Barbados’ debt levels likely to rise by year-end

The World Bank is painting a dim picture of the Barbados economy for 2020, with a forecast that the economy would shrink about 11.6 per cent.

In its semiannual report of Latin America and the Caribbean region, the World Bank said “a steep decline in growth is projected for 2020 due to the COVID-19 pandemic”.

The document – the Cost of Staying Healthy – was released late Friday.

The Washington-based financial institution said the fallout in the tourism sector and disruptions to local production were expected to depress growth, resulting in a third consecutive year of recession.

“The fiscal and external accounts are expected to deteriorate substantially,” it added.

“High levels of public debt limit space for counter-cyclical fiscal policy to lift growth and reduce poverty. Downside risks are very high considering the country’s heavy tourism dependency and vulnerability to shocks from economic and natural disasters,” it said.

The World Bank is predicting that Barbados’ debt levels could rise to 133.6 per cent at the end of this year before going back down to about 124 per cent next year.

At the end of June this year the debt as a percentage of gross domestic product was 124.7 per cent.

In its executive summary, the World Bank said the stimulus packages set up by several governments in the region were “remarkably robust” despite fiscal constraints.

It also acknowledged that despite much of the additional resources going to social transfers the social and economic damage was still immense, with unemployment rates increasing substantially in many cases.

“A first background study for this report shows that the fiscal multiplier of social transfers is much larger in the region than in advanced economies,” the 76-page document said.

“And it is consistently large for the countries with more sizeable and better targeted social transfers. The strong response to the Covid-19 crisis could thus be remembered as one of the first examples of successful countercyclical fiscal policy across large swaths of the region,” it added.

The World Bank said the provision of stimulus packages in the region was no doubt a sensible choice given the circumstances.

However, it said, public debt was expected to increase by almost ten percentage points of gross domestic product in just four years, from 2017 to 2021, across Latin America and the Caribbean as a result.

“Continuing on this trajectory could create challenges for debt sustainability in several countries in Latin America and the Caribbean,” it acknowledged.

“This is all the more concerning as it becomes increasingly clear that countries will have to live with the virus for the time being,” it added.

The World Bank pointed out that it could be some time before an effective vaccine against the COVID-19 was developed and produced in sufficiently large quantities to become available at local levels in developing countries, and to be viewed as sufficiently safe by the population.

“Given these challenges, countries in Latin America and the Caribbean may face no choice by to live with the virus,” it warned.

The World Bank predicted that in some countries, children may be forced to drop out of school and “enter their working lives earlier than anticipated”.

It said the crisis was a call for countries to rapidly expand access to critically important basic services, and to expand effective health care coverage and keep medicines affordable.
marlonmadden@barbadostoday.bb