IMF: Cut back
International Money Fund’s Mission Chief for Barbados, Marcello Estevão (FP)
BARBADOS’ ECONOMIC OUTLOOK is quite uncertain, an International Monetary Fund (IMF) official has reported after a special visit here.
And the Government needs to reduce spending immediately.
Marcello Estevão, IMF mission chief for Barbados, made those comments following a recent five-day staff visit.
But according to the IMF official, Government’s recent mid-term strategy proposal is most welcome.
“While economic activity in Barbados will improve as the world economy gradually expands, the recovery’s timing is quite uncertain,” the mission chief said. “In particular, significant improvements in labour market conditions in major developed countries will likely lag the rebound in economic activity and curb international travel,” he added.
Estevão also said the high level of public debt limited the room for further Government spending.
“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,” Estevão noted.
“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,” Estevão concluded.
Estevão noted that Barbados had been severely affected by the global economic crisis, as the deep global recession had curbed tourism, affected 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 the year before.
“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,” the IMF official said.
“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 per cent of GDP.” (BA/PR) (Nation News)