A team from the International Monetary Fund (IMF) led by Ms. Nicole Laframboise visited Barbados during June 2-6, 2014 to review recent economic developments and discuss the main policy priorities. Staff met with Minister of Finance Christopher Sinckler, Governor of the Central Bank of Barbados DeLisle Worrell, other government officials, and representatives from labour and the private sector. Ms Laframboise issued the following statement at the end of the visit today:

“The Barbadian economy continues to face major challenges, including low growth, a very large fiscal deficit and a high debt burden. Real GDP is expected to decline by 0.6 percent this year, as slightly stronger tourism activity is offset by the impact of the government’s deficit reduction efforts. Inflation is expected to remain subdued and private sector credit growth weak. The unemployment rate rose to 13.2 percent in the fourth quarter of 2013.

“The decline in international reserves through most of 2013 was arrested in the first quarter with external borrowing in the December 2013–March 2014 period, and reserves have remained at about US$570 million (3.3 months worth of imports) since.

“Discussions focused on recent developments, progress with announced fiscal measures, and the near-term outlook. The central government deficit in the fiscal year 2013/14 is estimated at 12 percent of GDP, higher than projected owing mostly to unbudgeted transfers to public enterprises, including to reduce arrears. Central government gross debt, excluding securities held by the National Insurance Scheme, rose to 96 percent of GDP at March 2014.

“The need for fiscal consolidation is urgent. The authorities agree and have implemented most of their announced budget measures. Follow up is essential to ensure that these measures produce material results in the near term to lower the government’s financing needs. Slippages should be met with offsetting actions in order to meet budget targets.

“Strengthened oversight and fundamental reform of the public enterprises are key priorities in the near term. IMF staff welcomes progress in this area and the government’s intention to significantly strengthen the monitoring and control of public enterprises, including through a high-level independent oversight committee and increased resources for the accounting unit responsible for monitoring performance.

“While awaiting the findings of a review of domestic taxation by technical experts, consolidation efforts should also focus on the other components of expenditure, including ways to improve the targeting and effectiveness of social services. This should include scaling back some universal programs available to higher income groups to ensure that they reach the most needy.”

“In parallel with deficit reduction, steps to raise growth are equally important. A number of large private and public investment projects in the pipeline should boost capital inflows and productive capacity. Efforts will be needed though to remove administrative impediments to doing business and lower production costs in the country, including unit labour costs. This is important for strengthening competitiveness under the fixed exchange rate regime.”

“The banking system remains liquid and well capitalized, though bank profitability has declined since the prolonged recession. Staff welcomes the authorities’ commitment to implementing recommendations from the recent Financial Sector Assessment Update, including measures to enhance the supervision and regulation of non-bank financial institutions and off-shore banks, and to enhance the independence of the central bank.

“The team wishes to thank the authorities and representatives of the private sector and labour for their hospitality and the constructive and frank dialogue.”