The International Monetary Fund (IMF) is singing the same tune about Barbados’ debt, which increased to $14.9 billion at the end of September, maintaining that it is sustainable but faced with high uncertainties.
Speaking in November during a joint press conference with Minister in the Ministry of Finance Ryan Straughn, IMF mission chief for Barbados Michael Perks, said that the IMF staff assessment of Barbados’ debt was that “it is still sustainable and on track to meet the 2035 60 per cent of GDP target”.
“We are very positive and underpinning the debt trajectory obviously its growth, but it’s also the fiscal performance and on both those fronts we are having positive recent developments,” he added.
This assessment is confirmed by the latest IMF debt sustainability analysis, an evaluation which is mandatory for countries in arrangements with the international financial institution.
“Barbados’ public debt is assessed to be sustainable, and overall risk of sovereign stress is assessed to be moderate, consistent with the medium-term mechanical signals of the Fund’s Sovereign Risk and Debt Sustainability Framework (SRDSF),” the analysis concluded.
“While the fanchart tool indicates high risk, due to Barbados’ history of high macroeconomic volatility, public debt is on a clear downward trend, reflecting the authorities’ strong commitment to maintaining large fiscal surpluses, and the gross financing needs financeability tool indicates moderate risk.”
It continued: “Under the current baseline, with a further improvement in primary surpluses and medium-term annual real gross domestic product (GDP) growth of two per cent, supported by structural reforms, the 60 per cent-of-GDP debt anchor is projected to be reached by fiscal year 2035/36, with increased buffers relative to the third review, due to the recent upward revisions to GDP statistics and the retirement of [US$77.6 million in] Eurobonds that the government repurchased in 2022.”
The IMF staff also said that “domestic risks related to maintaining high primary surpluses over an extended period persist but have declined somewhat, given the authorities’ sustained strong fiscal performance”.
They added: “Nevertheless, risks arising from slower-than-expected growth, for example, in the event of external and climate-related shocks remain. These risks are mitigated by Barbados’ strong track record under the Extended Fund Facility-supported programmes and a favourable debt service schedule.
“Moreover, the debt-for-climate conversion, once implemented, is expected to generate additional debt service savings, further improving the debt path.”
The IMF analysis noted that the rebasing of GDP statistics in July 2024 led to an upward revision in nominal GDP and reduced the public debt-to-GDP ratio, although underlying debt-carrying capacity remains unchanged.
It said nominal GDP for fiscal 2023/24 was revised upward by about five per cent, leading to a reduction in the public debt-to-GDP ratio for end-fiscal year 2023/24 by around six percentage points of GDP to around 111 per cent of GDP.
“The increase in GDP, however, also reduced the revenue-to-GDP ratio, primary-surplus-to-GDP ratio, and exports-to-GDP ratio. Importantly, Barbados’ capacity to repay – measured by the debt service-to-revenue ratio or debt service-to-exports ratio – is unaltered,” the analysis stated.
The assessment pointed out that Barbados’ public debt-to-GDP ratio “has been on a decisively declining path following the increase experienced during the COVID-19 pandemic”.
“Public debt continued to decline in fiscal year 2024/25 to below 105 per cent of GDP at end quarter two fiscal year 2024/25, from 111 per cent of GDP at end-fiscal year 2023/24 and the peak of 138.2 per cent in FY2020/21, driven by the economic recovery and progress in strengthening the fiscal position,” it said.
The IMF report also stated that while Barbados’ projected five-year debt reduction under the baseline scenario is relatively ambitious by a cross-country comparison, “the reduction is less ambitious than Barbados’ own experience and considered feasible given the authorities’ strong commitment to fiscal discipline and structural reforms”.
The IMF team observed that Government’s gross financing needs “are expected to be met with loans from international financial institutions (IFIs) and increased domestic borrowing in the near term”.
“The short-term profile of the public debt service poses limited a risks, reflecting an improving primary balance, the favourable repayment schedule resulting from the 2018-19 debt restructuring, long-term borrowing from IFIs during the pandemic years, higher cash buffers, and the expected development of domestic capital markets,” the report explained.
“Short-term debt held by commercial banks is automatically rolled over based on the 2018-19 agreement, with remaining near-term financing needs met through agreement, with remaining near-term financing needs met through IFI financing, domestic borrowing, and drawdown of government deposits.
“Local banks and other domestic investors have gradually increased their purchases under the BOSS programmes, and the government has restarted issuance of treasury bills, with the stock of issuances since September 2023 standing at about $184 million (1.3 per cent of GDP) by end-September 2024.”
The IMF debt sustainability analysis looked at the country’s debt in the medium and long term and concluded that there was moderate risk of debt stress in those periods.
Using macroeconomic data to, a debt fan chart assesses debt sustainability. The IMF report said in relation to the medium term that the debt fan chart index “indicates a high risk due to the high historical volatility of key economic indicators, which increases the width of the fan chart”.
“The gross financing needs financeability index points to a moderate risk with a declining path. The baseline debt trajectory and the fan chart are on a downward trend, and the probability of debt not stabilising is assessed to be rather limited (around eight per cent),” the analysis outlined.
“Under a natural disaster stress test, which captures country-specific vulnerabilities using a default shock of 4.5 per cent of GDP, the debt path remains below the 75th percentile, consistent with the “moderate” mechanical signal”.
Regarding the long term, the IMF staff said that “the large debt amortisations module shows a gradual decline in gross financing needs and debt relative to GDP”.
The report elaborated: “Climate-related expenditure remains manageable and would not significantly affect debt sustainability in the long run, even under the customised scenario where expenditure is assumed to be one per cent of GDP higher than the baseline, to cover preliminary estimates of adaptation and mitigation investment needs.
“The current health care expenditure policies would also not pose significant sustainability concerns. Moreover, the recent implementation of the pension reforms is expected to make the National Insurance Scheme financially sustainable for 25 to 30 years, mitigating any risks of additional financing needs from the budget.”
