Barbados looks to IMF for economic solace
Bert Wilkinson | 7/19/2018, 11:16 a.m.
It’s been almost two full months since the Barbados Labor Party of Prime Minister Mia Mottley destroyed all previous political records by winning all of the island’s 30 parliamentary seats and running the country without an elected opposition, but the cabinet has vowed to help lift the economy from perhaps its worst state since independence in 1966.
Various administrations on the island of approximately 300,000 have been reluctant to sign up for bitter austerity programs with the International Monetary Fund. Such programs are usually unpopular because they often demand drastic public service employment cuts, a devaluation of the dollar, interest rate hikes and wage freezes, among others changes.
But since winning the May 24 general elections, authorities have, in fact, rushed to call in the IMF to help turn around a country whose foreign exchange reserves are at their lowest in decades, as unemployment is rising, as gun crimes are on the increase and as the major sectors underperform.
The debt ratio is 137 percent of the gross domestic product and said to be the fourth highest, or worst, after Japan, Greece and Sudan.
At $220 million, foreign reserves in the central bank are equivalent to less than four months of imports and down from $275 million a year ago.
“Barbados must never reach this point again,” the prime minister said as an IMF team left the island after a 10-day mission. “Where we are is unfortunate. The fact that we have had to suspend debt payments. We have been operating on fumes.”
The most easterly of all Caribbean islands, Barbados used to be the envy of its Caribbean Community neighbors, with a per capita income of more than $20,000, a once thriving offshore financial sector, a raw sugar exporter to the European Union and the U.S. and a buoyant tourism sector.
But the finance and sugar sectors have so badly tanked that they have left a gaping hole in the economy.
“Barbados is in a precarious economic situation,” the IMF report said. “International reserves have dwindled to US$220 million, while central government debt is unsustainable. The fiscal deficit has decreased over the last few years but remains large, at about 4 percent of GDP. Meanwhile, the central bank is reporting a contraction of output of 0.7 percent in the first quarter of 2018 (over the same period last year).”
Voters were so angry with the previous Democratic Labor Party government that they handed the BLP every single seat and left governance completely in the hands of the BLP with no elected opposition for the first time in living memory. Authorities are mulling amendments to the Constitution to ensure there must always be elected opposition representatives, while preparing islanders for very tough economic times in the medium term.
“Substantial fiscal consolidation is needed to place debt on a clear downward trajectory in conjunction with the proposed debt restructuring, and to address balance of payments risks that cloud the country’s future,” the IMF report noted. “Since tax and revenues are relatively high, the adjustment effort should focus on the expenditure side, including by improving the efficiency and effectiveness of public services, containing wages and reforming government pensions.”
Until approximately a decade ago, nationals from the nearby Eastern Caribbean nations of Guyana, Trinidad and Jamaica had flocked to Barbados seeking work, but there has been a steady decline in this area because of the economic depression of recent years.