(CMC) – The managing director of the International Monetary Fund (IMF), Kristalina Georgieva, says the Washington-based financial institution is prepared to increase its commitments to provide more support to Caribbean countries as regional economies seem heading into deeper balance of payments and fiscal deficits.
“Caribbean economies have been especially hard hit the past couple of years. COVID-19 shut down tourism and snarled global supply chains, causing Caribbean economies to contract three times more than the global average,” said Georgieva, who arrived in Barbados on Tuesday for her first-ever visit to the Caribbean.
In an exclusive interview with the Caribbean Media Corporation (CMC), she said the war in Ukraine is making matters worse, dragging down growth and pushing up inflation.
“High food and energy prices hurt the budgets of every family, but they are devastating for people already living in poverty. And of course, the continuing threat of climate change and worsening natural disasters will not wait for us to sort out these other issues,” Georgieva stated.
Georgieva added that the IMF and Caribbean countries have done a lot together during the pandemic, “putting to work all the tools in our toolkit, and this gives some sense of how we can continue to help with these new pressures.
“We know our counterparts and their economies very well, and we discuss policies in-depth every year or two. So, when a crisis hits, we can react quickly to offer real-time tailored policy advice. We swiftly provided about one billion US dollars in financing to nine Caribbean member countries to help them weather the economic shock the pandemic caused,” she further stated.
She said that the IMF is also helping countries “with what we call “capacity development” working closely with government officials, mostly inside finance ministries and central banks, to strengthen skills and abilities to develop and implement economic policies.
She told CMC that part of the reason for her visit to Barbados is to celebrate the 20th anniversary of the Caribbean Regional Technical Assistance Center (CARTAC), one of10 IMF Regional Technical Assistance Centers (RTACs) located around the world.
The IMF official said that last year, the Fund delivered additional resources to every member state, including US$2.4 billion for Caribbean countries, as part of a historic global allocation of the IMF’s reserve asset, known as Special Drawing Rights.
“These resources helped give countries the breathing space to meet their most pressing needs, fighting the pandemic, providing social assistance to vulnerable households, or even now paying for food and fuel imports. Fortunately, we expect to see the region’s economies back in positive territory, with 3.7 per cent growth expected in our last World Economic Outlook,” Georgieva continued.
“Of course, for those countries that need help, we stand ready to step up. We have a flexible set of lending tools to help cushion the effects of the current crisis. This can include urgent needs for foreign currency to pay for costly food and fuel imports or pay back loans. For countries with active financing arrangements with the Fund, like Barbados and Suriname, we may be able to augment them if needed. And our emergency facilities are available to help countries tackle unforeseen shocks, including from natural disasters,” she went on to say.
The Bulgarian-born IMF managing director said the recently created Resilience and Sustainability Trust (RST) is a vital new pillar to its lending toolkit to help countries build longer-term resilience—including issues like climate change and pandemic preparedness.
“All Caribbean member countries are eligible for this affordable, longer-term financing, including countries in the region that have previously not had access to concessional IMF lending. This is thanks in no small part to Barbados Prime Minister Mottley’s strong and consistent advocacy,” Georgieva added.
Georgieva acknowledged that it would be “tough” for governments, including those in the Caribbean, needing to subsidise the cost of food and energy for the poorest members of society in a very targeted manner, preferably by providing subsidies directly to people.
“This is tough, no doubt about it. Helping strike the right balance is something we discuss and work on continuously with each country.
“The top priority is to ensure that people can afford food and electricity. We advise countries to protect social spending, to ensure nobody goes hungry. We help them figure out how to stretch every dollar, so it does the most good for those in the most need—for instance, direct payments to families as you mentioned are generally better than price subsidies that benefit the more well-to-do.
“We also help countries plan for the medium and long term, to make sure they can support people now, and continue to be able to pay off loans and access credit in the future. Not all debt is bad—debt can also play a crucial role in financing critical investments,” Georgieva said.
But she said this initiative presents policymakers with complex trade-offs.
“Increased social spending may lead to higher deficits and debt in the short term, leaving less money available for investing in people and infrastructure. At the same time, action to bring down inflation—both in the region and worldwide—will increase the costs of new loans and servicing existing debt.
“One way to manage these trade-offs is to allow domestic prices to adjust to higher international prices, and at the same time provide temporary, well-targeted help to poorer households. If safety net programs are not well developed and the price subsidies exist, governments can allow prices to rise more gradually, but this is more expensive for them,” Georgieva said.
Georgieva further stated that it is also critical to protect spending on health, education, and public investment.
“This can be paid for with tax reforms, such as strengthening personal income taxes and ensuring they are focused on those who are most able to pay. This will bolster growth and make it more inclusive, and help countries pay down debt over time.
“Governments should take a fresh look at poorly targeted or regressive tax exemptions that are draining resources from urgent needs. The digital economy, which grew due to the pandemic, should also contribute its fair share. Transparency measures that reassure the public that revenues are being well spent can be crucial in garnering public support for tax reforms. And governments can save money by curbing wasteful subsidies and making social spending more efficient,” she said.
“The Barbados Economic Recovery and Transformation (BERT) programme is a good example, which aims to reduce large subsidies and improve the operations of state-owned enterprises,” she told CMC.
BERT is a three-phase five-year package of austerity and stimulus measures aimed at avoiding a devaluation of the Barbados dollar
As part of the economic recovery and transformation programme, the Barbados government is seeking to retrain and retool public sector workers that will be displaced and to provide them with opportunities to gain alternative employment or to be self-employed.