From deadlock to debt trap, Drakes warns Govt

A Senate lawmaker has warned that Government could find itself in a debt trap as it seeks to restructure the economy to recover from the COVID-19 pandemic, as the deficit balloons to more than three-quarters of a billion dollars.

Replying to Leader of Government Business in the Senate Senator Jerome Walcott as he introduced the 2021-2022 Appropriations Bill in the Upper House, Senator Crystal Drakes declared: “Pre-COVID, our economic position was indeed improving, but owing by and large to the pandemic, we had increased expenditures and a decrease in revenue, which means that we have to be extra vigilant and make sure we do not fall into a debt trap.”

She explained that Barbados had already ended up with a deficit larger than anticipated, forcing the nation to rely on external funding to help make up the shortfall.

She said: “This year our deficit is expected to be $782 million, and based on the estimates we are seeking financing from external sources to the tune of $400 million, $250 million of which is said to be project-based. Another $292 million is expected to come from other sources of financing, but not the usual bonds, debentures or Treasury bills Governments issue from time to time.

“But we have not yet heard from Government where this money will come from and the possible cost of this financing. The size of the debt is one thing, but you must also consider other factors like the interest rates and payback period associated with it.”

“We need to be vigilant with our debt service payments, because if we end up running deficits for three more years we may find a lot of our expenditure is being used to pay back debts, and this can affect our ability to provide social services.

“Right now, $863 million, or 25 per cent of our current expenditure is associated with debt repayment. Over the next three years, we will also be paying back the debt we restructured; we negotiated those payments before COVID, as we were hoping for some improvement.

“But now, we have to think about a worst-case scenario in which the economy is not growing, and how to reconcile this with the debt payments we have to make.”

With economic activity declining by 18 per cent over the past year, and amid projections of growth lower than five per cent over the coming year, Senator Drakes declared: “You can run into trouble financing deficits through debt because with depressed economic activity there are not many ways to raise revenue.”

She said it is important for Barbados to take stock of its current position, noting that while last September’s Throne Speech spoke to “taking a new guard and having a fresh vision”, the Government’s FY2021 estimates should reflect its declared stance.

“We are still in an IMF programme,” said Senator Drakes, “and although we have relaxed some criteria we are still limited in what we do and how we do it. Barbados has found itself in a deadlock, and if we do not mount the requisite level of activity needed to limit the external shocks we face, we may remain stagnant for a longer period of time.” (DH)