Statement by an IMF Mission to Barbados

Marcello Estevão, the new International Monetary Fund mission chief for Barbados, following a five day familiarisation visit, issued the following statement today in Bridgetown, following a five-day staff visit (see link).

Press Release No. 10/66
February 26, 2010

Marcello Estevão, chief of an International Monetary Fund Mission to Barbados, issued the following statement today in Bridgetown, following a five-day staff visit:

“Barbados has been severely affected by the global economic crisis. In particular, the deep global recession has curbed tourism, affecting related activities such as construction and trade which, in turn, depressed aggregate demand and raised unemployment. As a result, economic activity contracted significantly in 2009 after remaining broadly stagnant in 2008.

“Despite these hardships, policy moves and other developments have limited the adverse effects of the crisis. International reserves are at comfortable levels, among other things thanks to a successful foreign debt placement last year and the SDR allocation. In addition, authorities implemented measures to alleviate the impact of the crisis on the population. However, as a result of these measures and, more importantly, of the economic cycle, the fiscal deficit surged, and the public debt now stands above 100 percent of GDP.

“Looking forward, while economic activity in Barbados will improve as the world economy gradually expands, the recovery’s timing is quite uncertain. In particular, significant improvements in labor market conditions in major developed countries will likely lag the rebound in economic activity and curb international travel. Despite this uncertain outlook, the high level of public debt limits the room for further government spending. Moreover, the high degree of openness of the Barbadian economy limits the impact of changes in government spending on domestic economic activity.

“Against this backdrop, fiscal consolidation seems to be the appropriate strategy. Reducing government spending, increasing tax collection efficiency, and broadening the tax base would support the exchange rate regime and improve the government’s balance sheet. Moreover, credible and sustainable measures can actually raise medium-term growth, as better debt dynamics and lower pressure on external reserves would raise the private sector’s willingness to invest in Barbados. Thus, the authorities’ intention to push forward a medium-term fiscal consolidation strategy is very welcome.”