By: Kimberly Ramkhalawan
September 30, 2022
Fresh from her high-level talks at the United Nation’s, Barbados Prime Minister is sticking to her guns in getting the financing she says her country needs if it is to build up its resistance against Climate change.
This as the country has agreed so access some US$293M through the IMF’s Resilience and Sustainability Trust Program. The funding while only at Staff Level Agreement, and yet to be signed off by IMF officials, will seek to build resilience to climate change with affordable long term financing at 150 percent of quota, equivalent to Special Drawing Rights of 141.75M (about US$183M) under the RST and an additional SDR 85.05M (about US$110M) under a 36-month arrangement facilitated through the Extended Fund Facility (EFF) with access to 90 percent of quota to maintain and strengthen macroeconomic stability in a more shock prone environment by enhancing fiscal sustainability, continuing and broadening implementation of the structural reform agenda.
According to Head of IMF mission Bert Van Selm, “the combined RST and EFF aims to strike a balance between enhancing resilience to climate change, while also focusing Barbados’ continued efforts to reduce public debt and facilitate capital expenditure to boost growth”.
The latest arrangement with the IMF comes on the heels of Barbados’ completing its most recent IMF restructuring programs. And while Prime Minister Mia Amor Mottley, was pleased to announced her nation had passed all of its structural benchmarks,
The Barbados PM says while these measures were not unique to her state alone, as she noted we lived in the same world in which 44-45 countries globally that are on the brink of debt crisis, where inflation pressures are literally putting people under serious duress.
She says the latest also comes even when Credit ratings company, Standard and Poor’s gave Barbados a stable outlook. The significance bears much for the small island developing state especially one emerging from an IMF program, during a period that was marred by triple crises inclusive of economic downturn globally due to a pandemic, is what she describes as “a statement of encouragement and confidence”. She says this statement “should be one to rest on its achievements, but one that gives us the encouragement that the direction in which we are moving is the right direction. What we do today is really to make an interpretation of the environment in which we are functioning and to determine that the best way to treat with this environment is to not only have to meet the outcast nature of the global economy and the occasion thunderstorms and hurricanes presented. The best way to meet those circumstances is to make sure we have a raincoat, an umbrella, boots and any other kind of equipment necessary to protect the 300, 000 odd souls that inhabit these 166 square miles”
The prime minister shared her nation was the third nation with highest debt per GDP prior to her administration taking over with US$17B in debt, and while many detractors might wish to speak of the current debt situation drawing reference to her partnership with the IDB and IMF, she says the figures have been reduced to US$13B within the last three years, bringing the debt to GDP ratio to 118 percent.
She says the pandemic which affected tourism to her island, allowed this percentage to rise to 144 percent regrettably, not so much because of what was borrowed, as this only increased it by five percent, but as a result of the contraction in the economy and a decline of 14 percent.
Mottley added that her government had taken a handful of steps to insulate and protect the Barbadian people from the detrimental fiscal effects of the pandemic as much as possible.
This supports the country’s climate change adaptation and mitigation efforts and support Barbados’s goal to transitioning to a fully renewable based economy by 2030. The reform measures are proposed at catalyzing financing from other financial institutions as well as from the private sector.
Reforms under the RSF would include climate change in the budget and enhancement of risk management including the financial sector, introduction of green public financial management including in procurement, and adoption of measures that would incentivize private sector investments including climate resilient infrastructure and into renewable energy projects. These measures are expected to be closely coordinated with the World Bank and other international partners. Executive board consideration for request for support under the RSF can take place once this instrument has become operational.
Speaking at the press conference, Van Selm, Barbados continues to face economic challenges owing to the pandemic and higher global commodity prices, but the recovery is now well on the way. Inflation has been rising since the second half of 2021, owing to supply chain disruptions and global food and oil prices fueled in 2022 by Russia’s war in Ukraine.
With a strengthening of tourism to about 60 percent to pre-pandemic norms, economic growth is projected at 10 percent in 2022 and gradual economic recovery is expected to in the medium term with downside risks to the outlook remain high.
Van Selm says, “despite this very challenging global environment, Barbados has made good progress in implementing its economic recovery and transformation plan” commonly known as ‘BERT’. He added that this was “supported by a 2018-22 EFF, major structural reforms have been implemented, including the introduction of a new Central Bank of Barbados law. Key elements of the new program would build on these achievements. In particular, the program targets a gradual and sustained increase in primary surpluses to accelerate the reduction in public debt, supported by structural reforms, such as the strengthening of tax and customs administration, reforms in Public Financial Management, the public pension system and state-owned enterprises, as well as growth and resilience-enhancing measures, including steps to improve the business climate”.
However, in defending the move, Mottley said her governance and well as the situations her administration faced, was not the same as when she served in the 1990s and 2000s, which required a different way of dealing with situations and handling debt. With Hurricane Fiona disrupting the country’s supply of natural gas from Puerto Rico and now awaiting the impact Hurricane Ian would have on supply from Florida, of which the region depends heavily upon for a seven-day shipment supply, Mottley says she was grateful to the IMF listening to the cry of middle-income countries that have become vulnerable to the climate crisis.
She added that “pauperization was an actual reality with many nations facing going back down the ladder if adaptation was not on the horizon”. However, the Barbados PM shared that financing was needed in way, that allowed budgetary allocations to also be placed in these areas as much as it was needed in areas such as education, youth training programs, and provision of health facilities.
However, it was her likening it to the average Bajan having to take a mortgage in order to build a house, as a means of defending her administration having to take a loan to build her nation’s resistance to climate change, and not just rather her “borrowing again”. She quoted the late Prime Minister Errol Barrow for the statement anyone who does not believe in deficit financing is anti-development and does not want the people of this country to develop” and carefully managed deficit financing is what is going to create the capacity, and the capacity in which we create, is what is going to give us the money to repay loans borrowed to build capacity”.
She explained while she understood “the need for domestic politics” she urged for the people “to be careful in believing some of the rhetoric because of what we are going to do is undermined country’s chance to complete the journey. And we cannot have come this far and want to put at risk our ability to complete the journey”.