Barbados Economic Recovery and Transformation Plan Monitoring Committee (“BERT MC”) Public Report #1 Formation and activities The BERT MC was constituted as an independent sub-committee of the Social Partnership with additional representation from the Domestic Barbados Creditors Group (“BCG”) and takes its terms of reference from a Memorandum of Understanding with the Government of Barbados (“GOB”) signed on December 14, 2018. The BERT MC is primarily responsible for monitoring the progress that the GOB is making in respect of its commitments and targets agreed in the Memorandum of Economic and Financial Policies (“MEFP”) agreed with the IMF within the Extended Arrangement under the Extended Fund Facility for Barbados (“EFF”). Since formation, the BERT MC has received reports from the GOB on its progress for each of the months of October through December 2018. This report coincides with the first set of targets under the EFF on which the BERT MC now comments. 1.
Quantitative Performance Criteria under the EFF
The quantitative performance criteria required to be met compared with the actual results achieved are outlined below: Performance Criteria (BDS$ millions) Fiscal targets: Floor on the CG Primary Balance Non-accumulation of CG external debt arrears Ceiling on CG Transfers and Grants to Public Institutions Ceiling on Public Debt1 Monetary targets: Ceiling on Net Domestic Assets of the CBB Floor on Net International Reserves1,2
End December 2018 Met Target Actual Yes/No 257 0 495
348 0 486
Yes Yes Yes
13,679
12,828
Yes
1,977 531
1,763 830
Yes Yes
Note 1 – Policy based loans received from the IDB and CDB were $350 million versus $300 million projected in the MEFP. As a result, the ceiling on public debt (initially $13,629) and the floor on net international reserves (initially $510) were increased by 100% and 75% of that $50 million excess, as required under the MEFP (Attachment II paragraph 12 and 19 on page 58.) Note 2 – Budget support grants were nil versus $17 million projected in the MEFP. As a result, the floor on net international reserves ($548 after the adjustment in note 1 above), was decreased by the shortfall in grants, as required under the MEFP (Attachment II paragraph 12 on page 58.)
Floor on Central Government Primary Balance The primary balance represents total revenues and grants less all expenditure excluding interest.
Although revenue collection was below the target, reductions in expenditure more than compensated, allowing for the primary balance minimum target to be exceeded. a. Revenue Collection Total revenue for the period April to December 2018 was $2,022 million versus a plan of $2,078 million. While exceeding the same period prior year total of $1,987 million by $35 million or 1.8%, the 2018 total revenue fell $56 million or 2.7% short of target. Direct tax revenue was $730 million versus $750 million targeted. While gross direct tax collections exceeded target, higher than planned refunds drove the aforementioned $20 million or 2.7% shortfall. At $1,176 million indirect tax revenue was $36 million or 3% less than the $1,212 million target, largely due of lower than expected VAT, excise tax and duties. b. Expenditure Control Total expenditure was $1,991 million which was $175 million or 8.1% below the budgeted level, and $362 million or 15.4% less than the prior year period. The savings compared to budget were spread across several expense categories with $46 million less spent on goods and services, $55 million less on interest, $38 million less on transfers and $25 million less on capital expenditure than originally planned. It should be noted that the saving on interest expense has no impact on the primary balance. Non-accumulation of Central Government external debt arrears Under this performance metric the central government may not incur new arrears in the payment of its external (foreign) debt obligations an any time during the program. It should be noted that the definition of new arrears excludes debt where a debt restructuring is being pursued. Ceiling on Central Government Transfers and Grants to Public Institutions This maximum transfer target applies to a list of 33 public institutions listed in the MEFP. To date transfers to these public institutions were $486 million versus the $495 million limit. Of note, is that for the two largest public institutions QEH and UWI, the transfers in the 9 months to December 2018 were only 41% and 50% respectively of their annual target allocation. The financing model of these two entities needs to be revised if the GOB is to contain the transfers within the ceiling in future periods without accumulating arrears or challenging the ability of these institutions to effectively provide their public services. Ceiling on Public debt This maximum limit applies to Central Government’s domestic and external debt, Central Government’s guaranteed debt, and arrears. As of December 2018, following the successful restructuring of the domestic debt, the stock of total debt was $12,828 million versus the adjusted cap of $13,679 million under the MEFP. Ceiling on Net Domestic Assets of the Central Bank of Barbados Net Domestic Assets of the CBB were $1,763 million versus the ceiling of $1,977 million.
Floor on Net International Reserves Net International Reserves (‘NIR’) were $830 million versus the $531 million adjusted minimum target. The reserves have been boosted by $350 million of loans received from the IDB and CDB. In addition, the suspension of external debt payments pending completion of the external debt restructuring negotiations also had a positive impact on the NIR. 2.
Indicative Targets under the EFF
The two indicative targets required to be met compared with the actual results achieved are outlined below: Performance Criteria (BDS$ millions) Fiscal targets: Ceiling on CG Domestic Arrears Floor on Social Spending
End December 2018 Met Target Actual Yes/No 1,246 38
338 74
Yes Yes
Ceiling on Central Government Domestic Arrears Central government domestic arrears include overdue trade payable for goods and services, overdue contributions, rents and loan payments to the NIS and overdue tax refunds. This significant reduction compared to the ceiling was achieved through arrears owing to NIS being converted to bonds (series B and F) and as such these amounts have now been included in the Public Debt stock. Additionally, arrears that were owed between the various government agencies have been written off effective December 31, 2018. Floor on Social Spending This minimum limit on social spending applies to programmes intended to have a positive impact on education, health, social protection, housing, community services and recreational activities. Spending on social programs includes the salaries and wages of employees administering the programs. Overall spending at $74 million was well in excess of the minimum limit of $38 million. Structural Benchmarks under the EFF There are a number of structural benchmarks that are also required to be achieved under the EFF. The structural benchmarks that were due to be achieved by the end of December 2018 together with their status are outlined below: Benchmark Parliament to adopt a revised Financial Management and Audit (FMA) Act conferring greater autonomy to the Ministry of Finance and Economic Affairs to oversee SOEs, including prior approval of all borrowings and assumptions of other liabilities. Revisions to the FMA Act will also establish clear definitions for the classification of public entities, and their related roles and responsibilities; and establish tighter and more
Current status The Public Finance Management Act, 2019 was passed by the House and Senate in January 2019.
precise reporting requirements for SOEs, and sanctions for noncompliance. Government to ensure that all SOEs listed in the Technical Memorandum of Understanding paragraph 2 prepare and submit to the government standardized quarterly financial reports. Government to launch a training and outplacement programme to help mitigate effects on the vulnerable from the restructuring of SOEs.
Implemented.
Partially implemented as the mitigation unit was launched, however the training element has not commenced.
Parliament to adopt new Town and Country The Planning and Development Bill 2019 Planning legislation, aimed at streamlining and was passed in the House and Senate accelerating the process for providing permits. during January 2019. Government to establish a Sandbox regime for Implemented. regulation for fintech start-ups The Large Taxpayer Unit (LTU) to (i) update all Implemented. LTU taxpayer accounts ensuring they reflect accurate balances, and (ii) commence the conduct of audits targeting the most current tax period. Government to table a revised Financial The Public Finance Management Act, Management and Audit (FMA) Act to establish a 2019 was passed by the House and permanent binding budget calendar, envisaging Senate in January 2019. budget approval prior to the fiscal year. Key considerations to future performance criteria and structural benchmarks The requirement to increase the primary balance to a surplus of 6% of GDP in 2019/20 versus a minimum of 3.3% in 2018/19 is a significant adjustment. This is seen by the monitoring committee as central to the success of the program requiring revenues to perform and further significant expenditure control to be achieved. The committee is of the view that following the retrenchments that have taken place in the public service, process re-engineering and change management, including appropriately equipping the workforce with the skills and resources, is necessary to ensure desired transformation is achieved. The foregoing elements in addition to the creation of a more favorable environment for increased business activity, can contribute meaningfully to placing Barbados on a sustainable growth trajectory.
The BERT Monitoring Committee
19th February 2019