After the previous administration added over $2 billion to the national debt over the last four years, the Mia Mottley led-Government has vowed not borrow any new funds for the remainder of this parliamentary term.
This assurance comes from Minister in the Ministry of Economic Affairs, Marsha Caddle. This morning Caddle, who was delivering the feature address at the start of the 2019 planning conference for the Barbados Association of Insurance and Financial Advisors at the Hilton Hotel, contended that the net result would mean there would be significantly more unencumbered savings.
“Over the next four years the Barbados Government will not borrow any new funds. To put the impact of that into context, over the past four years the Government of Barbados has borrowed almost $2 billion. That is $2 billion of new Barbadian savings that were drawn into and trapped by Government debt,” Caddle revealed.
Revealing that Barbados’ debt had already declined from near 170 per cent of GDP in May last year to 124 per cent this year, Minister Caddle said in bringing the economy to this new place, Government has also settled one of the largest domestic debt restructurings exercises in history.
However the minister contended that unless Government provides new safe avenues for persons to invest, those excess funds run the risk of sitting idly in banks, as the current rate of interest being offered is close to zero.
“Where will the $2 billion of new savings go over the next four years? If we do nothing these savings will only compete for existing assets while the banks will be awash with more deposits than they know what to do with. The bank interest rates are going to remain near zero. Government bonds that seem plentiful today will be short supply, while equity markets will see prices skyrocketing,” she explained.
In painting the picture of the future with zero Government borrowing, Caddle noted that some of those scenarios will be helpful, as it would bring back liquidity to our market, make it easier for those with long-term bonds after the debt restructuring to sell them and revive the local market.
However the Government economic policy maker made it clear that even with these potential benefits, the exercise would be a waste if at the end, more Barbadians did not achieve economic enfranchisement.
“If this is all that happens it would be a wasted opportunity. It would merely represent a wealth transfer to those who currently already own those assets. Economic enfranchisement for all Barbadians requires new assets. It requires new financial thinking, institutions and instruments that are well regulated and will tap these savings and mobilise them to invest and develop our economy,” she said.
This is the way to permanently break out of the recurrent trap of low growth, low levels of domestic investment and low levels of broad-based wealth creation, she added.
The minister further pointed out that there was more to safe investment than land acquisitions and the time had come for Government to be creative in developing alternative safe avenues.
“Real economic enfranchisement means, for example, creating safe, financial instruments, with better rates of interest than available in the bank, to allow Barbadians to invest, alongside the public and private sector, in financing this country’s development and to do so within a framework they can trust,” she stressed.