Caribbean & Central America - July 2018 (ISSN 1741-4458)

*** IMF URGES NEW BARBADOS GOVERNMENT TO FACE REALITY. Almost exactly a month after its landslide victory in the 7 May general election, in which it won all 30 seats, the Barbados Labour Party (BLP) government led by Prime Minister Mia Mottley hosted a sobering visit from the International Monetary Fund (IMF). An IMF team visited Barbados from 5-7 June to hold discussions with the new government on its economic policies and on possible IMF support.

At the end of the visit, the IMF issued a statement warning that Barbados “is in a precarious economic situation” and that central government debt is “unsustainable”. The IMF warned: “The fiscal deficit has decreased over the last few years but remains large, at about 4% of GDP in FY2017/18.” It noted that the Central Bank of Barbados (CBB) had reported an economic contraction of 0.7% in the first quarter of 2018 compared with the same period last year. And it stated that “substantial fiscal consolidation is needed to place debt on a clear downward trajectory”.

The IMF is recommending a debt restructuring, and it says that since tax and revenues are “relatively high”, the adjustment effort “should focus on the expenditure side, including by improving the efficiency and effectiveness of public services, containing wags, and reforming government pensions”.

The statement went on to urge a reduction in government transfers to state-owned enterprises (SOEs) “by reviewing user fees, exploring options for mergers and privatisation, and by providing stronger oversight”.

On 11 June, the government duly presented to parliament an “Economic Recovery and Transformation Plan”. Amongst other measures, the prime minister announced plans to introduce a hotel room tax of US$2.50 per night for B Class properties and apartments, US$5.50 for A Class properties, and US$10 for luxury resorts. Other measures included, from 1 October, an Airline Travel and Tourism Development Tax of US$35 for passengers travelling within the Caribbean Community (Caricom) and US$70 for those flying outside Caricom. VAT on accommodation is to increase from 7.5% to 15% from 1 January 2020.

*** IMF GIVES POSITIVE SIGNALS TO JAMAICA. On 15 June, the IMF issued a statement following a staff visit to Jamaica from 11-15 June. The statement welcomed “the authorities’ initiative to further entrench fiscal sustainability”, and it noted approvingly that “economic progress is reflected in high employment levels, an 11-year low unemployment rate, and significantly lower poverty rate”.

The statement also welcomed the fact that the central government primary surplus of 7.7% of GDP for FY2017/18 exceeded the budget target by 0.7 percentage points of GDP. But, it added, it was now “important to use the window of the 4-year wage agreement to overhaul the public sector’s compensation structure”.

As of end-March 2018, public debt was said to be 104% of GDP, down from 145% five years ago.

*** MORE GOOD NEWS FOR GUYANA ON OIL. In June, ExxonMobil announced its eighth oil find in Guyana’s territorial waters (at the Longtail-1 well). With the size of this discovery still to be quantified, the company is estimating that the total reserves from its first seven wells in the Stabroek Block amount to “more than” 3.7bn recoverable oil-equivalent barrels. It is thought that Longtail-1 could be its biggest discovery yet in Guyanese waters.