Stuart wants answers on foreign debt

On the same day that a team from the International Monetary Fund (IMF) gave Barbados high marks for checking the boxes of its economic reform programme, one of the younger members of the Democratic Labour Party (DLP) is warning that  Government could once again find itself scrambling to stave off devaluation in another two years.

According to Banking and Finance major, Kemar Stuart, the decision to suspend international debt payment was misguided and will result in significant harm to the Barbados economy in the not-too-distant future.

“Along with the missed payments which still need to be serviced, the Government will need to repay US$350 million of maturing debt in 2021 and 2022, which will further impair Barbados ‘sovereign credit rating, bring the reserve tranche below the 12-week benchmark and increase the likelihood of devaluation,” said Stuart, who delivered the Astor B Watts lunchtime lecture this afternoon.

Today, the IMF team in its glowing report on the country’s economic progress under the Barbados Economic Recovery and Transformation (BERT) programme, stated that “Barbados continues to make strong progress in implementing its ambitious and comprehensive economic reform programme. International reserves, which reached a low of US$220 million (5–6 weeks of import coverage) at end-May 2018, have more than doubled since then. The rapid completion of the domestic part of a debt restructuring has been very helpful in reducing economic uncertainty, and the new terms agreed with creditors have put debt on a clear downward trajectory.”

Today neither the IMF team nor Prime Minister Mottley mentioned the worrying debt to international creditors.

However, the budding politician, who ran against Mottley on a Solutions Barbados ticket in the last election, slammed the Government for what he deems as a failure to adequately update the country on the progress of negotiations with foreign creditors. He argued that the longer the Government takes to brief the country on where things are, the more it will give rise to nervous speculation.

“It is reported that the external credit committee has submitted a proposal to the Prime Minister and her advisors however no significant or official statements have been issued in regard to the progress of securing a deal. Such incognito actions allow for speculation as to the harmful effects the initial default caused. The prolonged delay is only making it worse,” he said.

He questioned if Government could generate foreign exchange fast enough given the fact, they had publicly stated that they will not be borrowing for the next four years.

It appears that Stuart and well-known economist Jeremy Stephen share very similar perspectives. Last month Stephen argued that Government’s failure thus far to fix its foreign debt problems and fully implement its strategy for sustained fiscal breathing room could spell trouble for the country. And the clock is ticking to a deadline to find the money to pay huge debt bills in two years.

He told Barbados TODAY at the time that with almost a year having elapsed since Barbados defaulted on its foreign debt and a settlement yet to be announced, Government was essentially on borrowed time. He contended that anything less than a quick amicable debt restructuring could prove problematic for the country’s ability to borrow and for investor confidence.

“If the global private sector sees that while we have good tax rates, but Government is taking a bit longer to properly restructure the debt of foreign investors, then they are not going to want to invest in the Government debt. This will also impact on those who want to invest in private interests in Barbados because they look at things like sovereign risk.

“If they [Government] don’t get that done and settle with these foreign investors in the near term then that has far-reaching consequences. You need to remember what happened to Argentina in the early 2000s, where those investors took that country to court and to this day Argentina has trouble borrowing,” Stephen had said.