Should the Caribbean be worried about its mounting debt?
Last month the Commonwealth Secretariat released a report in which a warning was issued to the Caribbean.
It cautioned that if Caribbean countries like Barbados continued on their current path, they would face unmanageable debt, poor growth and greater socio-economic problems by 2050.
The report’s title was Achieving A Resilient Future For Small States: Caribbean 2050. It made a 34-year projection across a variety of sectors and concluded that the majority of The Bahamas, Barbados, Jamaica, St Lucia, Grenada, Trinidad and Tobago and Guyana would have a debt-to-gross domestic product ratio above 100 per cent.
Projections also suggested that interest expenditure on debt was likely to exhaust public finances, decreasing development funding and causing more socio-economic problems. Some may say they have heard this all before, but based on the projections from other agencies, the Caribbean’s debt problems are real and need fixing.
Some Caribbean countries have pursued debt restructuring, including Jamaica, and while this has been recommended to other Caribbean islands, Barbados is one country which, based on statements from Government officials, is not prepared to go that route. Barbados’ argument has been that much of its debt is domestic (a significant amount of it owed to the National Insurance Scheme) and therefore its debt problems are not that pressing when compared to other territories which have a large amount of international debt.
The problem for Barbados and others in the region is that their debt continues to grow at a time when a number of them still need to borrow. Government here has been criticised for using funding from the NIS and through the circulation of money by the Central Bank. With Barbados’ credit rating still below investment grade, the implications for borrowing internationally are not good.
One view that is emerging from financial institutions in and out of the Caribbean is that regional countries are not doing enough to fix their debt problems. This point is made even though those expressing the view have acknowledged the difficult position these countries find themselves in. This includes major fiscal problems and low economic growth.
Credit rating agency Moody’s summed up the Caribbean debt challenges recently when it said that the region “has become one of the most indebted in the world as a slow and steady build-up of debt has left the region’s economies vulnerable to external shocks and the heightened risk of sovereign defaults”.
“Unlike elsewhere, the build-up of debt in the Caribbean region has been neither sudden, nor caused by the global financial crisis. Instead, it happened gradually over many years. Currently, 12 of the 20 Caribbean economies for which data is available have government debt-to-GDP ratio of over 60 per cent and four have debt-to-GDP in excess of 100 per cent,” it added.
Moody’s senior vice president Elena Duggar also said “if history is to serve as a guide, more defaults are very likely by the highly indebted countries in the region”.
While countries in the Caribbean have been dealing with their debt problems individually, the United Nations Economic Commission for Latin America and the Caribbean has tabled a solution for the region’s overall benefit. That suggestion has won favour in some quarters, but it is unclear if it will be adopted. That plan has been on the table since last year.