9 February 2018
Barbados’s Minister of Finance, Chris Sinckler, has said that the International Monetary Fund (IMF) option is always available to support the country, but that any such approach would have to be mandated by the electorate in a general election.
The Minister’s remarks to the online publication Barbados Today came shortly after the island’s Central Bank Governor, Cleviston Haynes, confirmed on 2 February that the country’s foreign exchange reserves had collapsed to just Bd$410 million (US$205m) or 6.6 weeks of import cover.
“The IMF option is always on the table, it is just one of the options Government always has. That is why we joined …. If that is what the people of Barbados want, and they say that is what ought to be done, then we shall see,” the publication reported Mr Sinckler as saying.
The Finance Minister was also quoted by the Barbados Today as saying: “Of course we know that we are not investment grade …. as a matter of fact, we are at junk status. Therefore, approaching the capital markets as often as we did before is not possible because the rates are going to be exceedingly high.”
Mr Sinckler suggested that the drop in reserves was due to several factors including stalled projects and delays in selling some Government assets, such as the Barbados National (see Caribbean Insight Vol 39, Issue 57). He suggested that the situation might be turned around in the short term if government was able to quickly sell the Hilton Barbados Resort. He recognised however that ultimately the country faced structural problems that could not be resolved through short term inflows.
Previously Mr Sinckler has said that he did not believe it would be necessary for Barbados to enter into an IMF programme of any kind.
Meanwhile, the island’s Prime Minister Freundel Stuart, has suggested in remarks to the Barbados Chamber of Commerce and Industry on 24 January, that he was confident the fiscal deficit was “on the decline”, and “in a sizeable way”. He said that the Barbados Sustainable Recovery Plan 2018 would return the economy to “a path of steady state equilibrium with a view to propelling the economy to the pre-crisis growth level of 3% on average”.
Barbados is constitutionally due to hold elections by the middle of this year.
Both the Prime Minister and Mr Sinckler’s remarks follow a warning on 26 January from the IMF Executive Board that it remained concerned about the country’s large fiscal deficit, its high level of debt, and low foreign reserves.
‘Following the economic recovery in 2016, GDP growth is slowing’, the IMF said. It went on to project growth to slow to 0.9% in 2017 and 0.5% in 2018 ‘due to the ongoing fiscal adjustment and policy uncertainty related to the forthcoming elections’. The IMF also warned of a pending rise in the cost of living with inflation forecast to reach 5.5% this year because of recent tax increases.
In its report, which followed from an Article 1V consultation last November, the IMF emphasised the need for a stronger macroeconomic framework and bolder structural reforms to achieve fiscal and debt sustainability, to address the island’s ‘large financing needs’ and to ‘build adequate international reserves, and boost growth’.
It called for the comprehensive reform of state-owned enterprises and for efforts to contain the public sector wage bill and to reform Government pensions, while improving revenue administration and broadening the tax base, in part by reducing exemptions.
In recent weeks by some of the islands leading economists, including a former Prime Minister Owen Arthur and the former Central Bank Governor Dr DeLisle Worrell, have urged Government to turn to the IMF. For its part, the IMF has said that it “stands ready to assist the Government of Barbados, including through continued policy dialogue and technical assistance”.
In the early 1990s an IMF programme involving major cuts to expenditure including an 8% public sector pay cut led to street protests and the eventual collapse of the the DLP administration of Erskine Sandiford.
This is a lead article from Caribbean Insight, The Caribbean Council’s flagship fortnightly publication. From The Bahamas to French Guiana, each edition consists of country-by-country analysis of the leading news stories of consequence, distilling business and political developments across the Caribbean into a single must-read publication. Please follow the links on the right-hand side of this page to subscribe, or access a free trial.
Photo credit: Brook Ward ‘Barbados Parliament’, Flickr