Barbados will fire 3,000 public sector workers by March and freeze wages as the eastern Caribbean island’s debt burden soars and the International Monetary Fund says “urgent adjustments” are needed.
Barbados’s ratio of debt to gross domestic product reached 94 percent in September, the IMF said today, more than the 93 percent that forced Cyprus to seek a European Union-brokered bailout in March. Finance Minister Chris Sinckler told lawmakers yesterday that the government risks “further hemorrhaging” of its reserves and the local currency’s peg to the dollar if nothing is done.
“Weak exports and tourism arrivals, slow growth and expansive fiscal policy have led to a sharp increase in public debt and fiscal financing pressures,” the IMF said in a statement after a 10-day visit to the island of 288,000 people.
Barbados’s financial struggles are mirrored across much of the Caribbean, which has seen eight debt defaults since 2003 in six countries, including Jamaica, Belize, Grenada, Dominica and St. Kitts & Nevis. Barbados’s $3.7 billion economy will shrink 0.7 percent this year while Caribbean economies expand 1.3 percent, half the rate of Latin America, according to the United Nations.
The 7.57 percent yield on Barbados’s 2019 bonds are up from about 6.5 percent a year ago. The country’s dollar bonds have lost 1.2 percent this year, less than the 3.8 percent for Caribbean dollar bonds and 6.9 percent for emerging market debt, according to JPMorgan Chase & Co. indexes.
Standard & Poor’s last month lowered its rating on the island to BB- from BB+, citing external financing challenges and a high fiscal deficit. The change put the country known for its tourism and rum three levels below investment grade and in the same category as Jordan and Vietnam.
International reserves tumbled to below 900 million Barbados dollars ($450 million) in October from 1.1 billion at the start of last year, according to Sinckler and central bank data. Total tax revenue from the April to October period was down 11 percent from the same period a year earlier, Sinckler said, according to a transcript provided by the government.
The government in August announced a plan to target 3 percent annual economic growth, reduce the fiscal deficit below 2 percent by 2020 and boost reserves. That program needs to be accelerated, Sinckler said yesterday. The IMF said the government should aim to cut debt-to-GDP to below 85 percent by 2018.
“The continued depressed international demand for our goods and services for such a such prolonged period has continued to take a heavy toll,” Sinckler said. “But having tried our utmost over the past five years to avoid this road, the exigencies of the negative impact of the world’s worst recession have dictated that we cannot continue on the course which we have been pursuing.”