Financial Experts, economists, and officials from the International Monetary Fund (IMF) have described Barbados' economy as being in a precarious economic situation after a delegation from the IMF visited the Caribbean country this week.
With international reserves having dwindled to USD$220 million and unsustainable central government debt, Bert van Selm, head of the IMF delegation, said that “Barbadian authorities, in close consultation with their social partners, are rapidly developing a plan to address current economic vulnerabilities.
“We welcome the government's plans to urgently address infrastructure problems, and its goal of seeking to support the most vulnerable during the economic adjustment process," he said.
At the end of his three-day visit, which ended Friday, van Selm pointed out that Barbados' fiscal deficit had decreased over the last few years, however, it remains large at about four percent of the gross domestic product, or GDP, in the fiscal year 2017/2018, according to the Jamaica Observer.
Barbados currently has the fourth-highest debt-to-GDP ratio in the world after Japan, Greece, and Sudan with the country’s figure standing at 175 percent. Based on this fact the IMF delegation also discussed the possibility of providing financial support for the government's economic plan.
“At this juncture, the IMF's recommendations contained in the 2017 Article IV Consultation remain highly relevant to rebuild confidence and address Barbados' current challenges,” van Selm said.
He went on to note that significant fiscal consolidation is required in order to place debt on a clear downward trajectory while coinciding with the proposed debt restructuring, as well as the payment risks, have put the country's future in jeopardy.
“Fiscal consolidation will also help to reduce financing needs, in conjunction with the proposed debt restructuring. It will be important for the CBB (Central Bank of Barbados) to limit financing of the government budget given that such practice is not consistent with Barbados' exchange rate peg; the large monetary financing over the last few years has contributed to the decline in international reserves.”
Barbados' newly-elected Prime Minister Mia Mottley announced on June 1 that she would meet with the International Monetary Fund (IMF) as part of an "emergency plan" to tackle the country's massive debt.
Recent talks between the Central Bank of Barbados and the new government revealed that the gross international reserves amounted to US$220 million as of May 31, 2018, with a series of foreign debt payments totaling to US$50 million due by June 18. The critically-low levels represent the equivalent to seven weeks' worth of export cover, according to the Nation News. Financial experts generally advise that countries such as Barbados should have no lower than 12 weeks of import cover.
Mottley also announced that the country would temporarily suspend payments due to external commercial creditors, according to the Barbados Advocate. She said that the previous administration, under Prime Minister Freundel Stuart, left almost US$7.5 billion in debt.
"We will protect the most vulnerable, but we will all have to make sacrifices for our country. Today we move forward together in a new spirit of openness and with a new covenant of hope and opportunity. I ask our domestic and external creditors to accompany us on this journey of rescue, rebuilding, and transformation,” Mottley said.
"When the last Administration took over they inherited a debt of about $6 billion (US$3 billion). They complained that it was too high. Yet they have left us with a debt level, when arrears are added, of over $15 billion (US$7.5 billion). Public debt as a proportion of our national income is being regarded as high as 171% of GDP – the third highest in the entire world," she explained.
“We are members of the International Monetary Fund, and last night I called Madame Lagarde, its managing director. I briefed her on the present state of the public finances, the current debt, and reserve positions, and assured her that we are committed to taking decisive action to rebuild Barbados. In turn, Madame Lagarde assured me that the IMF stands ready to lend Barbados the necessary assistance and support to these actions.”