Borrowing not to blame – minister

Barbados’ current high debt level is not as a result of borrowing, says Minister in the Ministry of Economic Affairs and Investment Marsha Caddle.

In fact, the economist pointed out that Government’s borrowing only accounted for about five per cent of the current debt stock, which stands at around 152.5 per cent of gross domestic product (GDP).

Her comments came on the heels of growing concerns from political pundits and private sector officials over Government’s borrowing over the past year, which equated to just over $540 million.

In his recent economic review, Governor of the Central Bank Cleviston Haynes pointed out that at the end of March this year, the public debt stock outstanding was equivalent to $12.92 billion, compared to $12.38 billion or 117 per cent of GDP at the end of the previous fiscal year.

He said a weaker fiscal stance, together with higher debt service payments, increased government’s borrowing requirements for the 2020/2021 fiscal year.

“Government received the majority of its financing from multilateral lending agencies in the form of policy and project loans,” he pointed out. “These funds were front-loaded during the first nine months of the fiscal year and deposited with the Central Bank.”

The Governor said of the close to 36 percentage point increase in the debt to GDP ratio, “only 14 percentage point” can be attributed to an actual increase in borrowing, with the majority due to the contraction of the local economy.

Following this report, however, private sector officials expressed concern over the rising debt, with economist Kemar Stuart indicating that he was worried “a perpetual borrowing relationship with the international financial institutions will engulf Barbados where it has to be constantly borrowing to repay international debt” once the economic shocks take their toll on the economy.

However, addressing the 17th annual Royal Fidelity Economic Outlook (RFEO) conference on Thursday, which was held online under the theme Global Digital Disruption: Threat or Opportunity, Caddle suggested that there should be no concern about government borrowing.

“After Barbados finalized our domestic and external debt restructuring, debt including arrears went from 176 per cent to 117 per cent of GDP. The figure at the end of March 2021 was 153 per cent, but why?” said Caddle.

“Only five per cent of that accounts for actual borrowing, and nearly 31 per cent is because of the shrinkage in the economy. In other words, since your GDP, your denominator, is much smaller, your debt as a percentage of GDP number appears much higher,” she said.

Caddle explained that had government not introduced the Barbados 12-Month Welcome Stamp programme and the Barbados Employment and Sustainable Transformation (BEST) scheme the shrinkage in the economy would have been worse.

“[A] digital disruption opportunity that we saw during COVID had to do with our major productive sector – tourism. We developed the Barbados Employment and Sustainable Transformation (BEST) Plan to respond to a sector that employs directly and indirectly 40 per cent of the labour force and contributes almost as much to GDP. Economic activity in that sector fell overnight to zero.

“Barbados saw an over 18 per cent decline in our economy in 2020, driven largely by a standstill in international travel and tourism. If we had not introduced the Welcome Stamp programme and this BEST initiative, it would have been worse,” she said.
(marlonmadden@barbadostoday.bb)