Thanks to the implementation of new policies and processes, residents of Barbados are enjoying the direct benefits of significant institutional reform. For example, routine tasks such as renewing a drivers’ license, filing tax returns and paying taxes, or obtaining a police certificate of character are done more easily. The institutional reforms gained renewed strength with the Barbados Economic Recovery and Transformation (BERT) program, introduced in October 2018. Of course, the COVID-19 pandemic has provided further impetus for the country’s digital transformation, and the rollout of the first digital national ID card in 2021 is expected to make doing business even easier.
If the rules and organizational arrangements that govern human interactions are well designed, policies will be better aligned with long-run citizen interests. In a recently published book “Economic Institutions for a Resilient Caribbean,” the IDB Caribbean Economics team together with international experts analyzed institutions related to the design and implementation of fiscal, monetary, and financial policies. The publication highlights the following concrete actions that are helping to strengthen economic institutions in Barbados:
- Adopting financial management policies and institutions to strengthen fiscal transparency and accountability.
- Adopting organizational and administrative reforms at the Barbados Revenue Authority to integrate direct and indirect tax operations.
- Promoting greater central bank transparency, underpinned by legislative reform. A new Central Bank Act was passed in December 2020, which includes provisions for the hiring and dismissal of the Governor, limits central bank financing of the government, and strengthens the Central Bank’s mandate, autonomy, and decision making.
- Enhancing capital regulation through partial implementation of Basel III recommendations. This would improve capital requirements set by the financial authority. Barbados currently implements Basel II.
These efforts have been paying off. Barbados is making headway to improve its economic institutions. The country is not only focusing on sustainable fiscal policies but also on effective monetary policies and sound financial systems. The book also offers key recommendations on how Barbados can continue to advance in the following areas:
- Pension system reform: Barbados has the highest pension expenses of any Caribbean country, with a point estimate of 8.9 percent of GDP and a range from 7.5 to 13.2 percent of GDP. Policymakers should periodically review the design of multi-pillar systems and assess what parametric and non-parametric changes in the pension schemes are required to achieve adequate benefits, expanded coverage, and financial sustainability of the system.
- Basel III implementation: Given the desirability of a macroprudential approach in the region, the implementation of all or some elements of Basel III is highly recommended. Greater support for supervisory authorities with a clear, verifiable, and quantifiable guide for the diversification of assets in bank portfolios is also advised. Finally, promoting rules that support greater market discipline is recommended, particularly with respect to audits and transparency.
- Greater use of financial technologies: Firms and banks in Barbados report that the strict know-your-client and regulatory burdens, including those related to anti-money laundering and combating the financing of terrorism, hinder domestic financial transactions and credit provision. Fostering greater use of new and innovative financial technologies and revising relevant regulatory requirements to enhance access could help address some of these challenges and barriers to financial access and inclusion.
As a small, open economy, Barbados has known economic shocks before. However, the COVID-19 pandemic serves as a grim reminder that these occurrences can come in many forms. Institutional reform is a proactive strategy for preparing for such eventualities, as it ensures that key national institutions are more resilient and better equipped to recover more rapidly.
For additional insights on the role of resilient institutions in the Caribbean’s COVID-19 recovery, download the publication, Economic Institutions for a Resilient Caribbean.