IMF says Barbados facing severe economic recession

The International Monetary Fund (IMF) says that Barbados is facing a \"severe\" economic recession, according to a report on www.cananews.net.



It said that the island\'s output is decreasing, as the global financial crisis has \"depressed tourism, brought Foreign Direct Investment (FDI) to a sudden stop, and weakened public finances. Consequently, unemployment has risen to double-digit level,\" the Washington-based financial institution said.



\"While the underlying balance of payments is expected to remain weak, international reserves are expected to increase marginally in 2009, on account of the SDR (Special Drawing Rights) allocations and the large government bond issue abroad,\" it added.



The IMF said while various indicators suggest that the actual exchange rate is close to its equilibrium level, the current global shocks have put strains on the country\'s economy.



It warned that possible changes in tax regulations abroad could adversely affect Barbados\'s offshore financial sector, an important source of foreign exchange.



The IMF urged the David Thompson administration to develop a \"credible\" medium-term fiscal adjustment plan \"and start with its implementation, as soon as possible\" and cautioned that, if left unchecked, the large fiscal deficits combined with an uncertain foreign financing outlook could result in \"a deterioration in investor confidence\".



\"A concerted adjustment effort was, therefore, crucial to countering such a risk, by reducing fiscal financing needs, supporting the balance of payments, and placing public debt on a firm downward path.



The IMF called on the Barbados government to \"commit early on to decisive fiscal measures,\" particularly in expenditure restraint, adding that it would also be important to develop emergency plans, \"in the event that the economic recovery was delayed and fiscal pressures persisted\".