Barbados Government Commits to Tighter Spending Controls, Aims for High Primary Surplus: IMF Report

Government has committed to keeping a tighter lid on its spending, including in relation to wages and salaries, this financial year.

This is in line with a plan to achieve a primary balance (surplus) in excess of the higher than expected one achieved in 2023/2024.

The objective is stated in the International Monetary Fund’s (IMF) new country report for Barbados, which includes a June 11 letter of intent from Prime Minister Mia Amor Mottley to IMF managing director Kristalina Georgieva.

The Central Bank of Barbados said in its first quarter economic review that Government “achieved its primary surplus target of $481.4 million, equivalent to 3.7 per cent of GDP (gross domestic product)” last financial year, while in the new report the IMF records the figure at $477 million (3.7 per cent of GDP).

The Fund said this was in excess of the economic reform programme target of $446 million (3.4 per cent of GDP).

Under its Extended Fund Facility with the IMF, Government has committed to reaching a higher primary balance – the difference between its revenue and its non-interest expenditure – of four per cent, which is about $558 million, by the end of March next year.

The Prime Minister’s letter of intent confirmed this, stating that Barbados “will continue to maintain prudent controls over current spending, consistent with our annual primary surplus target of four per cent of GDP”.

Speaking on the issue in the country report, the IMF staff said: “Revenue projections are more conservative than at the time of the second [IMF programme] review, reflecting lower collections in fiscal year 2023/24 but mostly higher uncertainty about the revenue gains from the recent corporate income tax reform, given delayed adoption of the OECD/G20 framework in key partner jurisdictions.

“As a result, consolidation is expected to be more expenditure-driven, including through additional restraint on wages and transfers, as well as lower-than-previously envisaged capital spending.

“Nevertheless, the baseline incorporates a further increase in critical social spending to maintain the value of support in real terms, consistent with the programme floor, and a rise in capital spending to over three per cent of GDP,” the IMF added.

The IMF team also said that the overall fiscal balance “is projected to improve, albeit less than envisaged at the time of the second review due to the faster-than-expected pass-through of rising global rates to interest payments on variable rate external debt”.

The IMF report said that “further increases in the primary surplus, while safeguarding social and capital investment, will improve debt sustainability and secure stronger, more inclusive, and resilient growth”.

“The primary surplus is programmed to increase to 4.5 per cent of GDP in fiscal year 2025/26 and remain at this level over the medium term, supported by savings from [state-owned enterprises] reforms and prudent expenditure management,” the staff report said.

“Any additional revenue gains from the [corporate income tax] reform should be used for critical social and capital spending.”

The report said additional fiscal measures could also be considered “to increase fiscal space for critical/priority investment, or as contingencies in the event downside risks materialise”.

These included “broadening the tax base, including through revamping the value added tax regime for the tourism sector, reforming the property tax regime, and/or further streamlining current expenditures.

“Maintaining a strong fiscal position, while ensuring more efficient public spending and raising social and investment spending, will help promote a virtuous cycle of declining debt and sovereign risk, and stronger, more inclusive and resilient growth.”