Barbados seen needing IMF help amid no growth, high debt

By added on 15/10/2014

Barbados business leaders and economists say the Caribbean island should seek an accord with the International Monetary Fund as the government struggles to spur an economy with one of the world’s heaviest debt burdens, reports Bloomberg.

Efforts by the government to trim the public sector by firing 3,000 workers and reining in spending failed to spark growth in the first half of the year in a country with a debt load equal to 96 per cent of gross domestic product. That prompted the Barbados Chamber of Commerce to say the government should consider talks with the IMF.

“We have all the costs of an IMF program already, without the benefits of a loan or stand-by agreement to provide financing for any temporary shortfalls,” said Avinash Persaud, a Barbados-born economist and chairman of London-based investment bank Elara Capital.

Barbados’s government is using more than 15 per cent of tax revenue to pay interest on its debt, Standard & Poor’s said in a July report in which it predicted no growth for the US$4.2 billion economy. While local banks have cash to lend, there is a reluctance on the part of investors that is stifling growth, said Persaud.

“The absence of a long-term growth plan that has the confidence of business is part of the short-term problem as businesses seek to hoard foreign exchange and delay investment,” Persaud said.

Finance Minister Chris Sinckler declined to comment when contacted by Bloomberg News.

Debt Profile

Yields on Barbados’s 2022 dollar bonds have tumbled to about 8.2 percent this month after spiking to nearly 10 percent in February, when the IMF said the country’s debt burden posed a “significant” risk to the economy. The yield rose 3 basis points to 8.26 percent at 10:06 a.m. New York time.

Most of Barbados’s debt is local, and the amortization profile of its external debt is “manageable and relatively smooth over next two years,” according to Richard Francis, a Caribbean analyst with Standard & Poor’s. The company rates Barbados BB-, three levels below investment grade and in the same category as Nigeria and Jordan.

Lisa Gale, executive director of the Chamber of Commerce, said it would be better to start talks on an IMF plan now rather than wait for things possibly to worsen. She added that she doesn’t believe the country of 280,000 people needs a bailout from the Washington-based lender.

“We’re not necessarily saying ‘go to the IMF,’ but look at it,” Gale said in an Oct. 6 phone interview. “Now is the time for discussion.”