IMF supports job and pay cuts in Barbados
The International Monetary Fund (IMF) has endorsed the decision by the Barbados government to sever 3,000 public servants and implement wage cuts next year.
An IMF team headed by Nicole Laframboise met with government officials, opposition legislators and representatives from the private sector, trade unions and academia as it conducted its 2013 Article IV consultation this week.
A statement issued at the end of the review on Friday noted that Barbados’ wage bill rose to 10.3 percent of Gross Domestic Product (GDP), the highest in the region.
“Staff takes note of the government’s decision to reduce the civil service up front. This will lower spending and send a strong signal about policy commitment, though these workers should have access to unemployment support and programs for re-employment.
“Alternatively, downsizing by attrition and implementing a wage formula that freezes the average wage per worker would also reduce the wage bill significantly over time and would contribute to lowering economy-wide labour costs.”
The IMF mission noted that the Barbados economy continues to face considerable economic challenges and it stressed the need for urgent policy adjustments and deeper reforms over an extended period to restore fiscal and external sustainability.
The financial experts reported that weak exports, low tourist arrivals and slow growth, among other factors, have led to a sharp increase in public debt and they projected that real output is expected to fall by 0.7 percent this year.
“In the external sector, tourism receipts have remained flat and the current account deficit is projected to widen to 11.4 percent of GDP this year. Together with a sharp drop in private capital inflows in 2013, international reserves have fallen this year to US$468 million at end-October.”
“In this environment, the fiscal position has come under increasing strain. The central government deficit is expected to rise to 9.5 percent of GDP in 2013/14 and central government debt had risen to 94 percent of GDP by September 2013.”
The IMF mission stated that while spending cuts outlined in the August budget are broadly on track, tax revenues have been falling short of projections and it recommended an overhaul of the tax system.
The IMF further urged Barbadian authorities to improve the targeting of social spending and lower costs to ensure that Barbados retains its high standards of equity and social protection.
It pointed out that there is some duplication across ministries and some social programs, such as childcare and housing, are not well targeted and may be benefiting middle and higher income groups at the expense of the most needy.