Ministers: We had to borrow more

Two ministers have stoutly defended the Mia Mottley administration’s level of borrowing in the current economic climate.

Minister in the Minister of Finance Ryan Straughn and Minister in the Ministry of Economic Affairs and Investment Marsha Caddle both dismissed concerns over government borrowing over the past year, saying it was absolutely necessary.

Speaking in Parliament on Tuesday to introduce the Needham’s Point Holdings Ltd. (Exchange and Issue of Bonds) Act, Straughn said the impact of the unexpected COVID-19 pandemic resulted in Government having to seek financial help over the past year.

“The amount of debt that we have had to undertake in the last year is as a result of COVID-19. And [I] want to place on record that it was not intended as part of this government to borrow the monies we had borrowed last year because those were not programmed into what we had initially planned to do,” said Straughn.

At the end of the last fiscal year in March, the public debt stock had notched up to $12.92 billion or 152.5 per cent of gross domestic product (GDP), compared to $12.38 billion or 117 per cent of GDP at the end of the previous fiscal year.

Straughn insisted that borrowing was necessary over the past year to continue to provide the level of services that were intended at the outset of the Barbados Economic Recovery and Transformation programme, and to settle over $1.2 billion in arrears that the Mottley administration inherited in 2018.

“It is important in that context for Barbadians to appreciate that we simply cannot get out of the hole that the previous administration dug for all of us unless we are able to help finance and do some of the things that many Barbadians have been asking for, for a very long time,” said Straughn.

Stressing that the debt servicing cost was significantly low, at just around 1.1 per cent interest, Straughn said Government was able to take on the debt it did because it had already implemented key reforms.

He also gave an assurance that Government was meeting its arrears.

Caddle said Government’s access to loans over the past year was central to continue to build creditworthiness, while also stressing the low-interest rate at which Government was able to borrow at present.

“In the financial systems in which we operate both domestically and internationally, it is important to have an established creditworthiness, it is important to be able to be considered worthy of credit that people trust that you can so manage your affairs that if they take their money and put it in your hands they can expect to see it again,” she explained.

Adding that Government was borrowing from multilateral institutions and not on the capital market, Caddle explained that certain criteria had to be met including proof of policy commitments for the health of the economy or specific sectors.

Caddle said: “The majority of those loans are what we call policy-based loans. It means that the government is able to borrow at highly concessional terms – not at all burdensome to your macro-economic conditions so you have a low-interest rate, a long grace period without repaying, you have a long maturity – and that is how we can describe the majority of the new portfolio of policy-based lending that this Barbados Labour Party Government has gotten into.

“In fact, I dare say a big part of the reason we have the buffer that we have at about $2.6 billion in reserve, the highest ever, is because we have been able to borrow at concessional terms as well as having had some significant impact in recent months in the international business sector. This idea of ‘the reserves are propped up on borrowed funds’ – but at least there are reserves.”

She also pointed to investment loans, explaining that this was necessary to execute particular activities including a building out and improvement of roads, transportation, garbage, digital and other infrastructure.

“So it is good economic sense to be able to borrow at reasonable terms for major long-term infrastructure projects because they will then give you a return over an extended time that matches the maturity of the loan,” she said.

Adding that a lot of time and energy go into negotiating loan agreements, Caddle said “I make no apologies” for the borrowing.

She declared: “The work that my ministry is able to do is the reason that roads can be paved, is the reason that we can start working on mains replacement to mitigate all this leakage of water. Our responsibility is to make sure that we are in a position to repay the debt, but you can’t be in a position to repay the debt through growth if you don’t invest today in the things that are going to give you that growth.” (marlonmadden@barbadostoday.bb)