For the first time in its history, Barbados has defaulted or is about to default on its debt.
This follows last week’s announcement by Prime Minister Mia Mottley that her week-old Government is now faced with a woeful state of affairs and the financial equivalent to the south coast sewage mess.
In support of this fully dramatized position, Ms Mottley has not only called in the International Monetary Fund (IMF), but realizing for the first time the enormity of the problem this island faces, the Prime Minister has announced the immediate suspension of payments due on debts owed to external commercial creditors.
It was not immediately clear if the defaults would affect Barbados’ multi-lateral partners such as the Inter American Development Bank – which incidentally we recently approached for help in funding a long term fix to the south coast sewage problem – or the Development Bank of Latin America, otherwise known as CAF.
However, saddled with an out-of-control debt of 175 per cent of gross domestic product, an estimated $15 billion which is said to be $9 billion more than what the previous Democratic Labour Party administration inherited in 2008 when it took office, and critically low foreign reserves, which, as of May 31, 2018 stood at only US$220 million, or the equivalent to seven weeks’ worth of import cover, Ms Mottley said her Government would endeavour to make scheduled domestic interest payments, while domestic creditors are asked to roll over principal maturities until restructuring agreements were concluded.
“My Government and all parts of the Social Partnership agree that there is no avoidance in delay in treating the economic and financial irresponsibility of the recent past. Our national reconstruction starts today. We set course, not on the easy or quick path but the right path. We will protect the most vulnerable, but we will all have to make sacrifices for our country.
“Today we move forward together in a new spirit of openness and with a new covenant of hope and opportunity. I ask our domestic and external creditors to accompany us on this journey of rescue, rebuilding and transformation,” the Prime Minister said, reading from a prepared text, during a press briefing last Friday in which she stood aghast with trade unionists, private sector officials and key officials in her Government.
In the same breath, Ms Mottley said she was sticking to her party’s manifesto promises of raising the contributory and non-contributory pensions, as well as invalidity and survivor’s benefits; eliminating tuition fee payments for Barbadians attending the University of the West Indies, scrapping the National Social Responsibility Levy, providing trust loans for Barbadians and eliminating pit toilets.
Not so fast, Madame Prime Minister!
We are not prepared to go as far at this stage as former Central Bank Governor Dr DeLisle Worrell to suggest that our newly installed leader is getting bad advice.
However, we do believe that both she and her team of economic advisers have some serious explaining to do.
Like how do you say in one breath to Barbadians that things are so bad that there is no avoiding immediate and necessary austerity, and in the next persist in making lavish campaign promises?
Isn’t the election over? Does the Barbados Labour Party not now command 29 of the 30 seats in the House of Assembly? Or is the keeping of campaign promises going to supersede pragmatic decision-making?
We hope not!
Unfortunately, Ms Mottley did not allow for any questions at Friday’s press briefing, which in itself bears explanation.
Why not just issue a press statement if no questions will be allowed from members of the Fourth Estate?
With that said, given the serious decision which has hurriedly been taken by our Government in its first week in office to immediately default on our debt, after reminding us earlier in the week that “our date with destiny starts from Tuesday with foreign debt payment between June 5th and 18th, which represents a high point of foreign debt payment for us over the course of the month of June to the tune of $100 million”, we would also like to know the following:
Were there any discussions with our creditors prior to the public announcement Madame Prime Minister?
Based on the immediate downgrade by the regional rating agency CariCRIS, which has now dropped Barbados to its worst rating yet – poor – it would seem not.
It also begs the question, what are the long-term consequences for Barbados’ reputation?
Indeed while our debt represents the third highest in the world after Japan and Greece wasn’t there any goodwill left that we could leverage? And couldn’t the proposed sale of the Hilton or Barbados National Terminal Company Limited be revisited with a view to avoiding this most disorderly situation, allowing us to make the upcoming payments on our debt, boost our reserves and get through what are expected to be tough IMF negotiations?
Inquiring minds would like to know Madame Prime Minister.