Even though the Mia Mottley administration borrowed close to a billion dollars last year from international financial institutions, Governor of the Central Bank of Barbados Cleviston Haynes has not ruled out Government seeking further budgetary support from those institutions as it continues to aim for a primary surplus.
However, Governor Haynes explained that discussions with stakeholders would have to take place before such a decision could be taken.
In addition, he explained that in the absence of adequate financing it would mean that Government policies would have to be tightened.
Haynes was responding to questions from members of the media on Wednesday during the Central Bank economic review of last year.
“We have to keep our options open. Clearly, we are in a situation where we anticipate being able to bring the primary balance back to a surplus of about two per cent in 2021,” said Haynes.
“In 2022, as things are evolving we have to reconsider that to see whether or not that is still an appropriate target, and if it is not an appropriate target, what is the new target that we should have that will determine, in a sense, what are our financing needs…We will obviously discuss with all of our stakeholders, what is the appropriate way in which to finance any increased deficit that may have to be incurred,” he explained.
Last year, Government borrowed $968 million or just over six times the amount in policy-based loans than it did in 2019.
Government received $400 million from the Inter-American Development Bank (IDB), $368 million from the International Monetary Fund (IMF) and $200 million from the Development Bank of Latin America also known as CAF.
This compared to just $150 million in policy-based loan received from the Caribbean Development Bank (CDB) in 2019, and the $200 million from the IDB and $150 from the CDB in 2018.
Stating that it would be natural for people to have concerns about the stock of overall debt, which reached about 144 per cent at the end of last year, Haynes explained, “What has been happening is that we have been paying down a lot of domestic debt, and what we have been doing is replacing it with external debt.”
Domestic debt is estimated to have moved from $9.33 billion at the end of 2019 to just over $8.79 billion at the end of last year, while external debt increased to $3.974 billion last year, up from $3.090 billion at the end of 2019.
“So the balance between external and domestic debt has changed as a result of the accelerated borrowing from the international financial institutions (IFIs), but I can assure you that the IFIs do a lot of analysis on the Barbados economy to satisfy themselves that it is being managed in a way that the debt and the financial situation are sustainable. Therefore, we will continue to work with them because it is important that we have adequate financing,” he said.
“Everybody tends to focus on the deficit, but really and truly you can only run the deficits that you can finance. And if we don’t have the financing available then it will mean that policies would have to become a lot tighter and it is generally agreed that this is a period in which what we need to do is be supportive of our private sector to get them through this period.”
The Governor added: “This is not a situation of undisciplined government spending that is causing deficits. It is just a health crisis that has evolved over which this government and other governments including those in the Caribbean, have little control. Therefore we have to manage the situation as best we can and in some cases that may mean we may have smaller primary balances than we would ordinarily have.”
For the April to December period last year, the domestic debt payments were higher than originally planned due mainly to the National Insurance Scheme liquidating some of its bonds early to assist with the unprecedented level of unemployment claims, according to the Central Bank.
The overall fiscal deficit was $36 million or 0.4 per cent of GDP for the first nine months of the fiscal year. The primary balance target for financial year 2020/2021 was reduced to a deficit of one per cent of GDP, compared to a surplus of six per cent at the beginning of the fiscal year. (MM)