It is widely accepted that Barbados’ economy remains in recession and that Government’s finances are under severe pressure.
This is a combination which would challenge even the best of economic managers to come up with a viable solution and the general view is that there is no single answer to one of these problems, much less dealing with them simultaneously.
But it is a predicament that is not Barbados’ alone, as most Caribbean countries, and others further abroad find themselves in similar situations. High indebtedness is one of the major hurdles to be overcome.
With foreign exchange increasingly harder to come by as a result of reduced earnings from key productive sectors including tourism and international business and financial services, and with tax revenues, especially from value added tax fluctuating, Government has had to depend on borrowing internationally and increasingly domestically.
It means that in the last three years the state has depended on institutions like the National Insurance Scheme (NIS) and Central Bank for financial support. This is so especially because Government has relied on short-term financing to fund its various activities, including paying public sector workers.
The growing debt burden has also raised concern locally, regionally and internationally, including among the credit rating agencies, and institutions including the International Monetary Fund (IMF), which addressed the debt issue and its relation to Barbados fiscal worries when its published the report from the most recent Article IV consultation with the island.
Public debt and fiscal financing pressures have been challenging. Central government gross debt has risen sharply since 2009. “The debt-to-GDP ratio has climbed from under 60 per cent in 2009 to 94 per cent at end-September 2013; including government securities held by the National Insurance Scheme, it rose from about 80 per cent to 128 per cent,” the IMF said in the report published in February.
“The gross financing requirement in 2013/14 is 15.4 per cent of GDP, or 39 per cent of GDP including the rollover of short term debt. The deficit has been financed increasingly with short-term funds from domestic sources.”
In the first six months of 2013/14, domestic financial institutions and the central bank provided the bulk of the financing in the form of Treasury Bills, while the NIS provided about 11 per cent in the form of longer term debentures.
The Caribbean Development Bank president is another official who is concerned about the negative impact high indebtedness is having on economies in Barbados and elsewhere in the region.
“Our economies are not generating enough foreign exchange to be able to sustain our standard of living so what we end up doing is rather than adjusting to a lower standard of living, what we do is that we borrow more in order to sustain our standard of living.
“I think that what we are seeing now is that our countries have reached a situation where they cannot continue to sustain that standard of living by borrowing. We need to adjust now,” he advised.
One of the respected voices who has differed on the extent to which Barbados has a debt problem is Central Bank Governor, Dr DeLisle Worrell.
Addressing a Barbados Chamber of Commerce and Industry luncheon last year, the economist said Barbados was not one of the world’s highly indebted countries.
“We are on par with Germany, we are on par with Canada and we are below the United States. The most highly indebted country in the world in terms of debt to GDP ratio is . . . Japan, and Japan does not have a debt problem,” the governor pointed out.
“It is not a functional measurement. it is that the debt to GDP ratio is not an informative measurement,” he reasoned.
He said what mattered most was the amount of foreign debt “and more precisely, the servicing of your foreign debt”, noting that Barbados did not have a problem in this regard.
