Barbados' newly-elected Prime Minister Mia Mottley announced Friday that she would meet with the International Monetary Fund (IMF) this coming week as part of an "emergency plan" to tackle the country's massive debt.
The IMF's managing director, Christine Lagarde, confirmed the talks, saying “as announced by Prime Minister Mottley earlier today, the Barbados economy has been going through significant challenges for some years. The authorities are developing an economic reform plan designed to address these challenges, and they have asked the international community and the International Monetary Fund to assist them as they put the economy back on a path to recovery.”
She went say: “an IMF team led by Bert van Selm will be visiting Bridgetown to start discussions on how the Fund can support the authorities’ economic plan. Our ultimate goal is to help Barbados achieve higher living standards and more inclusive growth for the years ahead.”
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 between on June 5 and 18. The critically-low levels represents the equivalent to seven weeks' worth of export cover, according to the Nation News. Financial experts generally adverse 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.”
Barbados' former Central Bank Governor, Delisle Worrell, had always warned given the country's economic crises a move to seek budgetary assistance from the IMF would be necessary at some point.
"The Central Bank's foreign reserves continue to be in freefall, with the failure of the government's corrective strategy," Worrell said. "The current costs of government operations exceeded revenues by US$144 million between April and December last year, and Central Bank's lending to the public sector increased by US$186 million during the year."
"Unless this gap is closed, foreign reserves (Forex) will be exhausted, and the government will lose control of the exchange rate," he said.
Barbados' former Prime Minister Owen Arthur also cautioned that regardless of which political party emerged victorious during the May 24 general elections, stringent policies will have to be implemented to resuscitate Barbados' ailing economy.
"There are fundamental issues concerning the economy that Barbados has to address: I do not think that people quite appreciate what is the importance of the last report of the governor of the Central Bank," Arthur explained
He noted that Canadian firms based in Barbados paid one percent taxes "and remitted their profits and dividends to Canada without having to pay taxes on those dividends."
"Reserves hardly increased… the public finances are still in a state of distress… the government of Barbados owes the National Insurance about US$200 million which it cannot pay; it owes the public large sums of money, and there is no immediate solution for our economy."