Barbados told not to expect debt relief

by Marlon Madden

A top official of the World Bank has poured cold water on any hopes of Barbados getting debt relief from lending partners.

World Bank Chief Economist for Latin America and the Caribbean Martin Rama said countries in the Caribbean should not count on getting any debt relief and should therefore look seriously at other alternatives of effectively managing and growing their economies.

He was speaking with journalists from the English-speaking Caribbean, on Friday, when aspects of the World Bank’s semi-annual report, The Cost of Staying Healthy were discussed.

“I will not bet on it [debt relief] happening because Caribbean countries are relatively rich in the developing world. I would say aim for it, lobby for it, but have a plan B; that is the point I am making,” said Rama.

“Don’t count on it. It will not be prudent. You can hope, you can lobby for it and there may be goodwill, but it would not be prudent to just bet on it,” he insisted, though acknowledging that there was a realisation among financial institutions and countries that “out of this crisis we may need solutions that have to do with debt”.

Rama’s comments come on the heels of several calls by Prime Minister Mia Mottley for debt relief for Caribbean countries who continue to buckle under the pressure of the severe economic fallout from the COVID-19 pandemic.

Mottley has argued that there could be severe consequences for small states that have been suffering from high debt and low growth for decades.

However, Rama said “many of the Caribbean countries are among the richest in the region”, they tend not to fall within the low-income bracket, and tend not to have very high debt as other economies do, so it would be more difficult to make a case for debt forgiveness or debt reduction.

He said countries should instead focus on industries they could grow.

Rama suggested alternatives such as fiscal consolidation measures and greater use of online trading of goods and services.

“I am thinking through a path to consolidation on the fiscal side and to alternatives. For example, when I think of the Caribbean, selling services through the Internet is one thing that can be done,” he said.

The economist said over the medium-term, governments should develop the kinds of skills and put the necessary support services in place to help grow new sectors.

“What I would say is the fact that debt has been relatively low in the Caribbean and that people tend to have not such long memories, may mean that tourists may start coming back in one way or another, taking sufficient precautions, having areas that are perceived as safe. So there may be alternatives . . . . What I would say [is that] it is a combination of strategies on production and strategies on the fiscal side,” he explained.

Rama said he believed there was a general understanding among lending agencies that debt ratios will increase as countries continue to battle the pandemic.

“I think there is an understanding that debt has to increase. This is a shock that nobody could insure against. And another saving grace for the Caribbean is that the amounts are relatively small. So it doesn’t take a lot of good will. It is huge for your countries, but for global finance it is small.

“So what I would say is that even if you need to continue borrowing, having a credible fiscal plan, a credible trajectory where one can see – and that doesn’t depend on debt relief or the vaccine being available tomorrow – . . . you may be able to continue borrowing, and with stability countries can borrow a lot. Japan has been living with very high debt for a long time, but you need a lot of stability for that,” he said.

By the end of June this year, Barbados’ debt to gross domestic product (GDP) ratio had been reduced to 124.7 per cent, from a whopping 175 per cent, which made the country the fourth most indebted nation behind Japan, Greece and Sudan.

Rama said the good news for countries seeking financial support was that international financial institutions, including the World Bank, were “going overboard to help” countries, and therefore there was an abundance of financing available to help them put social and economic programmes in place.

“The abundance of liquidity in the market, as in international markets such as the US and Europe, has increased . . . . That means there is a lot of money out there that is looking for you. So the problem does not come from the supply side,” he said.

“The problem is if these lenders perceive that debt is unsustainable, that maybe two years down the road you will be in debt restructuring, then they will be hesitant.”

marlonmadden@barbadostoday.bb