Caribbean & Central America - July 2022

Visiting Barbados in June, International Monetary Fund (IMF) Managing Director Kristalina Georgieva met Prime Minister Mia Mottley and played the role of financial ‘good cop’ saying the Fund is now much more sensitive to the social costs of fiscal austerity, and more prepared to protect the vulnerable at times of financial difficulty.

The meeting came after a visiting IMF technical team and Barbadian officials had, in late May, agreed the seventh and final review of the IMF’s four-year-long US$435m extended fund facility (EFF) programme. An IMF report noted that the country’s economic performance had been strong, despite external shocks such as the coronavirus (Covid-19) pandemic, natural disasters, and the global impact of the war in Ukraine. At the start of the pandemic, tourism had virtually stopped dead, leading to a 14% drop in GDP in 2020. Foreign currency reserves dwindled to only US$220m (five weeks of import coverage) but have since recovered to a “comfortable” US$1.2bn.

In parallel with the EFF programme the government developed a plan known as BERT (Barbadian Economic Recovery and Transformation). The economy began a slow recovery in 2021 but is now gaining momentum. Tourism activity has come back up to 60% of pre-pandemic levels. The Fund is calling for medium term reforms to improve the business climate, diversify the economy, and enable environmental and digital transformation. However, it notes there are significant ongoing external risks including an intensification of the Ukraine crisis and extreme weather events. The IMF is predicting 11% GDP growth this year. The Fund acknowledged the need for countercyclical fiscal deficits during the pandemic and including a more recent decision to reduce pressure on the cost of living by capping VAT on fuels (costing 0.3% of GDP). However, the government is still committed to achieving a primary fiscal surplus of 5%-6% of GDP within three years which, if achieved, will help reduce the debt-to-GDP ratio to a sustainable 60% by 2036.

• More IMF funds?

Avinash Persaud, the government's special envoy to the prime minister on investment and financial services, has suggested that Barbados should seek further precautionary funding from the IMF to create “life-saving safety nets”. BERT expires in September, and Mottley said that her administration was discussing whether there should be a successor programme.