterday following a May 9-19 visit for Article IV Consultations, the Fund said real GDP grew by 0.8 percent last year buoyed by a surge in tourism arrivals, while employment increased by two percent.

It said inflation is low, reflecting a sharp drop in import prices, and the financial system is stable with a decline in non-performing loans.

“The current account deficit has narrowed significantly, reflecting lower oil and other import prices — despite an increased volume of oil and intermediate goods imports — while exports grew modestly. Net international reserves fell by US$57 million since the beginning of 2015, reflecting lower foreign direct investment and debt amortization,” the statement said.

Although growth has resumed and short-term prospects are positive, the Fund said imbalances persist between available resources and government programmes.

And while it suggested that favourable external developments have provided some room for manoeuvring, it said the country remains highly vulnerable and may not realize its potential without deep-seated reforms to align revenues and expenditures and reduce debt.

“Fiscal reforms have yielded less than expected. After significant consolidation in Financial Year 2014/15, the deficit in Financial Year 2015/16 remained broadly unchanged, short of government’s objective, due to delayed implementation of June 2015 tax measures and slow progress with the reform of the state owned enterprises. Consequently, public sector debt rose to 105.5 percent of GDP from 98 percent at the end of Financial Year 2013/14. The large cash requirements of the government are a challenge increasingly met by the Central Bank,” the Washington-based institution said.

The IMF has projected a 2.1 percent increase in growth this year, which it said reflects higher private and public investment, mainly in refurbishing and expansion of the tourism stock.

However, it pointed to de-risking as an area of concern as well as government financing requirements and possible delays in government-backed projects.

The Fund suggested: “To reverse large increases in debt and place it on a downward trajectory, the mission recommends fiscal adjustment of at least 3.5 percent of GDP over the next three years. This would be on top of the expected improvement in performance this year reflecting a full year of the 2015 revenue measures.”

It also recommended that government push ahead with measures to improve public sector efficiency, conduct reforms to increase labour market flexibility, increase training opportunities and move forward with a viable and affordable agricultural strategy to strengthen its links with the tourism sector.

Source:
Caribbean360
Friday May 20, 2016

http://www.caribbean360.com/news/imf-says-barbados-turning-corner-challenges-remain