The ex­ec­u­tive board of the In­ter­na­tion­al Mon­e­tary Fund has not­ed the in­con­sis­ten­cy of Bar­ba­dos main­tain­ing a sta­ble ex­change rate and fi­nanc­ing its fis­cal deficit by bor­row­ing from the is­land's cen­tral bank.

In a state­ment last week at the con­clu­sion of the in­sti­tu­tion's Ar­ti­cle IV con­sul­ta­tion with the Bar­ba­dos au­thor­i­ties, the IMF said: "Di­rec­tors em­pha­sised that the con­tin­ued fi­nanc­ing of the fis­cal deficit by the Cen­tral Bank of Bar­ba­dos is in­con­sis­tent with main­te­nance of the ex­change rate an­chor. They en­cour­aged the Cen­tral Bank of Bar­ba­dos to al­low do­mes­tic in­ter­est rates to rise in line with in­creas­es in US in­ter­est rates and en­sure ad­e­quate in­ter­na­tion­al re­serve buffers."

The IMF said that mon­e­tary pol­i­cy in Bar­ba­dos "has been dri­ven by fis­cal con­sid­er­a­tions, as the Cen­tral Bank of Bar­ba­dos con­tin­ued to fund the gov­ern­ment through mon­ey cre­ation and with com­mer­cial banks' ex­cess re­serves. In­ter­est rates have be­gun to rise, with re­duced di­rect in­ter­ven­tion by the cen­tral bank in the Trea­sury Bill auc­tions."

The IMF's ex­ec­u­tive di­rec­tors said they wel­comed the fact that Bar­ba­dos has ex­pe­ri­enced a pick­up in eco­nom­ic growth led by the tourism sec­tor and the im­prove­ment in the ex­ter­nal po­si­tion.

The in­sti­tu­tion said re­al GDP grew by 0.8 per cent in 2015, un­der­pinned by an in­crease in pri­vate in­vest­ment and surge in tourism ar­rivals, which in­creased by 14 per cent, among the high­est in the Caribbean.

The im­prove­ment in the is­land's tourism sec­tor boost­ed em­ploy­ment by 2 per cent, while the un­em­ploy­ment rate fell to 11.3 per cent. In­fla­tion eased ow­ing to low­er im­port prices, with end-pe­ri­od prices falling by 2.5 per cent, com­pared with an in­crease of 2.3 per cent in 2014.

The ex­ter­nal cur­rent ac­count po­si­tion im­proved sig­nif­i­cant­ly, re­flect­ing im­proved terms of trade, as the deficit nar­rowed from 9.9 per cent of GDP in 2014 to 6.7 per cent in 2015, pri­mar­i­ly re­flect­ing low­er oil and oth­er prices.

Ex­ports of goods and ser­vices rose main­ly due to high­er tourism re­ceipts. Net in­flows in the cap­i­tal and fi­nan­cial ac­count fell, dri­ven by large of­fi­cial amor­ti­za­tion pay­ments and low­er FDI. As a re­sult, net in­ter­na­tion­al re­serves dropped to US$469 mil­lion at end-April 2016 (2.8 months of im­ports).

But while wel­com­ing the re­turn of eco­nom­ic growth, at the same time the IMF not­ed that the large fis­cal deficit and a fur­ther in­crease in pub­lic debt re­main a chal­lenge, notwith­stand­ing the au­thor­i­ties' con­sol­i­da­tion ef­forts.

"They stressed that con­tin­ued fis­cal ad­just­ment and pub­lic sec­tor re­forms are nec­es­sary to bring pub­lic debt on a down­ward path, pre­serve ex­ter­nal sus­tain­abil­i­ty, and im­prove in­vestor sen­ti­ment. They al­so un­der­scored the need to elim­i­nate im­ped­i­ments to stronger long?term growth and bol­ster com­pet­i­tive­ness."

The IMF said that more ef­forts are need­ed to put the is­land's "high and grow­ing pub­lic debt on a sus­tain­able path, while min­i­miz­ing the neg­a­tive im­pact on growth and pre­serv­ing so­cial co­he­sion."

The di­rec­tors al­so agreed that a com­pre­hen­sive growth strat­e­gy is need­ed to lift the coun­try's long?term com­pet­i­tive­ness in the key tourism sec­tors and that pri­or­i­ties for rais­ing growth in­clude time­ly im­ple­men­ta­tion of tourism in­vest­ment and in­fra­struc­ture projects, im­prov­ing pub­lic ser­vice ef­fi­cien­cy and stream­lin­ing busi­ness reg­u­la­tion, in­creas­ing la­bor mar­ket flex­i­bil­i­ty, and un­lock­ing agri­cul­ture's growth po­ten­tial.

The ex­ec­u­tive di­rec­tors of the in­sti­tu­tion said the new fis­cal mea­sures out­lined in Bar­ba­dos' Au­gust 2016 bud­get, in­clud­ing re­duc­tions in cur­rent ex­pen­di­ture and new rev­enue mea­sures, were wel­comed. But they cau­tioned that a fur­ther in­crease in tax ex­emp­tions could erode rev­enues.

Ac­cord­ing to the IMF: "Di­rec­tors un­der­scored the im­por­tance of com­plet­ing the re­form of the rev­enue au­thor­i­ty to im­prove tax ad­min­is­tra­tion and in­crease com­pli­ance. They stressed that stronger ef­forts are al­so need­ed to re­form state?owned en­ter­pris­es through bet­ter gov­er­nance, con­sid­er­a­tion of user fees, and po­ten­tial di­vest­ment and con­sol­i­da­tion of pub­lic en­ti­ties. They al­so called for swift ac­tion to elim­i­nate gov­ern­ment ar­rears."

The IMF's ex­ec­u­tive board said it "wel­comed the re­cent im­prove­ment in the non?per­form­ing loan ra­tio and banks' liq­uid and well?cap­i­tal­ized bal­ance sheets. They en­cour­aged con­tin­ued close su­per­vi­sion of the fi­nan­cial sec­tor, par­tic­u­lar­ly of non?bank in­sti­tu­tions, in­clud­ing cred­it unions and in­sur­ance com­pa­nies.

"Di­rec­tors not­ed that do­mes­tic banks have not ex­pe­ri­enced a de­cline in cor­re­spon­dent bank­ing re­la­tion­ships and wel­comed the au­thor­i­ties' ef­forts with re­gion­al part­ners to un­der­stand the is­sue. They rec­om­mend­ed tak­ing quick ac­tion on any short­com­ings that might be iden­ti­fied by the up­com­ing AML/CFT eval­u­a­tion.be