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Barbados Making Strides On Debt Reduction

by Amanda Banks,, London

09 December 2011

The International Monetary Fund has welcomed fiscal reforms put in place this year, which have begun to address Barbados's severe indebtedness following the economic crisis.

Having missed its budget targets in the fiscal year 2010/11, posting a deficit of 8.5% of gross domestic product, up from 8.2% in FY2009/10, the government's fiscal consolidation efforts for the first half of 2011/12 appear to be on track, according to the Fund.

The IMF noted that fiscal policy to tackle rising expenditures and revenue weakness, particularly in corporate tax receipts, experienced last year, will enable the territory to achieve its overall central government deficit target of 5.1% of GDP.

With anaemic growth in 2010 of 0.2%, and growth of 1% in 2011, the Fund has recommended that the government look to implement policies to address public finances while cushioning the impact of the crisis. The report noted that the main challenge for Barbados is the need to undertake credible fiscal consolidation without jeopardizing the fragile recovery and social cohesion.

The IMF Board commended the authorities for adopting a revised Medium-Term Fiscal Strategy aimed at generating a balanced budget and reducing the high public debt-to-GDP ratio. According to the fund, going forward fiscal policy should focus on expenditure reduction, including lowering the public sector wage bill, and minimizing tax exemptions.

The government was urged to consider policies to enhance revenue, including by broadening the tax base and making permanent the temporary hike to the value-added tax rate to 17.5% from 15%. In view of uncertainties in the global and domestic environment, said to heavily impact Barbados, the Board encouraged the authorities to develop contingency plans to ensure achievement of the fiscal targets.

On the country as an international financial centre, the IMF reported that the banking system is stable and healthy. Nonetheless, the recent increase in non-performing loans, coupled with low loan-loss provisioning, requires close monitoring and improved risk management, the board advised.

They welcomed the consolidation of supervision of the non-bank financial sector under the newly operational Financial Services Commission, and recommended strengthening its supervisory capacity.

Concluding, the IMF welcomed the relatively good business environment in Barbados but emphasized the need to address the structural impediments to growth and improved competitiveness; and noted there is scope for raising the efficiency of government services and reducing the bureaucratic burden on the private sector.

TAGS: tax | fiscal policy | public sector | banking | international financial centres (IFC) | budget | offshore | Barbados

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