Central Bank Governor Dr Delisle Worrell has acknowledged that Barbados’ debt is too high, but suggests he will not be losing any sleep over the country’s debt to GDP
ratio, which is said to be in the region of 100 per cent.
“The debt to GDP ratios of all the major industrialized countries are in the region of 100 per cent or thereabout. The best of them are 80/90 per cent, so the notion that it matters if we get to a debt to GDP ratio of 60 per cent is irrelevant,” argued Dr Worrell, during the recent launch of the new economic text entitled, Fiscal Sustainability And Debt In Small Open Economies:
An Application To The Caribbean.
The Government’s leading economist further pointed out that Japan had the highest debt to GDP ratio in the world, adding that, “if my memory serves me correct, Japan is number three in the human development index”.
He also noted that Iceland, with a debt to GDP ratio in excess of 130, was “number 13 in the world”, while “Greece that has all these problems and so, is above Barbados in the development ranking.
“So the notion that it will help us to grow to get to [the] 60 per cent [average rate of GDP] is unwarranted and unnecessary and it not part of our objectives,” the Governor said.
He was at the time responding to a question posed by economist Winston Moore of the Department of Economics at the University of the West Indies who used the opportunity provided by the book launch to ask about the impact of debt on a country’s growth.
The Governor responded saying there was no research which establishes “a reliable link between debt levels and growth” even though he said it had been taken as gospel by commentators that such a link exists.
“It was absolutely without foundation,” Worrell stressed.
The Governor, who also acknowledged that other Caribbean countries were grappling with high debt, also warned of the need to tread cautiously with debt restructuring.
In fact, Worrell said “ you really have to think twice, three times and four times before you go that route”, explaining that there was a “prohibitively high cost” associated with debt restructuring, which he said was similar to the cost of individuals or firms declaring bankruptcy.
“If you are declaring bankruptcy, it means, your credit is shot. From there on, you have to operate on cash. Very similarly with countries, if you restructure your debt in ways that your creditors are uncomfortable with, then they are likely to shy away from you for the future . . . so you have to think for the future, as to whether, the cost of doing things to allow you to pay the debt are outweighed by the costs that will not allow you to go back into the market in the future.”
He said that countries also needed to be careful about debt management strategies, while acknowledging that there was a temptation to go for solutions other than through market intervention.
However, he said Government remained focused on “sensible policies” that would allow Barbados to gradually work down Barbados’ debt.
In response to questions raised by Government Senator Darcy Boyce about the role of the Central Bank in cases where the commercial banks are not funding the Government’s deficit, the Governor said there was no problem so long as there is no pressure on the country’s foreign exchange reserves.
He noted that last year the Central Bank was able to accommodate the Government with funds placed in the Central Bank by the commercial bank themselves; therefore no undue pressure was placed on the system.
“There is only a problem if, as happened in the previous year, the Central Bank has to accommodate over and beyond the funds that are returned to it in a sense from the commercial banks,” Worrell said.