“. . . The gross Government debt-to-GDP ratio for debt issued to the private sector is 83 per cent . . . .” – Central Bank of Barbados Press release, March 2013
One of the things that has made Barbados’ fiscal situation seem less threatening is the percentage in the above sentence. It’s less than 100 per cent, so we’ve still got some room to wiggle out of our mess, don’t we?
If that is so, how do we square the percentage given above with the ones below?
“The ratio of Government debt to GDP rose from 90.8 per cent in 2008 to 110.2 per cent at the end of 2009.” – (2009 Economic Review, issued January 12, 2010.)
Same Central Bank, three years earlier.
But, the bank was quick to point out, a quarter of that debt was held by the National Insurance Scheme (NIS). “Net of NIS holdings, the Government debt-to-GDP ratio is 82.7 per cent.”
You see, the trouble with the Government paper purchased by those nice NIS folks at Culloden Road was that it kept pushing our debt total too high.
The debt-to-GDP ratio cited for 2009 of 82.7 per cent – which included NIS debt purchases – is statistically the same as the NIS-excluded 83 per cent cited for 2013. When the NIS-held debt is added, the total public debt stands at 113 per cent.
Who moved the goalposts? That would be the Central Bank of Barbados, which did so early last year, citing a new International Monetary Fund (IMF) guide by way of “permission”.
The bank said in its March 2012 economic Press release that it was adopting the IMF standard contained in the latter’s recent publication, Public Sector Debt Statistics: Guide For Compilers And Users.
It quoted this passage from the said guide: “Institutional units controlled by government, that are legally established as corporations but are not market producers (i.e., they do not sell their output at economically significant prices), are classified as part of the general government sector, not the public corporations sector.” (Page 7)
The bank said that the “principal implication for Barbados” was that “NIS falls within the ‘general Government’ sector by the definition just given, rather than being a ‘public corporation’, as per the previous Central Bank treatment”. (March 2012 economic Press release, Page 8.)
And with that, one-third of our growing national debt disappeared from view. The NIS holdings no longer rank as part of the Gross Central Government Debt. They have been relegated to the bottom of the table as a memo item.
The IMF guide also says: “In macroeconomic statistics, a social security fund is recognized only if it is organized and managed separately from the other activities of government units, if it holds its assets and liabilities separately from other government units, and it engages in financial transactions on its own account.” (Page 12)
Sounds like the NIS to me. So my money is on anyone who says the Central Bank of Barbados is wrong in its decision to adopt this new “treatment” of NIS holdings of Government debt.
The NIS, as far as I know, has a board which makes its decisions based on the criteria in the legislation which created it. But the practical effect of this reclassification of the NIS debt has been to make our debt ratios go down when they are really going up.
In early 2011, the bank itself put the Gross Central Government debt-to-GDP ratio for fiscal 2009 at 96.5 per cent, based on a GDP of $7.8 billion.
One year later it adopted the new “NIS-debt-exclusion” standard and revised the GDP upwards to almost $8.8 billion, both of which combined to push the debt-to-GDP ratio downwards, to 66 per cent. It’s like eating more and still losing weight.
These downward revisions have continued, culminating in the 83 per cent cited for 2012. But adding back the NIS debt holdings puts our total debt at almost $10 billion, or 113 per cent of GDP.
That is the size of debt the country needs to focus on, as it is now costing us over $560 million a year in interest alone. There is no point in pretending that the NIS is just a Government department and thus removing its holdings from the total debt picture. We need to face up to our debt. All of it.
• Pat Hoyos is a publisher and business writer.