On August 22, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Barbados.
The economy appears to have turned the corner with activity picking up. Real GDP grew by 0.8 percent in 2015, underpinned by an increase in private investment and surge in tourism arrivals, which increased by 14 percent, among the highest in the Caribbean. This boosted employment by 2 percent, while the unemployment rate fell to 11.3 percent. Inflation eased owing to lower import prices, with end-period prices falling by 2.5 percent, compared with an increase of 2.3 percent in 2014. The external current account position improved significantly, reflecting improved terms of trade, as the deficit narrowed from 9.9 percent of GDP in 2014 to 6.7 percent in 2015, primarily reflecting lower oil and other prices. Exports of goods and services rose mainly due to higher tourism receipts. Net inflows in the capital and financial account fell, driven by large official amortization payments and lower FDI. As a result, net international reserves dropped to US$469 million at end-April 2016 (2.8 months of imports).
The fiscal situation remains challenging despite ongoing government adjustment efforts. The FY 2015/16 budget deficit was broadly unchanged at about 7 percent of GDP. Revenue measures, though raising revenue by 1 percent of GDP, fell short of target due to implementation delays. On the expenditure side progress on reducing transfers to State Owned Enterprises was also slower than anticipated, partially attributable to the unbudgeted debt service of one enterprise and transfers to support infrastructure investment financed by external sources. At end-FY2015/16, central government debt excluding (including) securities held by the National Insurance Scheme (NIS) reached the equivalent of 105.5 (141.6) percent of GDP, from 98.0 (132.3) percent in FY2014/15. The large funding requirements, totaling about 45 percent of GDP, have been mostly met by the Central Bank of Barbados (CBB), the NIS, and growing arrears.
The financial sector remains stable while commercial bank liquidity continues to rise. Private sector credit growth turned modestly positive in 2015, following two years of decline while NPLs declined further. Withdrawal of Correspondent Banking Relationships has directly affected a small number of entities in the International Business and Financial Services (IBFS) sector, whose growth has stagnated since the global financial crisis. Monetary policy has been driven by fiscal considerations, as the CBB continued to fund the government through money creation and with commercial banks’ excess reserves. Interest rates have begun to rise, with reduced direct intervention by the central bank in the Treasury Bill auctions.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm